Author: abramicus

EMERGENCY -- CHINA MUST LET THE YUAN DEVALUE BEFORE JAPAN REMILITARIZES! [Copy link] 中文

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Post time 2015-9-10 07:25:53 |Display all floors
This post was edited by abramicus at 2015-9-10 07:55

DEVALUE OR REVALUE - A LESSON FROM THE TITANIC ON LEADERSHIP.

As more information surfaces about the events surrounding the sinking of the Titanic, we learn certain lessons about LEADERSHIP that applies both to the ship and the state, as aptly, governments are supposed to man and direct their SHIP OF STATE.

The sinking of the Titanic illustrated lessons in LEADERSHIP that apply quite closely to the events surrounding the modern economic super-Titanic, called CHINA, INC.

First leadership mistake - ignoring the dangers every ship faces - icebergs.  The Titanic set sail on April 10, 1912 from Southampton, England, passing by Cherbourg, France, and picking up passengers in Queenstown, Ireland, on April 11, 1912, and thence headed across the Atlantic Ocean.  Because of an unusually high tide in January 1912 due to the moon's proximity to earth then, more icebergs than usual had broken off Greenland and floated down into the Atlantic.  Captain Edward Smith received a radio message from RMS Caronia of unusually numerous icebergs at 9:00 AM of April 12, 1912.  This was confirmed by another radio message from Athenia at 1:42 PM, which Captain Smith relayed to the chairman of the White Star Line who was aboard the Titanic, J. Bruce Ismay, who ordered a southerly course.  At 1:45 PM, SS Amerika radioed it passed two large icebergs.  At 7:30 PM and 9:40 PM SS Californian reported more large icebergs, which repeated the warning at 10:30 PM but was told to "Shut Up!  Shut Up! I'm working on Cape Race (a relay station in Newfoundland)."  The Titanic continued at near full speed of 22 knots (maximum was 24 knots).  The monthly drops in PMI Manufacturing Index for the past 12 months were icebergs sighted or even floated by.  Without exports, most factories would take a hit on their revenues and earnings, some sinking because they could not pay off their debts to banks.  Full steam ahead, nevertheless, target is September IMF meeting to crown the Captain with the Tiara of IMF reserve currency for SDR, not that it matters, since the Yuan already commands 6% of all reserve currencies whereas the IMF's SDR commands less than 4%.  Keep the Yuan overvalued at 6.20, must be on time for the coronation in New York (coincidentally, where the Titanic was headed to also).

Second failure of leadership - confusion of direction at the top and of execution at the bottom.  Having sighted the iceberg, Captain Murdoch, then at the helm, issued a command to steer to the left, as the iceberg was ahead on the right.  The second officer, Hitchins, was trained to obey "Rudder Orders" that apply to steam ships, which means that when Captain Murdoch ordered to turn to the right, he had to turn to the right, but Captain Murdoch was trained on sailing ships, and issued "Tiller Orders" to turn right, meaning to set the ship heading to the left.  With only four minutes to collision time, and ten minutes needed to correct the mistake, the fate of ship was sealed.  It struck the iceberg at the bow to its right and flooded six water tight compartments, whereas it was designed to handle only four.  This was the equivalent of the collapse of the Chinese stock market when valuations hit the iceberg of poor earnings, on June 12, 2015, continuing its collapse to July 9, 2015, with aftershocks on July 27 and August 24, 2015.

Third failure of leadership - Chairman Bruce Ismay issued an order for the ship to move "Slow Ahead," which turned the holes in the front of ship into gushing fountains of seawater that was being swallowed, literally, by the ship's bow, as a whale would swallow an ocean of krill, and thus, aggravating the damage, and causing the ship to sink in a record 2 hours 40 minutes, at 2 AM, when the hull broke into two, and with the bow dropping off at an incredible speed of up to 45 knots, separated from the rest of the ship by half a mile at the bottom of the ocean.  This is the equivalent of China using its foreign currency reserves at a rapid clip of 80 billion dollars a month, half a trillion in six months, after suffering holes in its manufacturing sector, of repeated falls in PMI for the past 12 months or more, and export volumes as well for the same period of time.  It is bad enough for the stock market to lose $5 trillion dollars of paper value, it is made worse by China's actual loss of cash in hard earned dollars, already sizable before the stock market collapse, due to lost export markets resulting from an overvalued Yuan, worth at least half a trillion dollars in the past two years, and now another loss of half a trillion dollars cash to keep the semblance of the ship moving ahead to its port of destination, New York, for the crowning glory of the IMF granting China's Yuan an international reserve currency status which China already had achieved on its own to a degree the IMF could not match.  

