Mike ‘Mish’ Shedlock echoes some obvious reasons why now and even in the decade to come, China is often considered a basket case in the west.
Following his post, we’ll close with the IMF’s Christine Lagarde dreams for its IMF headquarters in Beijing, China by 2027.
Every few months someone promotes complete silliness regarding China displacing the US. Here we go again.
1. China owns just 6.8% of US Treasuries. Absorbed in days by market.
2. China’s entire gold holdings are less than 0.2% & would be less than 1% of money supply.
3. Yuan is used in less than 4% of global transactions. Impossible with capital controls
4. https://t.co/1AYlJbJIJw https://t.co/Etdkll4C2M
— Daniel Lacalle (@dlacalle_IA) August 3, 2018
The winner by a mile is Lacalle. There is no victory for China.
Here are some reasons Lacalle did not mention, but I have mentioned on numerous occasions.
- As long as China runs a trade surplus with the US, it will accumulate US assets, primarily US treasuries. The recent instances in which China allegedly “dumped” treasures was in fact a move to stop capital flight.
- China does not even float the yuan. It is sheer idiocy to promote the yuan as a reserve currency or even a major global currency until it does.
- To hold the status of the world’s reserve currency, China would have to be willing to run trade deficits instead of seeking trade surpluses via subsidized exports.
- The US has the largest and most liquid bond market in the world. China has next to nothing.This is another requirement to having a currency widely held and used in trade.
- The US has property rights and human rights that are nonexistent in China. Even if yuan-based bonds existed, who wants to hold them with that backdrop?
The twin sister of “Victory Plan” silliness is Petroyuan silliness.
China is not remotely capable of what Schiff claims and I highly doubt it will be any closer 10 years from now. Chinese banks and SOE are in horrendous shape and the yuan would likely crash if China floated it now.
Mike ‘Mish” Shedlock
Cue the largest trade in the world (crude oil), and China’s entrance into the ring…
Mish has some solid Chinese bear takes, no doubt.
Yet the head of the IMF has a bit more cache than a relatively little known trader / blogger.
Only about 3 minutes of IMF head Christine Lagrade’s thoughts last summer should suffice for an ulterior decade length take on China.
In this clip, she all but explicitly refers to growing IMF SDR use worldwide, issuing IMF SDR bonds, and increasing further global debt issuance in the process.
Further centralization to the international monetary system, with the IMF taking the baton, headquartered in Beijing, China by the later 2020s.
Now put your “dream binoculars” on and have a a 3-4 minute listen, until the awkward pause and inevitable climate change brow beating.
About the Author
James Anderson has a BA in finance from Loyola University New Orleans. He has both worked and invested in the physical investment grade bullion markets prior to the 2008 global financial crisis.