{"id":4424,"date":"2011-06-22T07:16:17","date_gmt":"2011-06-22T13:16:17","guid":{"rendered":"http:\/\/www.jasonapollovoss.local\/?p=4424"},"modified":"2018-09-21T02:05:55","modified_gmt":"2018-09-21T06:05:55","slug":"bears-on-chinese-economy-start-growling","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2011\/06\/22\/bears-on-chinese-economy-start-growling\/","title":{"rendered":"Bears on Chinese Economy Start Growling"},"content":{"rendered":"

News is starting to trickle through the financial press this morning that several well known hedge fund managers are placing bets against the Chinese Yuan.\u00a0 That’s a fancy way of saying that they expect the value of the Yuan to decline.\u00a0 Such a thing would be in conjunction with a Chinese economic bubble popping and collapsing Chinese gross domestic product (GDP).<\/span><\/p>\n

What does this mean?<\/span><\/p>\n

When a country has attractive goods, services and investments for sale then the rest of the world has demand for that country’s currency.\u00a0 After all, if they want to purchase those goods, services and investments then they need to buy them in that country’s currency.<\/span><\/p>\n

So typically high demand for that country’s product leads to an increase in that country’s currency.\u00a0 The reverse is also true.<\/span><\/p>\n

Yet, most pundits have been saying for years and years to expect the Chinese yuan to appreciate relative to the dollar.\u00a0 Why has this been the case?<\/span><\/p>\n

It has been the case because the Chinese forever (yes, practically forever) have artificially kept their currency cheap.\u00a0 Think about it.\u00a0 You can’t buy anything anymore without it being Chinese.\u00a0 Knowledge of this has permeated the popular culture and to such a degree that many smart people are calling for the end of U.S. economic preeminence.<\/span><\/p>\n

All of that crazy demand and buying for Chinese products should have led to a currency appreciation.\u00a0 That, in turn, would tend to make Chinese goods more expensive.\u00a0 Then folks in the United States would tend to buy those products less.\u00a0 That, in turn, would tend to equilibrate the two economies.<\/span><\/p>\n

In fact, this issue has been around since I was possessed of far fewer gray hairs and was much less educated – yup, I was in college two decades ago when the first rumblings of this gigantic economic distortion were being talked about.<\/span><\/p>\n

Tremendous pressure from the international community has been applied to the Chinese.\u00a0 And finally last year <gasp!> the Chinese let the yuan drift upward in value…barely.\u00a0 That international pressure is still present.\u00a0 So, ergo, the yuan ought to be biased to appreciated.<\/span><\/p>\n

Ahh, but here’s the rub.\u00a0 Remember that currencies should fall if that country’s economy sucks…or is about to suck.\u00a0 And that would be the Chinese economy.\u00a0 Yup, that same Chinese economy that is in a gigantic economic bubble.\u00a0 How big is the bubble?<\/span><\/p>\n

The bubble is so large that those master of the Big Economic Lie, the Chinese, have even disclosed that they are worried about the bubble.\u00a0 Starting in the autumn of 2010 they began trying to reign in their overheated economy.\u00a0 This very issue is something that I have been tracking nearly continuously.\u00a0 See, for example:<\/span><\/p>\n