China shorting the dollar

Why? Well, this:

“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies.”

So says Cheng Siwei, "until recently Vice-Chairman of the Communist Party’s Standing Committee".

So what are they seeing in China?

Mr Cheng said mid-level house prices are now ten times incomes.

“If we raise interest rates, we will be flooded with hot money. We have to wait for them. If they raise, we raise.”

“Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down.”

Of course, China cold end this problem by letting the yuan rise to its proper value, but China too is trapped. Wafer-thin profit margins on exports mean that vast chunks of Chinese industry would go bust if the yuan rose enough to close the trade surplus. China’s exports were down 23pc in July from a year before even at the current exchange rate, and exports make up 40pc of GDP. “We have lost 20m jobs in this crisis,” he said.

So China has to diversify out of dollars, which will drive the dollar down. What happens to imports? Oil goes up (Joe Everyman gets hit at the pump). This is the biggest danger to the administration - higher unemployment, higher inflation, and higher energy prices in the run up tot he election.

But that's tactical thinking. If the dollar goes down, Chinese imports become more expensive, which means that we'll buy fewer of them. 20 Million additional unemployed in China become 40 Million. Their government won't survive that. So what will they do? Further devalue the Yuan.

And what does that do? Flood Europe with cheap goods, so that 20 Million European unemployed become 25 Million unemployed.

And for what? What does the administration get from all of this? Pork spending "stimulus". That's some "smart diplomacy" right there, Scooter.

Note to Ivy League lefties: Go to Europe right now, while getting spit on is the worst that'll happen to you in Paris.

Note to Europeans: You thought that Obama would be better to you than George Bush. You're a bunch of morons.

Note to Democrats: You thought you could do anything to anyone, just because you wrap everything up in the language of "being concerned" while you do whatever the heck you want. You're dumber than the Europeans.

Bad moon's a-rising, and it'll all hit just in the run up to the next presidential election. Too bad that the Democrats will get us hated around the world on their way to electoral disaster.

UPDATE 8 September 2009 12:40: Gold is over $1000/oz. Looks like it's not just the ChiCom.Gov that is shorting the dollar.