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THE DATA IS IN AND THE TRUTH IS OUT + YUAN EXCHANGE RATE SINGULARITY IS AT 6.150 [Copy link] 中文

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Post time 2014-8-24 16:39:03 |Display all floors
This post was edited by abramicus at 2014-8-25 00:20

These are the published values of the Yuan/Dollar Exchange Rates and the PMI's, with the latter lagging the former by an average of 3 months:

PMI date

Yuan/USD

PMI

9/23/2013

6.1213

51.2

9/30/2013

6.1212

50.2

10/24/2013

6.0820

50.9

11/1/2013

6.0997

50.9

11/21/2013

6.0931

50.4

12/2/2013

6.0929

50.8

12/16/2013

6.0717

50.5

1/2/2014

6.0509

50.5

1/23/2014

6.0525

49.6

1/30/2014

6.0605

49.5

2/20/2014

6.0837

48.3

3/3/2014

6.1465

48.5

3/24/2014

6.1959

48.1

4/1/2014

6.2069

48.0

4/23/2014

6.2378

48.3

5/5/2014

6.2457

48.1

5/22/2014

6.2353

49.7

6/3/2014

6.2540

49.4

6/23/2014

6.2255

50.8

7/1/2014

6.2000

50.7

7/24/2014

6.1949

52.0

8/1/2014

6.1798

51.7

8/21/2014

6.1515

50.3


This is the scatter plot with a linear regression line showing that PMI of 50.0 is achieved with a Yuan/Dollar exchange rate of 6.15, exactly (see next post for graph).

Observing the above data, one notes that the Yuan/Dollar rate was 6.0509 on 1/2/14, and exactly 3 months later, on 4/1/14, the PMI had dropped to its lowest point at 48.0.  This is disastrous for manufacturers and the workers employed by them, as well as the banks lending to the manufacturing sector, who may then prefer to lend to the housing sector instead.

Corrective action has been undertaken since February, but it was not enough to raise the PMI as of 4/1/14, so the exchange rate was devalued by 5/5/14 to 6.2457.  Three months later, on 8/1/14, the PMI had risen to 51.7 (preceded by a 52.0 on 7/24/14) that was coupled with the annual growth of the GDP breaking past 7.4% to 7.5% finally.

But notice that since 6/23/14, the Central Bank has been revaluing the Yuan upward again, now 6.1515, and so the pressure on the PMI is once again on, and caused the PMI to drop on 8/21/14, from 51.7 to 50.3, sending shock waves througout the Chinese and world economy.  

In short, the Yuan/Dollar exchange rate has no reason to go below 6.20 (going below means up-valuing the Yuan against the Dollar), as it would almost certainly result in a contraction of China's manufacturing sector, that is the backbone of its economy.

From the above data, it is clear that a robustly growing GDP requires the YuanDollar exchange rate to be higher than 6.25 Yuans/Dollar, as without growth, China's economy will collapse like a hot air balloon, and the heights of its achievement in the past 35 years will disappear overnight, replacing the China Dream with a China Nightmare, all due to the stubborn insistence of its Central Bankers to overvalue the Yuan until hell freezes over.




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Post time 2014-8-24 18:34:28 |Display all floors
This post was edited by abramicus at 2014-8-24 18:54

GRAPH OF CHINA'S PMI AS A FUNCTION OF ITS YUAN/USD EXCHANGE RATE
(DATA FROM 1/2/14 TO 8/21/14 WITH LAG OF PMI OF 3 MONTHS ADJUSTED):

PMI XRATE2.jpg


It is crystal clear from this graph that the Yuan/Dollar exchange rate must not go below 6.150 or the PMI will fall below 50.0, meaning no upvaluation or revaluation of the Yuan past 6.150, and should best be above 6.20 to achieve a PMI of 50.7 or better.


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Post time 2014-8-25 00:49:00 |Display all floors
This post was edited by tradervic at 2014-8-24 10:49

Ah yes... this old discussion - which was something that the Chairman would rant on about... for good reason.  As much as the powers to be in Beijing do not mind the braying of various media outlets about 'Chinese Domination of the American Economy', they have heeded the the disaster that befell the powers to be in Tokyo a scant few decades ago, when the Yen skirted way, way too close to the dollar in exchanges.  As much as some will believe (loudly) that the Yuan will achieve parity with the Dollar, it is a nightmare for the powers to be.

The Yuan cannot have parity as long as it is strickly a 'national/regional' currency.  But for the Yuan to be international, the powers to be will have to face down the 'inward looking, centuries old fears' and embrace the international stage.  In my mind, that is not going to be happening anytime soon.
China's Eccentric 'Uncle Laowai' from Chicago, IL

http://blog.chinadaily.com.cn/home.php?mod=space&uid=135031&do=blog&view=me&from=space

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Post time 2014-8-25 03:56:20 |Display all floors
This post was edited by abramicus at 2014-8-25 04:04
tradervic Post time: 2014-8-25 00:49
Ah yes... this old discussion - which was something that the Chairman would rant on about... for goo ...

INTERNATIONAL RESERVE CURRENCY STATUS IS THE NEW OPIATE OF THE ECONOMIC CZARS OF CHINA

China might have been misled by some Economic Hit Men to aim for international reserve currency status through revaluation of the Yuan to the extent that other countries will prefer the Yuan to the Dollar.  This scheme is hare-brained, because the only buyer of the Yuan to make it rise in value against the Dollar is actually China's own Central Bank, that uses its hard-earned Dollars to buy up Yuans that it could easily have printed on its own at the cost of the paper used.  Ergo, once China's dollar reserves have been used up in buying back Chinese yuans, China would have no dollar reserves to pay for its own necessities, such as energy and food, from the international market.  This would make the Yuan devalue dramatically, erasing all the "gains" China made in revaluing the Yuan in the years past.

