If China were to raise the value of the yuan this year , the hike would probably be in the range of 5% to 10% , a far cry from the 25% the US senate is calling for , and imo such a hike 5 to 10% was highly probable before the senate started applying additional pressure .

But in the event such a hike was to happen nonotheless it would have a world wide impact on inflation and mostly in the US considering the wide trade imbalance , now how would America react to that when it happens ?

Virtually every commentary I've read on the RMB/USD relationship assumes the RMB will rise at some point, but what if that isn't true? What if a free-floating RMB were sold heavily, forcing China to sell US treasuries to support it? I haven't seen anyone talking about this, and yet capital flows out of China seems a likely possibility, were their currency allowed to float.

At present, the Chinese government invests heavily in overseas mineral and energy projects. Were their private sector allowed to do likewise, what effect would it have on capital flows? Then there's the issue of diversification - protecting one's assets from government confiscation or taxation. I doubt Chinese capitalists are any less concerned about their government's incompetence than we are ours. Finally, if China gets into any kind of serious economic trouble in a free-float environment, chances are you'll see money leaving faster than a singed cat.

The notion of Chinese selling US treasuries as some sort of trade retaliation or bargaining device seems weak to me - a story told to frighten small children.

I'm not so sure we aren't being sold a bill of goods on this one. Wouldn't be the first time.

ebear