Dollar (In) Demand

The last time was bad, no getting around it. From the end of 2014 until the first months of 2016, the Chinese economy was in a perilous state. Dramatic weakness had emerged which had seemed impossible to reconcile with conventions about the country. Committed to growth over everything, and I mean everything, China was the one country the world thought it could count on for being immune to the widespread economic sickness.

That’s why in early 2016 authorities panicked into another huge, and wasteful, spending spree. In much of the West, it was seen as the government coming to its senses. For reasons that remained unclear (particularly that whole bit about CNY falling), the country experienced a momentary lapse of reason but regained its senses in time to re-open the Economics textbook to the chapter on Keynes.

Because of that, 2017 could open back on the right track for the first time. Globally synchronized growth was as much dreaming about a resurgent China as it was anything else.

And it was also a big misunderstanding. What must Communist authorities have thought considering how 2017 was being glowingly described everywhere else? We don’t have to wonder because toward the end of that year they told us. Globally synchronized growth was a lie, an often purposeful mischaracterization of a small positive trend.

An economic mountain made out of China’s tiny, but massively expensive, molehill.

The Chinese government had tried everything in order to at least stabilize the situation after 2015-16 (Euro$ #3). Not only were the fiscal taps opened, so, too, monetary authorities brought out their creativity. The RMB stuff was typical, rather it had been the focus on CNY which was their real aim.

For all the mainstream focus and attention on internal “stimulus”, what China needed above all was dollars. Somehow, someway authorities had to convince the eurodollar system to bring a ton of them back into the Chinese structure. This was the only way to get the currency into a stable position again, and more importantly, it would also represent an organic monetary contribution sorely lacking in the domestic economy.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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