The Chinese government has many financial problems coming up, the worst of which is trying to get rid of all those US Treasury securities that they have accumulated over the years without causing a cataclysmic run on the US dollar, and thereby wiping out the value of most of what they have left before they can unload it safely onto the world’s debt markets.
Peter Schiff has long predicted that eventually the Chinese will stop producing for the Americans and sending cargo ships full of produce to the west coast of the USA, which usually return empty except for bundles of US Treasury notes stuffed into the captain’s cabin safe, and will re-tool their industries instead and start consuming their own production.
The transition will be painful, however, as the Chinese government switches from lending money to the American government so that American consumers can buy Chinese goods at Walmart, so virtually every economist of a non-Austrian persuasion disagrees with the Schiff analysis, often vehemently; “Chinese producers need US consumers,” claim these other economists — “it’s the caboose in front of the engine,” responds Mr Schiff.
If Schiff is right, then one of the first signs of this reversal and re-coupling of the Chinese productive economy will be the eventual full flotation of the Chinese Renminbi and its complete de-pegging from the US dollar. In the video below, scroll through to 6:40 where Mr Schiff describes what he thinks may mark the beginning of this fiendishly tricky and highly risky process.
Is he right about the eventual full flotation of the Renminbi? Well, I’m highly biased on that and you can probably guess my opinion. However, watch the piece and make up your own mind:
If they turn the securities into dollars & the dollars into shares, particulalry shares in companies which, though with a lot of US assets aren’t entirely based there & so cannot be easily expropriated by a panicing US government the Chinese come out ok & international trade isn’t that much effected. BP anybody?
Comments are closed.