Thank You PRC

            Lately there has been a lot of chest pounding and brow beating regarding China’s emergence on the World stage.  There economy is booming at a 12% clip that is unsustainable and they have become the manufacturing center of the world.  Now the Politburo knows this, they were educated at America’s top Universities, and they are taking action to fight inflation.  For years the PRC has artificially depressed the Yuan in order increase exports.  Now this has hurt because to do so and maintain the peg they have sterilized open market operations which has cost the PRC dearly.  In order to maintain the peg China buys Treasury bonds which give a 4% return.  They must sell domestic bonds at 12%, (that is sterilization) do you see the black hole forming. 

            Apart from this disastrous policy we owe the PRC a debt of gratitude.  Now I know the rise in oil has a lot to due from gargantuan demand from the Chinese.  Today the command economy announced an 18% increase on gas prices.  Hopefully this will curb demand for gas and therefore its input oil.  The reaction has been a $3 drop in the price of oil at the NYMEX.  This is not the pop of the commodity bubble that has formed but it is good news in a sea of chaos.  If this decision can put a dent in the inflated price of oil, then traders and businesses around will cheer.  It is one of the few times I have applauded the Politburo of the PRC, but desperate times call for desperate measures.  So if your wondering why the Forex market is flat today or why the dollar is making a small come back thank President Hu and the rest of the Politburo for there inflation fighting gasoline hike.