Net result:  China's dollar reserves are depleted, not to buy oil, grains, or other commodities, but rather, to buy back China's own printed fiat currency, the Yuan, which is worth no more to China than the paper it is printed on.  And, China's Yuan would have to devalue to the level commensurate with its dollar reserves, which would be nil.  Thus, the Yuan would have no takers, and cannot be an international reserve currency, using this approach.  

Such a clear REDUCTIO AD ABSURDUM proof of futility is nevertheless ignored by China's supposedly smarter than average Central Bankers, who are sold, or perhaps are selling, to China's top leaderships a pipe dream with a fairly high price tag of about 3.5 Trillion dollars equivalent of foreign currency reserves.

Only this Opiate of the Bankers, can explain the exorbitant price that the Chinese economy is being made to pay, through falling trade balances, falling GDP growth rates, and falling factory productivity, all of which would have told a less biased observer that the revaluation of the Yuan, not only is not producing what it promises, but is producing the very opposite effects that will force the Yuan to devalue in the end.

The Canary in the Mine as far as setting of the Yuan/Dollar exchange rate is the PMI.  When the PMI drops below 50, the economy begins to regress, and since productivity decreases, there would be even less reason for foreigners to want to hold the Yuan as a reserve currency, once China's trillions of foreign reserves are used up to buy back the paper on which the Yuan is printed.  The current data on the PMI is sounding a shrill alarm that if the PBOC again revalues the Yuan to 6.15 Yuan/Dollar, that the PMI will head south, the economy will shrink, and the Yuan will not only not be wanted as an international reserve currency, it will be rejected for any currency swap with another country.  But the revaluation regime is back again.  It is quite possible that China's mainframe computers were bugged to project a stable and sustainable Yuan/Dollar exchange rate of about 3.5 Yuan/Dollar, and the decision makers were too proud to believe that their own computations could be wrong or that their desktop programs could have been tampered with.  There is too much methodological orthodoxy bordering on blind faith with total disregard for common sense or contrary indicators, in the current approach of the PBOC that makes one suspect a serious flaw in its computations has survived human analysis, and is wreaking havoc on the Chinese economy, similar to the way the virus shut down Iran's nuclear program.




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Post time 2014-8-29 18:10:47 |Display all floors
This post was edited by abramicus at 2014-8-29 18:16

THE YUAN/DOLLAR EXCHANGE RATE JUST SLIPPED BELOW 6.15 TO 6.14 WHICH RAISES QUESTION OF WHETHER THE PBOC IS FOLLOWING THE 3RD PLENARY COMMITMENT TO LETTING MARKET FORCES DETERMINE THE TRUE EXCHANGE RATE OF THE RENMINBI.

Proof that market forces favor the depreciation of the Renminbi came from the widening of the floating band of the exchange rate of the RMB against the US dollar on the inter-bank spot exchange rate market from 1 percent to 2 percent effective March 17, 2014.  The result was the depreciation of the yuan from 6.0930 yuan per dollar to 6.1521 yuan per dollar by the end of March 2014, an astounding signal from the market that the yuan was overvalued and needed to be devalued.  If the market demands a devaluation of the yuan, then the claim by the PBOC that the revaluation of the yuan is its way of implementing the 3rd Plenary commitment to encourage market forces to determine the exchange rate of the Renminbi is false, and not only false, but in direct contradiction and opposition to the directive of the Central Committee.

The current revaluation of the Yuan from 6.2540 on 6/3/14 to the current 6.1428 as of today 8/29/14 cannot be due to market forces, but rather has to be due to the market being manipulated by the PBOC to upvalue/revalue the Yuan against the US Dollar, which not only is in violation of the directive of the 3rd Plenary, but also fundamentally against the national interest of China because it will once again cause a contraction of China's non-public manufacturing sector's production, of the GDP growth rate, and is a waste of the hard earned US dollars that are being squandered in buying back Yuans that the PBOC could simply print for the price of the paper used.

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Post time 2014-8-29 23:10:22 |Display all floors
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Post time 2014-8-30 17:09:49 |Display all floors
jordan_c_fan Post time: 2014-8-29 23:10
Yuan exchange rate singularity means only single people can own or possess the Yuan.

Your interpretation is good comic relief and would be funny were it not for the gravity of the error being committed by the PBOC which would result in China's unnecessary waste of hundreds of billions of hard-earned US dollars used to buy up Yuans from the currency market, because there are not enough buyers in the market to raise the value of the Yuan to the current exchange rate of 6.1428, and better.

Singularity refers to a point when a dependent variable undergoes sudden, rapid and big changes, as an independent variable (Yuan/Dollar exchange rate) undergoes only a minute change.  That point of singularity as reflected in the PMI of China is when the Yuan/Dollar exchange rate decreases below 6.150.

The PBOC should stop hiding behind a facade of statistics and shibboleths about internationalizing the Yuan, which most lay persons misunderstand as the reason for the revaluation of the Yuan to its currently critical value of 6.1428 again.  In reality, if one truly understands the principles of exchange rate valuation and the effects of such on the real economy, the argument forwarded by the PBOC for revaluing the Yuan is a form of the Fallacy of Non Sequitur.  It is in fact, arbitrary and contrary to the requirements for internationalization of the Yuan, and contrary to the aim of letting free market forces determine the Yuan/Dollar exchange rate.

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