I remain in “awe” of China-loving proponents who believe the Yuan will soon supplant the US dollar as the world’s reserve currency on the way to becoming the world’s top economic power.
By soon I mean a “decade” or less. It’s not going to happen.
Centrally planned bogus economies, with tiny illiquid bond markets, huge capital controls, pegged currencies, and no freedom of speech are no way suitable for such lofty expectations.
One can make such comments here, in China, you are in trouble.
Please consider China Presses Economists to Brighten Their Outlooks.
Securities regulators, media censors and other government officials have issued verbal warnings to commentators whose public remarks on the economy are out of step with the government’s upbeat statements, according to government officials and economic commentators with knowledge of the matter.
Lin Caiyi, chief economist at Guotai Junan Securities Co. who has been outspoken about rising corporate debt, a glut of housing and the weakening Chinese currency, received a warning in recent weeks, these people said. It was her second. The first came from the securities regulator, and the later one, these people said, from her state-owned firm’s compliance department, which instructed her to avoid making “overly bearish” remarks about the economy, particularly the currency.
At least one Chinese think tank, meanwhile, was told by propaganda officials not to cast doubt on a planned government program to help state companies reduce debt.
Gao Shanwen, chief economist at brokerage Essence Securities Co., told investors that “a lot of the official data aren’t reliable” and the economy still faces “big problems,” according to people who attended the closed-door event.
Words of those remarks crackled across social media. Two days later, Mr. Gao issued a clarification on his public account in the popular Chinese messaging app, WeChat, saying those remarks were “made up.” He then released a report on the economy shorn of critical commentary. Mr. Gao and representatives at his firm didn’t return requests for comment.
While restrictions on foreign media have always been tight, they are becoming tighter, with a growing list of foreign publications having their websites blocked from view within China, including The Wall Street Journal.
Blocked Sites
I am proud to be in the list of blocked sites (Global Economic Analysis was – not sure if MishTalk is yet).
If I am not blocked yet, but this post is sure to do it.
China vs. US
- Despite all the anti-US rhetoric, the US has the only bond market in the world large enough to be the world’s reserve currency.
- Unlike China the US floats its currency. China has a peg. It’s ridiculous to believe a pegged currency will rein supreme.
- The US has freedom of speech, China doesn’t.
- The US does not have capital controls, China does.
- The US is the global leader in innovation, China isn’t.
- The US is not led by a group of central planners that determine output, although the Fed and the Bank of China (central banks in general) are central planners when it comes to currencies, interest rates, and indirect attempts to influence output.
The only point that may change anytime soon is point number 2. Point number 1 in isolation kills the entire idea.
Economically and politically China is a joke compared to the US.
Headed for Serious Trouble
I am not sure how many warnings you get ion China but I strongly suspect two is max.
Can you spot the two in serious trouble?
Gao gets a reprieve. He denies saying what he said.
It worked for baseball legend Yogi Berra who said “I really didn’t say everything I said”.
Somehow, I doubt that defense works in China more than once.
Impossible to Suppress the News
It is beyond stupid to think one can suppress the news and achieve positive results doing so.
The news either gets out anyway, or people become so fearful of the lies and distortions they believe things are even worse than they really are.
Mike “Mish” Shedlock
Like prosecuting scientists who disprove man made global warming.
Good point, Jack!
I prefer to call it: “Globalist Warming”
ha ha ha “Globalist Warming!”
You can’t “disprove” “global warming.” Any more than you can “prove” it. There’s not even an agreed upon definition of what proof or disproof would entail.
The important point about that whole debacle is; it’s not a point at all. Who cares? If God never bothered informing Moses of the earth’s ideal temperature, you can be pretty confident there isn’t one.
If things get a few degrees warmer, skiers will just have to relocate north and ski McKinley. And surfers bolt Hawaii for the Aleutians. And, considering the only people who still bother having kids are the dessert dwelling Arabs, it’s perhaps a good thing if burning all their oil makes the rest of the world a bit more like the one they’re the most comfortable with.
My favorite Yogi quote:
“Nobody goes there anymore; it’s too crowded”
100% correct, Mish, once again!
