Yeah, you know what you can tell Jim Rogers? He is going to be dead and in the ground by the time that happens. The Chinese domestic market and the institutions that regulate it will have to develop and mature at a rate that it is simply not happening at the present time - no matter what knd o panic you are anticipating.
Never say never. China is already feeling the heat of having too much dollar reserve; it's diverting to Euro; this is a long and arduous process, but absolutely necessary. It pays NOT getting all the news from CNN.
Never is pretty easy to say given the incredible dependence of China on american consumption. That has nothing to do with CNN either, bot-man.
Jim Rogers has been high on the Chinese economy and has been shifting cash out of dollars and into Renmibi, however I don't recall him ever having touted the future prospects of Chinese currency based on its anticipated gold-backing. In any case, Jim Rogers is not a guy to denigrate as his track record speaks for itself. And speaking of lifetimes, you may not realize this but China's economy has grown by about 12,000% in your lifetime. No, that's not a typo. 12,000%.
Yes, I know Jim Rogers the great patriot, talking down the dollar whenever he shorts it and moving his family to Singapore. And rest assured, he has been floating the "yuan as reserve" idea for a long time. Why he really does this I don't know - if I had as much money as he did I woudl enjoy life and shut the f-k up. I do realize all of that regarding CHina's economy. I also know how far they have to go to reach a mature stage of development to the point of what Rogers is suggesting, and it is pretty damned far. ALl summer long we heard about decoupling. I can tell you from personal experience and from looking at the Hang Seng & Sensex YTD returns among others that this was a gigantic myth. What Rogers and others are not realizing is the incredible and ever-increasing value of transparency in financial markets these days, which directly impacts the strenght of currency. In that area, China and a number of other emerging markets don't just have 12,000 percent more to go, they have need to see a 120,000% improvement.
The US economy is riddled with deeply entrenched and systemic problems, starting with the mountains of debt and the debasing of the manufacturing sector. I don't have a problem with Rogers bringing these problems to light instead of just keeping shut and pretending everything is going to be okay forever. Regarding transparency, every country and every company cooks their books in some way shape or form (save maybe Finland and Iceland). Arthur Anderson, PriceWaterhouse, KPMG, Sullivan & Cromwell, White & Case, etc, etc are all there to clean up and make everything look nice for showing room purposes. And who manages the showrooms? GS, MorganStanley, JPM, Merrill, Citi, etc, etc. And where have all these great sales-companies set up their biggest shops now? Shanghai... The Fed has already made up its mind that it MUST inflate the money supply at all costs in order to avert a deflationary spiral. This is their only option in avoiding total financial collapse of the US economy. In the process the US dollar WILL continue to decline precipitously, as it already has been doing the past several years. Likewise, the Bank of England and the European Central Bank have been printing money out of thin air just as much as the Fed. Their money is just as much Monopoly as ours. So at the end of the day, when all the investment grade diamonds, fine art, and Manhattan penthouses on the Park have all been bought up already, there are going to be very few places to hide and park your money. And if the Renmibi is going to be backed by tangible assets, then there is a good chance we will see large-scale flight into it from all over the globe.
^I'm aware of all the above. Hell I have lived it. But look up a company called American Dairy (ADY) if you want to see the other side of things. Having a half-assed regulatory system is a lot better than having effectively none. Tangible assets are great - but when there is zero accountability it really doesn't matter.
The US took from about 1750 to 1950 to become the world's premier economic superpower. And even in 1950, it still was not at the acceptable level of civil rights that we expect from China today. You are correct that today China's legal system, business practices, and corporations can at times resemble that of a banana republic. But they are also improving very rapidly, and this despite their enormous population size. Based on what I have seen from the Chinese government in the past two decades and based on the fact that Wall Street has gone all in betting on the Chinese govt being able to deliver, I cannot discount China's future success. I don't bet against people smarter and more informed than myself.
