[J. Abizeid]

Originally Posted by dodzi

I agreed with your previous post, but this one I don't understand: if the Chinese government is buying up dollars massively, then wouldn't that result in the fall of the Yuan?

On the other hand, this reminds me on something we have seen in an economics course about the currency games the US played in the 1980, with many Latin American countries, but also and more specifically with Japan: Japan exported massively to the US, and loaned the money it got to the US, 1- to help it pay what it is importing, 2- to stabilize the $. The $ was stable in an artificial way, because there was a massive trade balance deficit. The $ was overvalued! At a certain point, the US finally decided to de-value the $, which brought great misery to Japan, 1- because the money it lent to the US was overvalued, and it would get much less in return, 2- it is now one of the most indebted countries in the world!

I have a feeling the US is doing the same thing now with China! It is not astonishing since the Bush and Republican administration have followed the line of Reagan...

Check out the almost identical two pictures, Yuan and dollar vs. euro.
http://finance.yahoo.com/currency/convert?from=CNY&to=EUR&amt=1&t=3m
http://finance.yahoo.com/currency/convert?from=USD&to=EUR&amt=1&t=3m

The Yuan is pegged to the dollar by the Chinese government. They let it slide up on demand based on the affordability of their products in the States. It’s been going up by about 5% yearly.
Make no mistake, the country with the money rules and that is China not the US.
Unlike the Arabs, China cannot be bullied around.
Last week the dollar was about to collapse because of the non ending bad economic situation in the US. The Chinese bail out had many advantages for China.
1- They want to control the dollar meltdown at around 5% a year but they don’t want it to collapse too quickly so the Americans can still afford to buy their products.
2- The Olympics are not just games for China, they are big politics and a rare opportunity to display its might in the world by having the largest number of world leaders present there, and on top of them the President of the US. Bush could not be in Chine mourning the dollar. They had to make him smile for the cameras. You can take a photo op by Bush walking by you for $25.0000. Imagine how much the Chinese had to pay so he can go all the way there…

The outcome made Bush look good. The Chinese dollar buyout brought its value up and allowed the petrodollar to take a long waited brake. Oil went down for the time being.
What goes up so quickly will eventually come down. Soon the Chinese will go out with their trillions of dollars and use them to buy the oil of the world. They will bring the oil prices up the way they just did to the dollar. The next phase of oil going up will automatically translate into dollar going down.
So don’t be fooled, the euro will beat its own record of $1.60 by December.
Mark my words.