I think this is going to phase in the inflation that has been waiting to happen since the fed doubled the money supply in 2008-2009
I speculate this will cause a gradual increase in the rate of inflation and then once we hit moderately high inflation (6-9% per annum) we will see a spike in inflation when the banks realize they are hemorrhaging wealth they will move their wealth out of the piles of cash they are sitting on and this will be a disaster for the dollar.
What is the mechanism for “pegging” one’s currency to the dollar? Printing press?
Stupid question, I know, but what exactly was the RMB dollar peg?
The Chinese central bank bought or sold dollars on the market to maintain a certain exchange rate.
Well they have been phasing it out for years now. Several years ago they went from a real dollar peg to a peg to a “basket of currencies” and permitted some minimal float. So this isn’t new news.
China is mercantilist… I guess the thinking is they have all the factories they need, so now they can use them to produce products for themselves instead of just for export?
It’s not stupid. No one is born knowing economics.
The peg is the Chinese gov’t making sure [by printing their money when the USA prints dollars] that the Chinese money is worth the same thing always in dollars.
Which meant that China was producing inflation [=money printing] in China, raising prices for the poor screwed Chinese man in the street.
It also meant that a US dollar could buy tons of stuff in China [since one US dollar was almost 7 of their currency], meaning US consumers were feasting.
Now the Chinese decided to let the US print what it may, they will not print as much to keep up.
Which means the Chinese guys won’t get screwed so bad [which was the reason they made this decision, strikes and SUICIDES by the workers].
And that consumers in the US will have to pay more for Chinese stuff, meaning basically for everything.
It also means less dollars going to China [higher prices means less buying], meaning the Chinese won’t have dollars to lend the US gov’t. Which means the US govt will have to find some way to sucker someone into lending it money, best acheived by promising high interest rates to whoever lends them. But the govt can’t afford that. So they will have to raise taxes, but that will only bring in a drop in the bucket for the govts ever expanding maw of greed. So their most likely choice is to print oodles of money and spend it, meaning high high inflation.
And the crazy thing is, the US govt has been BEGGING China to please please raise the value of Chinese money. Idiots.
I understand now, thanks for the infromation. I was going to type a lengthier response, but I’m trying to get my mind around just exactly how screwed our fiat currency is.