Liu Jun Luo is looking for a gold crash in the next ten days to signal the onset of deflation. Unlike the domestic commentators who believe the U.S. leadership desperately wants to inflate the currency, Liu and a number of other prominent Chinese bloggers and commentators believe the U.S. goal is exactly the opposite.
Deflation of the U.S. dollar results in inflation of foreign currencies and leads to the financial crises abroad, such as the Asian Crisis in the 1990s and the Argentine default. Economics is not zero sum, but politics is zero sum. There's a fixed amount of power and its shared by the countries of the world. More dollar strength will crush Europe and emerging market economies far worse than the U.S. because these are the exporters, and they need capital. During the crunch, the U.S. does relatively better because the price of commodities drops, while capital pours into the U.S. for safety.
Liu Jun Luo is looking for the U.S. Dollar Index to cross 90 and for the Shanghai Composite to sink to 2000, a drop of 30%, between now and the end of 2010.
Whether you agree that the U.S. is actually running a competent shadow strategy or is completely failing at inflating the economy and weakening the dollar, if you expect deflation, the market result is mostly the same.
Note that Liu was correctly predicting a euro disaster last spring and he has told people in China to wait for a collapse in home prices.
if you want to read his latest post, follow the link and use Google Translate to get the gist of it.
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