AND SO, THE SAGA CONTINUES OF THE CHINESE TITANIC CONTINUING TO TAKE IN WATER, AS IT MOVES "SLOW AHEAD" TOWARD THE IMF CORONATION EVENT IN NEW YORK, ON ITS MAIDEN VOYAGE TO INTERNATIONAL RESERVE CURENCY STATUS, IF IT DOES NOT SINK BEFORE THEN.  AND SINK IT WILL, WHEN THE FED RAISES INTEREST RATES TO STEM DOMESTIC INFLATION.  TOO BAD, THE FED HAS TO DO WHAT IT HAS TO DO.  

AS WE KNOW, THE TITANIC NEVER REACHED NEW YORK ON ITS MAIDEN VOYAGE.



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Post time 2015-9-10 08:19:14 |Display all floors
WHAT SHOULD THE CHAIRMAN DO NOW?  FULL BRAKES ON THE LOOTING OF CHINA'S FOREIGN CURRENCY RESERVES WITH DEVALUATION TO 7.00 YUAN PER DOLLAR IMMEDIATELY.  

FULL BRAKES ALONE WILL SAVE THE ECONOMY, NOT "SLOW AHEAD" GIVEN THE GASHES ALREADY FACING THE ECONOMY.

The answer is simple, devalue the Yuan to 7.00 Yuans per Dollar, in one single move, and let it rise back to 6.80 from market demand pushing it up, without spending another dime of China's hard earned dollar reserves.  If the market wants to push the Yuan down all the way to 8.00 Yuans per Dollar, let the market do it, again without spending a single dime of hard earned foreign currency reserves, and let it drift back up, as it must, to a higher level on its own.

Small moves will not work, the ship will still sink, albeit at a slower rate.

"Slow Ahead" is therefore not an option.

Deng Xiaoping faced the same dilemma.  He cut the rate from 5.8 to 6.37 in one stroke.  He saw that it worked, and cut it down to 8.00.  History has shown, China does not need 8.00, as it would invite retaliation with protectionist tariffs.  But 7.00 is close to the fair market value of the Yuan, so let the market reset the value after the move to 7.00.

Notice, we avoid the same confusion that applies to "Rudder Orders" and "Tiller Orders" when it comes to currency exchange rates.  In the trader's and banker's convention, CNY/USD quotes the number of dollars per yuan, even if the algebraic symbol they use implies the opposite, of the number of yuans per dollar, which is the way Yuan exchange rates have been expressed in these posts.  That is for clarity of logic, a roadblock when one is required to reverse algebraic symbols just to appear "in the circle" of the initiated.  Thus, they continue to say the Yuan exchange rate is, for example, 6.38 USD/CNY, to mean one US dollar equals 6.38 yuans.  With this kind of "ordering system", it is easy for mistakes to be made, not only in order execution, but also in algorithm programming and strategic asset allocations.  No, when you see 6.39 CNY/USD here, it means exactly what you would expect an algebraic formula to say, it means "6.39 Chinese Yuans per US Dollar", exactly this and nothing else.

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Post time 2015-9-10 08:28:36 |Display all floors
CUT!  CUT!  CUT!  

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Post time 2015-9-10 08:51:36 |Display all floors
As much as I hate to say this---Most---Most of your OP is sound and well written. It does have merit in many area's. What is missing the headlines here is the fact Xi will not bend--just as Putin will not give a centimeter of power--neither will Xi. The economy is just one battle he is waging--he is waging a much expected battle from within--His broad strokes over the past 2 years have left many observers wondering does he really know what he is doing?
Not really. Deng had a much different world economic system and ignored the graft and corruption and in hindsight looks much better on paper than it really was. He had nothing to lose at home or abroad.

Xi on the other hand has everything to lose. Without the party support there is only the military to take over the governing processes. This is a lose-lose for China and the rest of the known world. Forget what you read in local papers. If Xi loses his grip just a little there are High Flying Tigers who claim friendship who are going to be the first with the noose.
You can take that to the bank.

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Post time 2015-9-10 10:20:29 |Display all floors
This post was edited by abramicus at 2015-9-10 10:26
BoMiller Post time: 2015-9-10 08:51
As much as I hate to say this---Most---Most of your OP is sound and well written. It does have merit ...

