Sunday, October 17, 2010

China Prepares For U.S. Dollar Self-Destruction

Another chapter unfolds in China's "Unrestricted Warfare" strategy against the United States.  China's position as a primary customer of U.S. Treasuires gives it the ability to dictate U.S. policy.  China will not tolerate U.S. pressure to let the yuan float and the U.S. political leadership is powerless to fight back without triggering a flight from the dollar

The dollar's fifth stright week of decline against the currencies of the U.S.'s largest trading partners is the market's recognition that quantitative easing will destroy dollar-based assets.  China's assessment of the U.S.'s fundamental weakness is correct.  Global currency traders are anticipating that further monetary stimulus from the Fed will trash the dollar's value

China, despite its growth-related problems and urban real estate bubble, is in a relatively stronger position than the U.S.  Any eventual appreciation in the yuan will increase the value of Chinese companies and their earnings in dollar terms.  Chinese investors can easily use this leverage to pick up dollar-based assets on the cheap after a run on the greenback.