Economist Andy Xie says China is trying to prolong its bubble because when the U.S. dollar bottoms — which he thinks will happen a couple of years from now —it will cause money to flow substantially out of China.
Xie likens the Chinese economy to riding a tiger: If you get off, it could kill you, which is why China is tying to prolong its bubble instead of pricking it.
“The Chinese government has done a reasonably good job so far,” Xie says. “They are basically implementing an incremental tightening approach.”
“They intend to preserve the value of money, and as long as they keep doing that, inflation can be kept at around 7 percent and not exceeding 10 percent.”
China’s government, Xie believes, does think the yuan should be higher against the dollar — but if adjusted up too quickly, it could collapse the property market.
The real value of China's foreign exchange reserves will be eroded unless the Federal Reserve implements an exit strategy successfully, Yu Yongding, a former adviser to the People's Bank of China, said in a recent speech delivered in Melbourne, RTT News reports.
Yu said the "inevitable" decline of the dollar may erode China's holdings of U.S. Treasuries, and that China should reduce its current and capital account surplus, or divert its forex reserves away from the U.S.
Citing the huge gap between the massive growth rate of monetary supply and economic growth, Yu warned that the country’s current loose monetary policy is paving the way for anther asset bubble.
© 2017 Newsmax. All rights reserved.