As to China, it is the MOST FISCALLY IRRESPONSIBLE COUNTRY IN THE WORLD AND IS DROWNING IN UNPRECEDENTED PRINTED MONEY AND DEBT with debt presently at over 350% of Chinese GDP.
China has not “followed the US style of QE” at all, but rather has created more than $30 trillion in new money and credit over the past 10 years increasing their money supply to over $34 trillion despite their economy being about half the size of the $18 trillion US economy where the total M2 money supply is only about $13 trillion. China has blown the most unprecedented money/credit bubble in the world and has no competition at all in that regard from any other country and now that money/credit/debt bubble is imploding and is of such enormous size that the results will be quite adverse.
China’s holdings of US Treasuries remain BARELY CHANGED right around $1.3 trillion and they do keep buying US Treasuries to replace those that mature all the time in order to keep the total outstanding balance right around the same amount which they NEED TO SUPPORT LETTERS OF CREDIT FOR TRADE.
There will be no “gold backing” of the renminbi (RMB/Yuan) and that notion is totally IMPOSSIBLE as the total value of all of the gold ever mined in the world amounting to around 180,000 metric tonnes is less than $7 trillion and about 70% of that is privately owned in JEWELRY widely dispersed around the world, while the total global GDP is now in excess of $72 trillion and total global assets are approaching $800 billion and the total value of all of the gold in existence is less than 1% of global assets.
The remnimbi (RMB/Yuan) is the MOST EGREGIOUSLY OVERPRINTED CURRENCY IN THE WORLD and China has created more than $30 trillion of it over the past 10 years increasing their money supply from less than $3 trillion to now nearly $34 trillion despite the fact that their economy is only about half the size of the US economy of $18 trillion. The US money supply, by stark contrasts, consists of only $3 trillion in M1 with less about only $1.2 trillion in the form of printed currency, and about $13 trillion in M2. The renmimbi (RMB/Yuan) has become a preposterous joke of a currency as China has treated it just like fake monopoly money and that is precisely where its value and utility is headed.
China’s economic numbers are as a bogus as a $3 Euro and anyone paying the slightest bit of attention is well aware of that enormous issue. They have NEVER BEEN ANYWHERE NEAR CORRECT and are totally OPAQUE unlike the US numbers which are quite transparent by contrast.
China is a ludicrous, laughable, and preposterous CREDIT BUBBLE WRECKAGE. The renminbi has ZERO CREDIBILITY AS A CURRENCY. Are you not aware that China “printed” $23 trillion in renminbi over the past 10 years and that China is BY FAR THE MOST EGREGIOUS MONEY PRINTER IN THE WORLD.
During the same time that China increased its money supply by $23 TRILLION, the Federal Reserve only increased the MONETARY BASE (not the money supply) in the US by $3 trillion China’s economy is about HALF THE SIZE OF THE US.
China has NO BANKING OPERATIONS IN THE US other than a single branch of the PBOC in New York with a very limited correspondent branch in Los Angeles.
China created over $30 TRILLION IN NEW MONEY to do so making China by far the MOST EGREGIOUS MONEY PRINTER IN THE WORLD and they created an unprecedented debt bubble as a result of their unprecedented credit and money creation spree and it is now imploding.
Fitch says China credit bubble unprecedented in modern world history
http://www.telegraph.co.uk/finance/china-business/10123507/Fitch-says-China-credit-bubble-unprecedented-in-modern-world-history.html
The US dollar is in no danger whatsoever of losing reserve status and is the best and strongest currency in the world and is held as more than 63% of reserves and is used in more than 83% of all global transactions.
The only currency in danger of losing reserve status is the Japanese yen due to their catastrophic financial problems in Japan.
Actually, the US does have at least some capital controls. The seizure of assets if one gives up US citizenship is one, and FATCA is another. Look up “chilling effects” from Wikipedia or some other reliable source.
The $571 Billion Debt Wall That Points to More Defaults in China
Chinese debt investors are turning bearish at just the wrong time for the nation’s corporate borrowers, which face a record 3.7 trillion yuan ($571 billion) of local bond maturities through year-end.
