China Dominates This Week's Market Action
After China announced its devaluation of their currency, the Yuan, world markets reacted. First they headed down with relative abandon; then they pushed back up, supposedly reacting to the Chinese government and central bank moves that would stabilize the currency and markets:
Whichever direction the devaluation takes, it likely indicates a continuing weakness in China's economy, and that's not good news for the rest of the world's economies. The second largest economy getting sicker doesn't bode well for world trade, and what doesn't bode well for world trade means trouble ahead. Markets reacted appropriately when they turned down, and they acted typically when they rose again, as nothing heads only in one direction.
To look at this from another, wider angle, the sorts of efforts by China's government and central bank, which this week culminated in the devaluation of their currency, are consistent with the actions of a big government afraid that its economy will tumble farther and faster without such actions. The fact that the history of this sort of intervention doesn't provide examples of ultimate success is, for now, beside the point. The government isn't about to sit by idly while the economy tanks. It would be political suicide, as a general rule; but in the case of China's Communist government and their society's radical imbalance between wealthy - a tiny percentage of the population - and the dirt poor, there's no choice for these guys but to put up a show of force. Even that may not save their skins in the end, but they're not going down without a fight.
Before we check out for the week, we don't want to ignore the end of that statement, when the official
Now, if only jaw-boning and manipulation could influence the weather, I'd do my darnedest to talk down the expected increase in humidity this weekend. Still, I'm not complaining. After all, it's still the weekend, right?
At a news conference in Beijing on Thursday, People’s Bank of China Vice Gov. Yi Gang said China has the financial firepower to defend the currency as needed. But officials also said the yuan’s underpinning remains firm and that its value should strengthen, and dismissed the idea that the move was made to help the country’s sputtering exports sector.There is, of course, no reason to believe what these officials say. To reiterate a rule we use in evaluating comments like this, we re-phrase the statement to say the opposite, to wit:
"...the yuan's underpinning has become weak and its value should continue to decline."Could you imagine this official saying this or anything remotely close to it in, let's say, a thousand years? And so we discount what he did say as the only possible thing that could issue from his mouth in his official capacity.
Whichever direction the devaluation takes, it likely indicates a continuing weakness in China's economy, and that's not good news for the rest of the world's economies. The second largest economy getting sicker doesn't bode well for world trade, and what doesn't bode well for world trade means trouble ahead. Markets reacted appropriately when they turned down, and they acted typically when they rose again, as nothing heads only in one direction.
To look at this from another, wider angle, the sorts of efforts by China's government and central bank, which this week culminated in the devaluation of their currency, are consistent with the actions of a big government afraid that its economy will tumble farther and faster without such actions. The fact that the history of this sort of intervention doesn't provide examples of ultimate success is, for now, beside the point. The government isn't about to sit by idly while the economy tanks. It would be political suicide, as a general rule; but in the case of China's Communist government and their society's radical imbalance between wealthy - a tiny percentage of the population - and the dirt poor, there's no choice for these guys but to put up a show of force. Even that may not save their skins in the end, but they're not going down without a fight.
Before we check out for the week, we don't want to ignore the end of that statement, when the official
...dismissed the idea that the move was made to help the country’s sputtering exports sector.As exports have seriously fallen, and continue to trend down, does anyone take this comment seriously? Neither shall we. Rather, we'll head into the upcoming weekend with the knowledge that jawboning and outright market manipulation continue to remain the favored method of dealing with bad - or worse - news by government officials and central bankers, whether they be Communist Chinese or any of the other varieties out there.
Now, if only jaw-boning and manipulation could influence the weather, I'd do my darnedest to talk down the expected increase in humidity this weekend. Still, I'm not complaining. After all, it's still the weekend, right?
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