Deng actually lived in a more hostile environment, coming out of the Mao era, with the Gang of Four in power when he was purged for the third time, and when Hua was the leader, he was still under house arrest.  But Deng had more friends too, because he was after all the general who was accustomed to running vast operations, such as in the siege and capture of Nanjing from the remnant forces of Chiang, a no mean feat considering that Nanking was then the capital of China.  Xi's problems are of a different sort.  He needed to root out corruption because at this point in time, corruption is about to eat up China, except that even as he is rooting out the Old Corruption, a New Corruption has sprouted behind his back, about to eat him alive.  This New Corruption is all white collar in nature.  It exists only in the formulas and equations used to generate China's Five Year Plan, a language that Xi is not trained to understand the nuances of, and based on assumptions that even seasoned economists do not realize may be false, or if true, can be changed by others.  When the Fed was being forced by Congress to accept a formula to determine the interest rate, it refused, revealing for the first time that the models used by the top US universities and practicing economists were ALL FLAWED for something as basic as the interest rate.  If you cannot arrive at the optimal interest rate, you cannot arrive at the optimal Yuan exchange rate either.  But, economic formulas are fundamentally empirical methods of arriving at economic decisions.  They are not about laws of nature, or physics that are inviolable.  And the most fundamental law of empirical science is the test of real life.  In this, Deng is better than Xi, because while he used economists to help him engineer China's economic reforms, he always tested their ideas with pilot projects, and always reversed himself when implementation showed their flaws, called "consolidation of experience".  Empiric formulas should NEVER have the force of LAWS OF ECONOMICS.  They are no better than a pudding, whose best test is in the tasting.  In this light, Deng put forth a true LAW OF ECONOMICS, which is "Black cat or white cat, what matters is that it can catch mice."

The white coat magicians of current Chinese nomenklatura are no more than High Priests, who refuse to admit that their sacrifices to their idols are not creating any rain, that the land is starving because of their policies, and that it is better to spare the farmer's life so he can at least plant and harvest many more bushels that can feed a hundred people, than to sacrifice him at the altar so that the equation for China achieving IMF RESERVE CURRENCY STATUS by September 2015 is satisfied, i.e., the continued "stable" overvaluation of the Yuan, even if this is achievable only by a destabilization of Chiina's export trade, manufacturing production, and foreign currency reserves.  Their "STABILITY OF THE OVERVALUED YUAN EXCHANGE RATE" is in reality a FREE FALL OF CHINA'S FOREIGN CURRENCY RESERVES, EXPORT TRADE, AND FACTORY OUTPUT.  

If so, Xi can save his legacy of anti-corruption achievements by simply pushing aside these economists and their political backers, as soon as today, by proclaiming that the Yuan exchange rate is now 7.00 Yuan per Dollar, period.  No more sacrifices of a trillion dollars of hard earn dollars, no more sacrifices of millions of failed factories and their affiliated businesses, no more layoffs of tens of millions of workers by bankrupt factories.  No more hocus pocus by these High Priests of NONSENSE.

But the problem may not be that simple.  The problem is who is the REAL HIGH PRIEST?



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Post time 2015-9-10 13:16:10 |Display all floors
abramicus Post time: 2015-9-10 08:19
WHAT SHOULD THE CHAIRMAN DO NOW?  FULL BRAKES ON THE LOOTING OF CHINA'S FOREIGN CURRENCY RESERVES WI ...

Way back in 1991/92, Chinese worker salary is very low already. Why China should weaken the yuan to 7.5 yuan to a US dollar.   Land and rental prices are also very low. It is ridiculous to weaken the yuan.  The strength of the currency is more dependent on the quality and skilled workers available in China.  In 1991/92, China have more skilled workers and better quality than in Thailand, Malaysia, Indonesia.

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Post time 2015-9-10 14:12:18 |Display all floors
bushier Post time: 2015-9-10 13:16
Way back in 1991/92, Chinese worker salary is very low already. Why China should weaken the yuan t ...

IF YOU ARE RIGHT, CHINESE EXPORTS SHOULD BE RISING, FOREIGN CURRENCY RESERVES SHOULD ALSO BE RISING, AND THE PBOC SHOULD NOT HAVE TO SPEND HALF A TRILLION DOLLARS TO PUSH UP THE YUAN EXCHANGE RATE AND HOLD IT AT 6.20, OR JUST TWO WEEKS AGO, AT 6.39, BECAUSE THE DEMAND FOR CHINA'S QUALITY PRODUCTS WOULD HAVE ATTRACTED EVERYONE TO BUY CHINESE PRODUCTS IN PREFERENCE TO JAPANESE, VIETNAMESE, KOREAN, GERMAN, PRODUCTS.  BUT THE FACT IS, THEY ARE NOT BUYING CHINESE PRODUCTS AT THE CURRENT EXCHANGE RATE OF 6.20 OR 6.39, AND THEREFORE, YOUR LIE, YOUR DAMNED LIE, IS A STAB IN THE BACK OF THE CHINESE PEOPLE.

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