Thursday, November 15, 2012

Richard Duncan quotes

Longer excerpt from The New Depression (taken from my Kindle highlights, so the excerpts aren’t necessarily the paragraphs I have put them in below, and there may be things in between that I didn’t highlight).

“…the paper money creation by the PBOC and other currency manipulating central banks, which amounted to nearly $5 trillion between 1999 and 2007 alone, is responsible for destabilizing the world economy, and not differences in the rate of real “savings,” as Bernanke contends.

China’s central bank prints yuan and uses it to buy dollars in order to hold down the value of the yuan to support export-led growth. It is the dollars that the PBOC accumulates in that manner that are “lent” to the United States. The money China pumps into the United States drives up asset prices, drives down interest rates, and funds a wide range of malinvestment.

Many fear that China will stop buying debt from the United States or that it will suddenly dump the U.S. debt it already owns. It won’t. If China stopped buying U.S. debt, its economy would collapse because that would mean that it had stopped manipulating its currency by buying dollars. In that case, its currency would soon double in value and then double again relative to the U.S. dollar as Chinese exporters converted their large export earnings into yuan. That would be more than enough to pop the great Chinese bubble.

So, the bottom line is this: Not only can China not sell the dollar reserves it now owns; it must continue accumulating more dollar reserves each year in line with its massive trade surplus with the United States.”

–Richard Duncan, The New Depression