Tuesday, August 25, 2015

Yuan Two

Back in April of 2013, I wrote a blog about the Chinese economy and the yuan. I wrote this at the time:

"I saw a headline last night that stated that the Chinese yuan is strong against the dollar. That came as absolutely no surprise to me. I have written both here and on Patriot Update about what I call the "Bernanke Bubble". Part of that bubble is the printing of dollars about as fast as they can be printed. This has the effect of diluting the value of every dollar out there. I think it is a bad policy being used to cover for other bad policies.

In the long run, it is bad for our country and weakens our dollar against those with a strong money policy. The Chinese are probably foremost among strong currency advocates. They prop up the value of the yuan even through times when it should be devalued. While this sometimes angers the international financial community, it pays dividends for them." (the Chinese)

So what has happened to bring on the current debacle? The Chinese tried capitalism and liked it. They had no experience with free markets but they suddenly discovered the wonderful world of profits. So like an eighteen year old at his first fraternity party they ran amok.

Since they had no experience with a market going down, they begged and borrowed whatever money they could get their hands on and bought, bought, bought. They could pay back, out of those wonderful profits, right? Well, maybe. If everything goes according to plan.

Things seldom go according to plan. The international market got very shaky. The Chinese market quivered. The leadership devalued the yuan. And the plan fell apart. There are many Chinese out there who were, on paper, rich, last week. Those same people are, on paper, poor this week.

Welcome to your first learning experience in the wonderful world of capitalism!

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