Rumor: China To Revalue Yuan 10% This Weekend?

Market Ticker: Rumor: China To Revalue Yuan 10% This Weekend?

Just stated on CNBC.

I have no way to judge that, but if it comes it is both good and bad.

The good: It's about a third of what has to happen, and as a step function it would apply major cooling to the "Chinese miracle" inflation machine. They need to do that too, which makes the rumor plausible. Coming on a long trading weekend here (Good Friday/Passover closes us this week) and on a weekend anyway (China's favored time to do this sort of thing) it would be appropriate both in terms of timing and event.

The bad: While there would be no direct dollar impact from this action since the Yuan is not convertible and thus not part of the $DXY index the indirect effects would be tremendously disruptive in the short term. This has a high probability of forcing corrective actions by The Fed, perhaps even before the futures market reopens Sunday night. The risk for The Fed and United States is that the dollar winds up gapping down by hundreds of pips, perhaps threatening the all-time low. Violation of the all-time low could result in massive pressing of short bets and a possible immediate fiscal crisis.

market-ticker.org...


Now this is the interesting bit:

So, if China let's the RMB float up 10%:

1.) Things that get made in China and exported to the USA will get 10% more expensive. This will result in 10% higher prices for DVD players and all things chinese (most of the things that Americans buy in a Walmart, and every other store accross the country for that matter)

2.) China will be able to buy 10% more goods (oil, commodities, ect.) So more bullishness in the commodity space?

3.) Will the offset from reduced trade to the US due to higher prices be offset by trade with people in China due to more purchasing power?

I hope people are aware that the FED might be stopping the QE2 this month and raising interest rates - the reval in the Chinese currency would push the FED to do this....wonder what is going to happen to the DOW when the FED isn't spending like mad to keep it high.

reply to post by MidnightTide


How do interest rates effect the gold and silver markets? any ideas? I still don't really understand how the interest rate thing works. Don't they raise interest rates to curb inflation? Can anyone explain how raising interest rates curbs inflation.

Thanks
Mike

Originally posted by mayabong
reply to post by MidnightTide

 

How do interest rates effect the gold and silver markets? any ideas? I still don't really understand how the interest rate thing works. Don't they raise interest rates to curb inflation? Can anyone explain how raising interest rates curbs inflation.

Thanks
Mike

If they raise interest rates it will tend to make the dollar stronger which will not be good for gold and silver. Raising rates actually causes inflation in my view. It raises the financing cost of everything. Rather than raise or lower interest rates we need to adjust bank leverage to slow or speed up the economy. Otherwise fed moves become self fulfilling. Rais ethe cost of doing business and prices will rise.

Once you raise interest rates people will stop borrowing money, therefore less money in the market in which curbs inflation - too bad they have thrown trillions of dollars in the market.

I believe raising interest rates MAY have a minor negative effect to the value of gold and silver. It will depend on what effects the interest rate increase will have. It will all be public perception. If people feel the FED is acting properly, we will see a decrease in the value of gold and silver.

Myself, I feel it is way too late for this. There is too much liquidity in the market, and raising interest rates will only put the final nail in this phony economy's coffin.

Thanks for the quick replies guys. Very interesting times indeed.

I agree that this may lead to a hike in interest rates, strengthening the US dollar and weakening silver and gold... for a while. I think it would only strengthen the US dollar for a short time, and then people will go back to worrying about the US deficit, causing gold/silver to rise again.

If this happens, that dip in precious metal prices might well be a good time to buy a few ounces to hide in your home, just in case we do have a SHTF moment later this autumn.

Raising interest rates will mean that the government will have to divert more money to servicing debts while cutting other things.

With all the protests going on by state workers and such, raising interest rates will dramatically worsen the situation.

Yeah, I looked all around for some confirmation on this, and I couldn't dig anything up. Instead, I found this garbage:

It's Official: China Will Be Dumping US Dollars

I'm sure we'll be seeing this crap on the breaking news three or four times.