Paulson: China, Yuan Out-of-Step With markets..
In yet another attempt to put pressure on China to revalue the RMB, Secretary Paulson is out on his stump.. and I am beginning to wonder if perhaps he is off his rocker as I hardly see how rising interest rates in the U.S. (see below) is going to improve the situation in the States….
Correct me if I am wrong, but putting pressure on China to “appropriately value” the RMB could lead lead to higher interest rates and inflation in the US should they actually take his advice and knock the RMB to say 6.50USD …. and with the U.S. economy teetering on a recession driven by an inability of people to pay back their debt..
After all, the mear suggestion that China was looking at diversifying their portfolio away from “weaker curriencies” (USD) into “stronger curriencies” (Euro, Yen… Peso) sent the dollar reeling to all time low against Euro and a couple of other currencies.
Follow my posts Would 6RMB/ USD Be A Good Thing?: Part 1 and Would 6RMB/ USD Be A Good Thing?: Part 2, and I think it is pretty clear that a 6RMB to the USD would have a damaging impact on both economies.
1) China’s banks would hemmorage from the currency losses
2) US would see immediate inflation as goods from China would jump overnight
3) The US would have to raise interest rates to attract investors into the bond market
Now, I am not an economist, but the three of those events occuring at the same time leads me to believe that a RMB revaluation is out-of-step with sound economic policy.. (more…)
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