Thursday, January 20, 2011

Huh?

A couple of articles from this weeks Economist have me puzzled. There seems to be a bit of contradiction or confusion in their editorial office.
First, we have the Economist lending credibility to the idea that the "redback" might become a player as a reserve currency. I'm skeptical.
Seocnd, hedge funds are shorting China (i.e. betting on the notion that their boom is about up). On the one hand, this might be self-fulfilling; on the other hand it might explain the US-China trade deficits in terms of the standard inter-temporal current account macro model (if you expect the US to grow in the future, our running trade deficits today is optimal; if you expect China to shrink in the future, their running of trade surplusses today is optimal).
More on the Yuan from Econbrowser.

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