Firstly, if China stops defending its peg, who’s going to buy the dollars we need to print every day to finance our capital account needs?

Secondly, in the short/medium-term allowing the renminbi to appreciate would help U.S. manufacturers only if those manufacturers currently exist to take the place of Chinese manufacturers. Many of our manufacturing sectors aren’t just uncompetitive, they no longer exist. For example, if VCRs from China became more expensive due to renminbi appreciation, are there local factories that can produce VCRs? Or will we just swallow hard and pay the higher prices and keep importing?

Of course in the long term, factories will be built and industries re-started. But for the next few years, for many products, we have no choice but to import even at higher prices.

“The authority sold HK$7.828 billion ($1 billion) to defend the currency yesterday, twice as much as two previous interventions since Oct. 23.”

I think the Fed knows everything we know, and then some but when they speak it’s to a world audience so they’re tight lipped. To us, it appears they’re trying to destroy the currency. I think they’re doing something analogous to seeing how far they can pull the cooling rods out of a nuclear reactor without reaching critical mass. Except the reactor is the global economy and the fuel is China.

Congress, the cabinet, and the state department can’t seem to get China to let the Yuan (RMB) float. But maybe that rogue branch, the Federal Reserve, can force their hand. And can they restore the currency’s former value afterward without sending us into a huge recession?

“In fairness, the Financial Times did tell us that things were pretty rocky:

Markets were so rattled that the New York Stock Exchange instituted trading curbs to prevent a wholesale sell-off. The Federal Reserve, which on Wednesday had hoped its 25 basis-point rate cut would ease financial conditions, injected $41bn in temporary reserves into the banking system – its biggest such move since September 2001. Meanwhile, the Vix index, a measure of equity market volatility known as Wall Street’s “fear guage”, rose 15 per cent.”

It saddens me that even the FT doesn’t get it right with the $41 billion dollars. They should know better.

Even though the Fed gave out new repos amounting to $41 billion dollars, $42.5 billion dollars of previous repos matured at the same day. The $41bn are basically just rollovers of previous repos. Actually, the Fed withdrew $1.5bn dollars from the system.

Currently, every other Thursday the amount of new repos is higher than at other days, since repos of different duration mature together on those days, 14-days repos, 7-days repos, 1-day repos. On November 1, there were additional 2-days repos that were rolled over into 1-day repos. And every other Thursday the rollovers are falsely reported by the media as huge new money injections into the system done by the Fed.