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Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

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Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#91

Post by fspeech »

mahranch wrote: post #3

China's economic growth simply isn't sustainable, and that's even if it was true growth. There isn't a top economist alive who believes China's self-reported GDP numbers aren't fudged in one way or another (source: http://www.businessinsider.com/economist-reactions-to-chinas... ). Either one of those situations (an economic slowdown, China fudging the numbers, or the more likely situation: a combination of both) make…

It is not necessarily about the sustainability of the Chinese economy. No matter how much capital the hedge funds can muster it will be puny compared to PBoC resources. The real threat to the yuan is if regular Chinese become convinced of the trade.

Hedge funds bet against the yuan because right now it is one-sided: meaning they don't need to worry about short squeezes as typical shorters would have to. If yuan were to sharply rise it is pretty certain that PBoC would intervene. This makes the bet against the yuan relatively safe. The only way the PBoC can stop the shorts is to make borrowing cost high. But it is also trying to make the yuan more widely used so it is loathe to do that as well over any extended time.

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#92

Post by selectodude »

bcg1 wrote: post #71
Eliezer wrote: post #49

Earlier quoted context omitted.

If you save another dollar in the bank, that's another dollar of global debt that the bank owes you - it's how the accounting works.

Right, of course. But ultimately debts are paid back through energy creation, natural resource extraction, tangible assets, and human labor. The accounting details of fractional reserve banking in a debt based monetary system aside, that is a huge sum of human labor that governments have promised... and if that money ever gets paid off it will require the global workforce to work for decades to do it... I would hardl…

World GDP is $75 trillion. So governments worldwide have promised less than one year of labor.

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#93

Post by sharetea »

gscott wrote: post #83
khuey wrote: post #45

Earlier quoted context omitted.

You do realize that Apple is one making the realy money from iPhones and iPads, not the contract manufacturers, right?

This is not exactly true the contract manufacturers are being paid to learn to make their own phones and they are. http://www.wsj.com/articles/foxconn-aims-to-fashion-its-own-...

Foxconn is a Taiwanese company

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#95

Post by nandemo »

tim333 wrote: post #68
mooreds wrote: post #51

Earlier quoted context omitted.

China recently and Japan from 1960-1990 took very similar paths to prosperity: Click on the max timeframe for the first charts below to see the similar growth curves: http://www.tradingeconomics.com/japan/gdp http://www.tradingeconomics.com/china/gdp

I think Japan stopped growing rapidly partly because they'd caught up with the west and couldn't keep transforming by copying more developed countries. I don't think China's there yet. Maybe if their gdp/capita goes from $6.8k (China) to $39k (Japan) that will be the case but there's a way to go.

Indeed, China's GDP per capita in 2013 is comparable to Japan's in the late 1970s, well before the Japanese "bubble".

http://www.indexmundi.com/facts/indicators/NY.GDP.PCAP.CD/co...

Also, although China's been quickly urbanizing, China's % of urban population (about 51%) is still lower than Japan's in the 1960s (about 62%):

http://www.indexmundi.com/facts/indicators/SP.URB.TOTL.IN.ZS...

That said, plain old GDP also matters depending who you are. If your country's economy heavily relies on Chinese imports/exports (see my other comment), your government doesn't care much about the average Chinese citizen's living standards.

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#96

Post by legulere »

mahranch wrote: post #3

China's economic growth simply isn't sustainable, and that's even if it was true growth. There isn't a top economist alive who believes China's self-reported GDP numbers aren't fudged in one way or another (source: http://www.businessinsider.com/economist-reactions-to-chinas... ). Either one of those situations (an economic slowdown, China fudging the numbers, or the more likely situation: a combination of both) make…

Printing tons of US Dollars to finance an enormous deficit in the balance of trade [1] seems way more unsustainable to me. The only reason it has been holding up until now is actually the US Dollar reserves of China [2].

[1]: https://upload.wikimedia.org/wikipedia/commons/b/b5/Handelsb...