With this year’s biggest note payments concentrated in some of the country’s most-cash strapped industries, China needs buoyant markets to help its companies refinance. Instead, yields in April rose at the fastest pace in more than a year and issuance tumbled 43 percent as borrowers canceled 143 billion yuan of planned debt sales.
http://www.bloomberg.com/news/articles/2016-05-03/the-571-billion-debt-wall-that-points-to-more-defaults-in-china
Hong Kong Negative Equity Mortgages Jump 15 Times as Prices Drop
Property prices in Hong Kong, which reached a record last year, have been sliding and sales tumbled to a 25-year low in February amid economic uncertainty. Home prices in the city slumped 13 percent from September to March, according to data compiled by Centaline Property Agency Ltd.
http://www.bloomberg.com/news/articles/2016-04-29/hong-kong-negative-equity-mortgages-jump-15-times-as-prices-drop
China’s Stocks, Bonds, Yuan Are a Triple Losing Bet This Month
For the first time in two years, China’s stocks, bonds and currency are all a losing proposition.
The Shanghai Composite Index dropped 2.2 percent in April, the yuan fell 0.6 percent versus the dollar, while government and corporate bonds tumbled, with the five-year sovereign yield rising 27 basis points. Even a sudden revival in the nation’s commodities markets is looking fragile after frenzied speculation prompted exchanges to take measures to cool trading.
http://www.bloomberg.com/news/articles/2016-04-28/china-s-stocks-bonds-yuan-are-a-triple-losing-bet-this-month
Smells Like Subprime
China will allow domestic banks to issue as much as 50 billion yuan ($7.6 billion) of asset-backed securities that would be paid back using the proceeds from nonperforming loans. (Yes, you read that correctly.) The structure they’re employing is similar to the method that was used to repackage subprime mortgages in the U.S. ahead of the global financial crisis.
But when bankers in America were bundling those low-doc mortgages into AAA-rated bonds, they still expected most of the loans would be repaid. In this case, the debt has already gone bad. Considering hardly any Chinese asset-backed securities have ever received a less than AA score from a local rating company to date, chances are these ones will be awarded the same grade.
Of course, investors buying these bonds should be aware they’re backed with debt that’s already soured, regardless of its credit score. Yet, the move is worrying because it’s the latest in a string of revivals in China of dangerous structures that were common in the West before being all but abandoned after 2008.
Many of the instruments are helping banks disguise or unload their exposure to troubled companies in the same way issuance of asset-backed securities helped U.S. and British lenders mask their exposure to souring home payments as loans became delinquent.
http://www.bloomberg.com/gadfly/articles/2016-03-01/smells-like-subprime
I think Gold will become the world’s reserve currency eventually, not the Yuan. However, you ought not discount the Yuan’s viability based on the factors you mentioned, for while they are important and help markets flourish, ultimately the most important factor is the strength of the economy and how much it trades with the rest of the world. If China’s economy becomes the center of the world as the US was over the past two decades, then its currency could be the most widely used regardless of the size of its markets or its political freedoms.
I think I would juxtapose the China ‘syndromes’ with ones from the West:
1. Manipulation of LIBOR
2. Manipulation of FX
3. Manipulation of silver and gold
4. HFT manipulation
5. Non GAAP reporting of profits
6. Stock buybacks (more manipulation)
7. Legalised insider trading by politicians
8. The Washington revolving door
9. Failure of rule of law (no prosecutions by DoJ of bankers)
Could probably think of a few more.
I don’t think there is a ‘cleanest dirty shirt’ anymore, they are all just as dirty.
That said, the West is still the leper with the most fingers.
Si pretty well summed up my view of Western Banking. I do not flag wave although I am glad to be American after living 16 years of my life in foreign countries including seven years in the Far East.
My one wish was to take the people in the projects in the USA and let them live where I lived, to appreciate how well they have it. Of course someone will get upset with that statement. I appreciate everything I have and I am thankful and tried to pay it forward.
I have always agreed with Mish that no country wants to be the world’s reserve currency. I have and still disagree with Mish on the reserve currency. I think the world now wants a basket of currencies and is sick and tired of financial wars waged by the USA. Screwing with the SWIFT system anytime we please screws over common people not just governments. The world is tired of it. War is War no matter how it is waged.
