Thanks for comments. They need more liquidity to offset deflation. Lower rates would encourage still more debt and might directly threaten the Yuan. I figure they have to continue with fiscal and exports
Great piece, esp in the backdrop of Capital Wars, the book, which I am reading right now. Following your train of thoughts there are two obversavtions:
1. I suspect the Chinese gov is trying to fight deflation, through more real economy measures. Gov has recently increased the utility prices across country.
2. Will an announcement of zero interest rate, shock the asset price and economy back to order? What the Chinese gov has been giving to the market are mini policies so far, that are piecemeal and did not leave much of a dent on the market. From as far as i can see, a zero interest rate policy might be able to shock the economy back to orders. though i think the PBOC would never do it.
1) the depreciating pressure on the Yuan would decrease, - for example if the USD depreciates. In this case, the People’s Bank would be less constrained. Or if…
2) the People‘s Bank decides to stop defending the strength of the Yuan and let it depreciate. The People’s Bank could then focus on increasing liquidity. Would such a decision be announced?
Thanks for heads up. Unfortunately I don't subscribe to their view because gross capital flows dominate and as a result the authors underplay role of banks/ liquidity. Also if you think about it, the big trade surplus economies are the ones where there are fewest class tensions contrary to the theory? In my world ' Capital Wars lead to real Wars'.
Read “Trade Wars are Class Wars” by Pettis and Klein to get a good long term historical perspective on global trade policies and their often unintended consequences.
Obsolete commercial banks will create money lending to buy UST’s so the Ponzi scheme can carry on.
Are UST yields going to do what the global economy tells them to do?
Is the Chinese going to sit by and watch the USD/JPY implode, if that’s the counter-attack, or will US commercial banks step in?
The 97 Asian crisis resulted in a 250bp drop in UST10Y yields.
How low could they go this time?
Being short US bonds here could be very risky....
Long gold, short TLT is a popular trade that could unwind nicely either way...
I doubt China will come to the rescue and why should they if the US is going to have to devalue anyway?
Thanks for comments. They need more liquidity to offset deflation. Lower rates would encourage still more debt and might directly threaten the Yuan. I figure they have to continue with fiscal and exports
Great piece, esp in the backdrop of Capital Wars, the book, which I am reading right now. Following your train of thoughts there are two obversavtions:
1. I suspect the Chinese gov is trying to fight deflation, through more real economy measures. Gov has recently increased the utility prices across country.
2. Will an announcement of zero interest rate, shock the asset price and economy back to order? What the Chinese gov has been giving to the market are mini policies so far, that are piecemeal and did not leave much of a dent on the market. From as far as i can see, a zero interest rate policy might be able to shock the economy back to orders. though i think the PBOC would never do it.
100% correct. US may want to 'talk' $ lower. Had been done before when Liquidity 'tight'. China may accept lower Yuan
Hi Michael
Thanks for your insight! Much appreciated.
Do I understand you correctly:
Chinese liquidity would come back if…
1) the depreciating pressure on the Yuan would decrease, - for example if the USD depreciates. In this case, the People’s Bank would be less constrained. Or if…
2) the People‘s Bank decides to stop defending the strength of the Yuan and let it depreciate. The People’s Bank could then focus on increasing liquidity. Would such a decision be announced?
Always a tough call! I suspect by year end 2024
Over what time frame do you expect this devaluation to occur?
So CNY down another 10-15% against US$ means more upsides to $FXI?
Thanks for heads up. Unfortunately I don't subscribe to their view because gross capital flows dominate and as a result the authors underplay role of banks/ liquidity. Also if you think about it, the big trade surplus economies are the ones where there are fewest class tensions contrary to the theory? In my world ' Capital Wars lead to real Wars'.
Read “Trade Wars are Class Wars” by Pettis and Klein to get a good long term historical perspective on global trade policies and their often unintended consequences.