[2]: https://en.wikipedia.org/wiki/Foreign_exchange_reserves_of_C...

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#97

Post by neximo4 »

fspeech wrote: post #91
mahranch wrote: post #3

China's economic growth simply isn't sustainable, and that's even if it was true growth. There isn't a top economist alive who believes China's self-reported GDP numbers aren't fudged in one way or another (source: http://www.businessinsider.com/economist-reactions-to-chinas... ). Either one of those situations (an economic slowdown, China fudging the numbers, or the more likely situation: a combination of both) make…

It is not necessarily about the sustainability of the Chinese economy. No matter how much capital the hedge funds can muster it will be puny compared to PBoC resources. The real threat to the yuan is if regular Chinese become convinced of the trade. Hedge funds bet against the yuan because right now it is one-sided: meaning they don't need to worry about short squeezes as typical shorters would have to. If yuan were…

> No matter how much capital the hedge funds can muster it will be puny compared to PBoC resources

This is incorrect. Hedge funds borrow and create temporary money by writing derivative contracts such as options, futures & swaps. It is by this logic they can actually muster more funds than the PBOC in aggregate. Quite simply the market for currencies is bigger than the PBOC and the hedge funds, but there are more hedge funds that are richer than the 3T in reserves the PBOC has access to.

This is partly why the PBOC uses the overnight rate to limit resources (such as to affect the interest rate of the derivatives instead of the Yuan prices they bear). It would be possible to profit by arbitraging the interest rate so this would make using derivatives expensive too.

Of course affecting interest rates affects the entire economy as a whole and is unsustainable.

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#98

Post by simonh »

legulere wrote: post #96
mahranch wrote: post #3

China's economic growth simply isn't sustainable, and that's even if it was true growth. There isn't a top economist alive who believes China's self-reported GDP numbers aren't fudged in one way or another (source: http://www.businessinsider.com/economist-reactions-to-chinas... ). Either one of those situations (an economic slowdown, China fudging the numbers, or the more likely situation: a combination of both) make…

Printing tons of US Dollars to finance an enormous deficit in the balance of trade [1] seems way more unsustainable to me. The only reason it has been holding up until now is actually the US Dollar reserves of China [2]. [1]: https://upload.wikimedia.org/wikipedia/commons/b/b5/Handelsb... [2]: https://en.wikipedia.org/wiki/Foreign_exchange_reserves_of_C...

Reserves which fell by half a billion dollars last year, and still falling. This is why the funds are betting against the Yuan. How far is China willing to see it's reserves fall before it blinks?

http://www.wsj.com/articles/chinas-foreign-exchange-reserves...

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#99

Post by neximo4 »

aminorex wrote: post #40
ken47 wrote: post #20

Earlier quoted context omitted.

I would shy away from the word "fudged," but almost every country's gdp numbers are the result of subjective interpretation.

China is an exceptional case. It has a long tradition that way.

Recently someone at Davos asked a PRC rep about this and he mentioned the number is close but is often different due to smoothening.

He did mention it is close and showed that tax revenues grew quite close to the GDP rate. This is something that does not typically happen when GDP decreases or is far off from the actual numbers.

Re: Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan

#100

Post by nandemo »

aminorex wrote: post #40
ken47 wrote: post #20

Earlier quoted context omitted.

I would shy away from the word "fudged," but almost every country's gdp numbers are the result of subjective interpretation.

China is an exceptional case. It has a long tradition that way.

There are many related indicators that you can't easily "fudge". Actors who have a stake in China's growth (or lack thereof) aren't simply looking at a PDF posted by the Chinese government.

For example, China is now Brazil's largest trading partner. In particular, it's the biggest importer of Brazilian goods (e.g. oil and iron). When China's manufacturing output grows or drops, its demand for Brazilian exports grows or drops too.

(One could probably make a stronger case by looking at e.g. Gulf countries instead of Brazil)

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