prediction of hyperinflation in china

[mantis308]

Very interesting article. I don't know economics that well, and tend to believe a lot of what I read... so I can't vouch for it's facts. I'm beginning to suspect that the concept of hyperinflation is facinating to me, I read with great voracity any article that discusses it.

http://www.marketskeptics.com/2009/01/hyperinflation-will-begin-in-china-and.html

I view hyperinflation in China as absolutely guaranteed. Zero doubt. China is dismantling all the measures it has put in place over the years to fight inflation. It is dropping restrictions on purchasing property, eliminating price controls, getting rid of loan quotas, lowering interest rates, ceasing its sterilization efforts, etc… It is also pulling out all the stops to boost government spending and new loan creation.

Meanwhile, China's 40 billion dollar trade surplus means that its base money supply looks set to double in 2009. There is also the fact that China's money supply is frozen due to cash hoarding and will cause inflation to increase when it accelerates. Finally, the commodity bubble has finished bursting, and China's economy looks set to shrink.

Every economic factor in China suggests an enormous wave of hyperinflation will begin early this year. While I have written about the threats facing the dollar, this will be the event that finally ends the US's borrowing binge and destroys our currency.

Hyperinflation in China will be a monumental event

Because China makes most of the world cheap consumer goods, it will export its hyperinflation around the world. This means that no fiat/paper currencies will survive this with its purchasing power intact. Some will lose all value (dollar) while others will survive while experiencing a loss of purchasing power (yuan, euro, yen, etc...). The only money that will retain its full value in the face of Chinese hyperinflation is gold.

[Mike]

Very interesting article.

All of Eric deCarbonell's premises are very perceptive.


The diversion of money from sterilization efforts to the Chinese' general economy could very well NOT be inflationary (in the sense of rising prices) because the world's economy has all kinds of commodities available at cheap prices: oil, metals, and other commodities.  So even though more money will be entering the Chinese economy, it will be chasing a world of commodities available for the taking.

In item 8. deCarbonell notes that the hot money will move to China.  Hot money moving to China will push down interest rates just as it did in the US (aka flight to safety.)

In every step of deCarbonell's analysis we should be thinking, "In relation to the U.S. and the US dollar."  So what will happen when hot money leaves the US for China.  IMO the US will just print more money to keep interest rates lower.  There will always be consequences and it will be in the value of the US dollar, more so than the Chinese Yuan.

Item 9 is generally a freeing of the economy, to some degree, from central control.  The result will be more domestic consumption of Chinese labor and the world's resources.  This will ultimately prove Peter Schiff right.  Meanwhile, in the good ol' USA, prices will feel higher for everything.

Finally, the commodity bubble has finished bursting, and China's economy looks set to shrink.

deCarbonell sees hyperinflation in China first, and China taking steps that will result in bringing Chinese hyperinflation under control.... resulting in hyperinflation in the US.

It is not obvious that hyperinflation will occur in China.  It is just as possible, and more probable that China will export the expected domestic inflation to the rest of the world just as the US has done for so many years.

[opsec]

China has two currencies, the yuan and the renminbi. Can the chinese let the yuan go to hell and take everybody with it while preserving the value of the renminbi?

[Atash Hagmahani]

Yuan = renmenbi. I think the official name is "renmenbi", but a lot of people call it the yuan.

[mantis308]

Yuan = renmenbi. I think the official name is "renmenbi", but a lot of people call it the yuan.

From wikipedia (http://en.wikipedia.org/wiki/Renminbi)

The renminbi (simplified Chinese: ???; traditional Chinese: ???; pinyin: rénmínbì; literally "people's currency") (sign: ¥; code: CNY) is the currency of the People's Republic of China (PRC),[1][2] whose principal unit is the yuan (simplified Chinese: ? or ?; traditional Chinese: ?; pinyin: yuán; Wade-Giles: yüan), subdivided into 10 jiao (?), each of 10 fen (?).

The renminbi is issued by the People's Bank of China, the monetary authority of the PRC.[3] The ISO 4217 abbreviation is CNY, although also commonly abbreviated as "RMB". The Latinised symbol is ¥.

[opsec]

Oh, I thought China had two separate currencies, one strictly for internal use and another to interact with the outside world. My bad.

[Atash Hagmahani]

Opsec, some day you might also hear the expressions "chung-gua jing", "mei-gua jing", etc, = "chinese gold", "american gold", etc. The Chinese, like the Germans, still often refer to money as "gold".

[mantis308]

Oh, I thought China had two separate currencies, one strictly for internal use and another to interact with the outside world. My bad.

In a way they do, it's the dollar peg. Never been to China, but I've been to many other countries, and other than Angola (Africa) which is semi-recovering from their bout with hyperinflation due to insurrection and civil war, almost every country uses the dollar. It is considered much more desirable.
In Angola, it was different. They allowed no money in or out of the country unless it came directly through the crooked treasury, which is in the same office as immigration. Bribes there are the name of the game. You want anything at all, some politician or paramilitary officer got his whistle wet.