1750 to 1950 was the industrial age. Information moved a lot more slowly - or not at all. AMerica had great potential for industry (raw materials, labor, etc) - the two things clicked and guess what happened. Fast forward to now. This is the information age. China has great potential for industry and has been riding that for the last few decades. But this is the information age. The problem there is that China has a HUGE gap in information reliability whic will not be remedied anytime soon unless there is a currently unforeseeable sea change which brings a form of accountability and transparency to the table. (That's just one obstacle, a culture that can be stifling to innovation and nonconformity and transparency is another HUGE one). Regarding Wall Street being "all in"- I don't know where your getting that one. Sure there is tons of FDI sloshing around china like there is in a lot of emerging markets, but I put that as a function of integration rather than anuything else. Thus far nobody has really hit the magic jackpot in the China bonanza - instead the market (from what I've heard) is oversaturated at this point which is one reason why the bubble has deflated this year a bit. As far as people smarter and richer than us doing X or Y - who was that guy who put 1 billion into Bear Stearns last summer? And why is China's stock market dropping? If the smart money is in it, it's a lot less smart money than there was last fall..... Now, I am not saying China is irrelevant...etc. I am just saying that the forecasts of its accession to the throne in the short to immediate term, as many claim, are a lot further away than the hype frequently indicates.
The Shanghai Composite is still more than double where it was just 2 years ago, even after having deflated back down from 6000. For all we know, Smart $ wanted another chance to buy more here at 3700 before they take it up to 16000. But that's just speculation for now. What is not speculation is that Wall Street has focused on China in a way that dwarfs any other emerging market, including India. And I don't mean by FDI numbers. On the contrary, the US is actually the largest recipient of FDI in the world and by a large margin. And in large part from China itself. The US govt and Wall Street have a deep vested interest in making sure that China succeeds because without them our own economy would fall apart next week. They have Most Favored Trading status, our banks are buying up their banks, and Henry Paulson has made 75 visits to China in person because we need them to finance our debts. So in essence we need China like a crack-fiend needs his girlfriend who works 3 jobs to pay for his fix. And at the same exact time, we use part of this money we borrow from them everyday to finance our military operations around the globe. While they spend money on education, infrastructure, or in fact don't spend their money and just save it instead - we are buying their trinkets, paying hundreds of billions in debt interest, and trillions on a military budget. As far as I'm concerned, their possible accession to the throne is not so difficult to envision.
And very few success stories have emerged other than those borne of cheap labor. The goldrush was on for years but how many US investors have struck it rich? Well - I"M talking about classic FDI of the kind that MOFCOM solicits - which is a serious difference in kind from, say, China getting fleeced by Schwarzman and Blackstone. Sure...and...see below: The problem here is that you are downplaying the opposite side of this coin - CHina needs us just as badly. You think if China cut off the capital flow that there would be a market for the billions of tons of paper clips and plastic crap that finances their expansion? China is a crack dealer with one HUGE client and not a whole lot of prospects in other places. Their domestic consumption market has lagged incredibly - Chinese simply just don't consume at the same rate we do and this has shown few signs of changing despite the "Decoupling" fallacy Again . . . this is the same as above. You're assuming CHina has decoupled. Current events say otherwise.
Assuming that because China has not fully decoupled today that it shall never do so going forward does not make sense to me. It is obvious that both China and the US need each other today and for the time being looking forward as well. However during this time, China is in fact improving the fundamentals of its internal economy and diversifying its trading partners away from dependence on the US. Meanwhile, the US is falling deeper into debt with every passing day and only exascerbating its already gloomy fundamental picture. Yes, both parties are interdependent in the now but only one side is truly benefitting off the transactions. So I simply cannot overlook that unless drastic changes occur on our side, China is going to eventually catch up.
China has a much less stable .gov and its more possible for a few idiots to get into power and really screw stuff up than it is in the USA.
The original context of this argument is that the Yuan is going to become the global reserve curency in 20-30 years - you can cite US national debt or low math test scores all you want but they aren't going to camouflage the fundamental defects in the Chinese economy that would prevent it from doing so - nor have you cited any compelling reason why other currencies wouldn't be in line ahead of the yuan. It is possible to be bullish on chinese growth while recognizing the many structural flaws that exists in its economy- the evidence of which is already being shown.