KerPlunk?

http://money.cnn.com/2005/07/21/markets
/bondcenter/bonds.reut/index.htm

"While a China revaluation at 2.1 percent was modest, the market's concern clearly reflected the critical role foreign central banks have played in keeping long-term rates low even as the Federal Reserve has raised short-term rate."

China has revalued its currently by a small margin of 2.1%, but more significantly it has stated that is will no longer peg its currency to the US dollar. Rather it will adopt a trade weighted basket of currencies to manage the Yuan against. I note also that Malaysia quickly followed China's example.

Now does this mean that China will rebalance its foreign currency reserves to reflect the Yuan's trade weighted basket?

http://www.forbes.com/home/feeds/ap/2005/03/11/ap1878397.html

"China's has the world's second-largest foreign currency reserves after Japan, with the equivalent of nearly US$610 billion (euro470 billion) at the end of 2004. That rose by US$209.9 billion (euro161.5 billion) last year, driven in part by a surging trade surplus.

Even as the reserves grew, the share of dollar assets held by China's central bank fell to 76 percent, down from 82 percent in 2003, Lehman Brothers said."

A significant reduction in the relative shareholding of US dollar reserves by asian reserve banks could precipitate a decline in the US dollar, or more precisely a crash. It will certainly be interesting to see how this plays out over the next few months.

Global Property Bubble

It is amazing how long the US (and World) economy has been in Bubbletopia.

Back in the late 90's when the US dotcom bubble was at its height, a recession seemed inevitable. I don't think any observer, astute or otherwise, expected to be where we are now at the beginning of the 2005/06 financial year.

We should have had a solid recession and right now be in a bear market. Instead we are in a "conundrum". The US Federal Reserves' monetisation of the dotcom recession has both delayed and amplified the effect of the inevitable downturn.

I called this blog the Great Recession because I believe Depression will be the last word that government's will use to describe the coming economic implosion. The ramifications will most likely extend beyond 2010.

Since this blog commenced, sentiment has begun to shift, with bearish commentary moving from the "outsiders" like Stephen Roach, Peter Schiff, and Jim Puplava to mainstream commentators. The linked article: http://rismedia.com/index.php/article/articleview/10818/1/1/ is an example of this continuing and progressive shift in sentiment.

Certainly get your own personal expert financial advice on how to protect yourself. My own views are to:

• stay out of leverage property,
• minimise debt,
• cash out equity including superannuation,
• and consider gold to protect against currency devaluation.

I am not an investment advisor, nor is this blog about investment decisions. Again seek your own expert advice before making investment decisions.