Monday, June 21, 2010

China and the Yuan

The Chinese government announced that it will drop the yuan's peg to the dollar. Overall, I think this is good. This shows further liberalization of markets by the Chinese. At the same time, I haven't understood for the longest time why nearly everyone thinks the yuan will rise rapidly against the dollar. While I have a lot of positive things to say about the Chinese economy for the long run, the Chinese central bank has been inflating like crazy. China's monetary inflation has exceeded the Fed's inflation of the last few years.

Regardless of what happens to the yuan, the Chinese people are going to experience a deep recession/depression. This will be its first, since I guess you can't really have a recession when you are living in total poverty as most of the people were before. The Chinese have made great progress over the last couple of decades. Unfortunately, some of what seems to be progress in the last few years has been artificial. There will be a real estate crash. China has a lot going for it, but don't invest your money there in the short-term.

No comments: