Global credit boom unwinding

In an increasingly desperate quest for cash flow, debt-heavy China moved to cheapen exports by weakening its currency again last week,  increasing its Yuan/U$ peg to the highest ratio since 2011.  Here’s the chart of the Yuan over the U$ since 2011 showing the series of lower lows.
over U$ MAy 30 2016
Each time the Yuan has rallied for a bit, risk markets went along for the ride, before also breaking to lower lows once more.  We watch this latest roll over with interest.

As global demand continues to retrace from the unsustainable debt-fueled pace of 2005-2011, excess capacity and supply is depressing prices (and revenue) and the need for production worldwide.  China’s many cash-strapped competitors will need to follow suit in weakening their currencies/export prices further as well.

“The ripples are likely to spread further out,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. “As China’s economy continues to cool, it will provide an ongoing drag on global output, curtailing inflation pressures in the process and anchoring interest rates in the process. The economic malaise currently experienced by China’s immediate neighbors, therefore, is only a portend of a milder version to afflict economies elsewhere as China comes off the boil.”  Here is a direct video link.

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