I think that the Chinese leadership has one fundamental and overriding principle and that is to stay ahead of insurrection by keeping the rice bowl going and that means by creating jobs for hundreds of millions. You are perfectly right, hardening the currency makes it more difficult to export and that was my point in criticizing the article, if the Chinese are determined to create jobs and they are able to do that by exporting, why are they making the currency more expensive?
I think you might be onto something and that is they might be temporarily indifferent to the hardening of their currency caused by sales of dubious paper issued by the United States and Europe. Some time ago a story crossed these threads of the wires to the effect that the United States through the Fed has been monetizing a terrifyingly high percentage of our debt. If this is continuing to be the case, the Chinese recognize the end is nigh-a conclusion one can draw from the last paragraph of your post. Therefore Chinese are dumping paper and running to hard assets even at the cost of raising the value of their currency.
The Chinese do not actually have to sell our bonds, they simply have to stop rolling them over and they will profoundly shape the international bond market.
It is also possible that China is in much worse shape than we think and they are bringing in currency as fast as they can to put out fires. In other words, they cannot feed starving millions American debt paper, they must buy rice and wheat etc.
You partially answered the question you asked in your first paragraph.
The ChiCom leadership is afraid of riots. The peasants gave up agriculture and moved to the cities to work in factories. Now the factories are not producing as much, there is increasingly less work, and the houses that these peasants purchased at the peak of the boom have lost in some cases more than half their value. The people there are very angry and have begun demonstrating. As I said previously, the ChiComs are trying to prevent as far as possible any further asset devaluation by creating a mild deflationary uptick. It won’t work, but that’s part of their goal.
Food will definitely be a problem there, and the ChiComs will cash in their investments to buy foreign food, which means our food. That will result in shortages here and an increased cost. Keep that in mind as this plays out and stock up on storable food (see the first part of my tagline).
They do need to unload their foreign investments. If they don’t, as those foreign currencies devalue, this will have the effect of over-heating their own currencies.
The Fed is definitely monetizing the debt and they are doing so through the equities markets, a double no-no. We have seen only mild inflation compared to the amount of new money because that new money never reached the second tier of money creation. The first tier is at the government and fed level, the approval, the digital ‘printing,’ and the lending of the new money to the primary borrowers through the discount window. The second tier is the second line of banks making that money available to people on the street through loans. That money never reached the second tier. It was borrowed by the primary tier taking advantage of the ZIRP and that money has been used for the past couple of years to artificially prop up the equities markets? Why? Because Obammie the Commie and the other socialist/communist Dems want everyone to believe the lie that they saved the economy by keeping the DJIA over 12K. Today’s completely fraudulent 300+ climb with no resistance and obscenely low volume is proof of the fact that the primary borrowers (Goldman Sachs, JPM, Citi, Chase and all the others) have been infused with liquid and that they are using HFT algorithms to pump the market up. This earns them profits and keeps the market high. The market also must be kept high because the pension and benefits of the public-sector unions were based upon the assumption that the markets would earn 8% profits every year, thus the DJIA has to be kept over 12K to keep those payments to the unions going. As close as I can figure, the DJIA should realistically be in the 6-7000 range, and that is based upon the assumption of a solid 3% economic growth every year for about the past decade, which is over optimistic, because most of that growth was the delusion of two bubble economies (the dot-com bubble and the housing bubble).
It will adjust, but the DNC is working very hard with the socialist banking cartel that is our Federal Reserve to try to time it so that it happens after 2012.
Regardless of when it happens, you can bank on the DNC blaming it on the TEA party or Republicans or conservatives. What else could we expect from the affirmative-action president who thinks his foreign policies rank up there in the top four presidents of all time?