We do indeed have capital controls Mish go and try to take out 30k at the bank it takes a week or two even if it is in your account. My one hope is the new gold exchange will help to stop the corruption of manipulating of gold in London and the USA.
+ China has proved its disrespect towards intellectual property even on world known brands:
http://www.reuters.com/article/us-apple-china-idUSKCN0XV0YH
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Being Derby week …
EU and China rounding last turn to see who blows up first.
King Dollar doesn’t care … he boxed the exacta …
It’s about time someone called out Western media for their 40 years’ bashing of China’s economy. The Economist alone predicted 56 ‘hard landings’ in those decades and the rest of our media piled on with literally thousands of negative stories – every one of which turned out to be false.
And as for ‘China-loving proponents who believe the Yuan will soon supplant the US dollar as the world’s reserve currency on the way to becoming the world’s top economic power’, there are none. China has no interest in such a silly competition, let alone inheriting the problems inherent in having a national currency serve as the default international reserve.
Nope, the dollar will be displaced by SDRs, which will make their public debut in September, at the G20 meeting in Huangzhou. Look for it.
Nope, the dollar will be displaced by SDRs, which will make their public debut in September, at the G20 meeting in Huangzhou. Look for it.
LOL
“The news either gets out anyway, or people become so fearful of the lies and distortions they believe things are even worse than they really are.”
Funny. All we hear from this Federal Reserve Bank manipulated corporatist bastion of open secrets is how everything is just so peachy keen, yet interest rates are pegged at zirp. Or was that emergency Fed meeting with POTUS just for tea?
Don’t kid yourself, we are only one two more financial panics away from a series of Executive Orders that will put us on a close parallel with the magic Red Capitalist utopia our politicians regard so highly.
Not to be hanging crepe here, but when the crackdown, American style, comes around, Kent State, the confiscation of gold money and mandating of draconian laws such as Davis Bacon and the IRS enforcement of mandatory payment of Obamacare premiums to private insurers will pale in comparison.
On our fabulous big fat bond market, we’ll see how that pans out in the next money blizzard resulting in rapidly rising interest rates. Or, are bonds suddenly no longer “Instruments of Confiscation?”
“the dollar will be displaced by SDRs”
Hardly … this is zerohedge-style nonsense.
For starters SDRs amount to loose change under the cushion in global trade terms
“As of March 2016, 204.1 billion SDRs (equivalent to about $285 billion) had been created and allocated to members. SDRs can be exchanged for freely usable currencies”
… second it is not even currency. It is a reserve asset held by central banks.
“The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members.”
King Dollar going nowhere anytime soon.
http://www.imf.org/external/np/exr/facts/sdr.htm
What Amero-centrics think won’t matter.
A “reserve currency” isn’t an all-or-nothing thing: what would happen if a significant portion of trade among a number of Asian governments were conducted without the USD? That would be a “reserve currency”, and that’s what is going to happen. Think: SE Asia, Iran, China, Russia…maybe eve Australia will be forced into use of the CNY, at least in the trading of some commodities…
Riddle me this
China runs LARGE annual trade surpluses … how is China going to get enough yuan “out there” to be a large player in reserves held by other countries?
That’s another reason they won’t.
The reserve currency is a curse in many ways
Mish
China can purchase raw materials in Yuan and accept payment in Yuan, Dollars, or Euros. It is doing that already with a number of countries.
However, I think most Chinese industrialists want payment in dollars and euros. Better to have those assets available when its time to flee the country.
A reasonable proposition over time
lots of time
There is something sad and cute about the Chinese. It’s like a pseudo-intellectual “Cargo Cult”. They copy the buildings (very nice copies), they print the paper notes……pretty and colorful…….but it is a sad situation.
For over 2,000 years the Chinese leadership culled out the independent thinkers. They produced a crop of followers and robots, look the same, act the same, dress the same. From this they expect to create a leading 1st world culture? Really, mama san?
Somebody needs to sit them down and explain: First, Marx was an idiot and phony and you copied him. Building empty Manhattan Islands is pathetic. Go back to farming rice and raising chickens and pigs in your hovels. You don’t have what it takes. Oh, wants some more opium like the Roosevelts imported into your country 100 years ago?