{"id":1132306,"date":"2019-08-12T12:27:15","date_gmt":"2019-08-12T17:27:15","guid":{"rendered":"https:\/\/dailyreckoning.com\/?p=107832"},"modified":"2019-08-12T12:27:15","modified_gmt":"2019-08-12T17:27:15","slug":"why-chinas-a-paper-tiger","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1132306","title":{"rendered":"Why China\u2019s a Paper Tiger"},"content":{"rendered":"

This post Why China’s a Paper Tiger<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

Markets are still digesting last week\u2019s Chinese devaluation that sent the Dow crashing over 700 points last Monday.<\/p>\n

And as everyone knows by now, the Trump administration labelled China a currency manipulator.<\/p>\n

The ironic part of it is that China has been manipulating its currency to strengthen it against the dollar.<\/p>\n

Here\u2019s the dynamic you need to understand…<\/p>\n

The Chinese yuan is softly pegged to the dollar. To maintain the soft peg, the People\u2019s Bank of China (PBoC) sells dollars and buys yuan.<\/p>\n

That props up the yuan. It\u2019s basic supply and demand economics.<\/p>\n

One of the primary reasons China tries to strengthen the yuan is to prevent capital flight out of the country. If the yuan depreciates too rapidly, massive amounts of Chinese money would look to flee abroad where it can get much higher returns.<\/p>\n

After all, would you want to hold a rapidly deteriorating asset that constantly loses value? Or if you were a Chinese investor, would you try to convert your money into a currency that holds its value?<\/p>\n

That\u2019s the question Chinese investors have been facing.<\/p>\n

A capital drain could devastate the Chinese economy, which badly needs the capital to remain in China to support its massive Ponzi schemes, ghost cities and overinvestment.<\/p>\n

That\u2019s why the PBoC has been trying to support the yuan, even though a cheaper yuan helps Chinese exports.<\/p>\n

That\u2019s the conundrum China faces. It wants a cheap yuan — but not too cheap.<\/p>\n

I wouldn\u2019t call last Monday\u2019s devaluation\u00a0 the sort of \u201cmax devaluation\u201d I\u2019ve warned my readers about before. That would have been a devaluation of 5% or more in a single day, and that\u2019s not what happened last week. I would classify it as a \u201cred line\u201d devaluation.<\/p>\n

The yuan temporarily broke through the 7.00:1 \u201cred line\u201d dollar peg. It has since returned to normalized levels.<\/p>\n

It\u2019s actually ironic that China is being labelled a currency manipulator, if manipulating your currency means cheapening it.<\/p>\n

That\u2019s because China was manipulating its currency to strengthen it against the dollar. And when the yuan\/dollar exchange rate crossed the 7.00:1 \u201cred line,\u201d that meant China temporarily stopped<\/i> manipulating its currency higher.<\/p>\n

If China didn\u2019t manipulate the yuan higher, it would depreciate even more against the dollar. And the exchange rate stabilized last week when China resumed the manipulation. In other words, when China strengthened the yuan.<\/p>\n

Welcome to the currency wars! They take on a logic all their own. In many ways it\u2019s a race to the bottom.<\/p>\n

I explained it all years ago in my 2011 book Currency Wars.<\/i><\/p>\n

As soon as one country devalues, its trading partners devalue in retaliation and nothing is gained. China\u2019s case is complicated by its desires for both a strengthened and weakened yuan.<\/p>\n

But the ultimate reality is that currency wars produce no winners, just continual devaluation until they are followed by trade wars. That\u2019s exactly what has happened in the global economy over the past 10 years.<\/p>\n

Currency wars and trade wars go hand in hand. Often they lead to actual shooting wars, as I have repeatedly pointed out.<\/p>\n

Let\u2019s hope the currency wars and trade wars don\u2019t turn into shooting wars as they have in the past.<\/p>\n

But below, I show you why China is more of a paper tiger than an actual one. Why do I say that? Read on.<\/p>\n

Regards,<\/p>\n

Jim Rickards
\nfor The Daily Reckoning<\/i><\/p>\n

The post Why China’s a Paper Tiger<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

This post Why China’s a Paper Tiger<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

Markets are still digesting last week’s Chinese devaluation that sent the Dow crashing over 700 points last Monday. And as everyone knows by now, the Trump administration labelled China a currency manipulator. The ironic part of it is that China has been manipulating its currency to strengthen it against the dollar. Here’s the dynamic you […]<\/p>\n

The post Why China’s a Paper Tiger<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"author":14,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[366,656,463,1806,466],"tags":[30],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1132306"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/14"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1132306"}],"version-history":[{"count":1,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1132306\/revisions"}],"predecessor-version":[{"id":1132307,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1132306\/revisions\/1132307"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1132306"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1132306"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1132306"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}