Wednesday, April 7, 2010

The Bogus Charge of Chinese "Currency Manipulation"

I have to comment on the recent hysteria related to China's so-called "currency manipulation." Claiming that the U.S. Treasury Department "continues to drag its feet in declaring China a currency manipulator", evidently:

Senator Charles Schumer met with manufacturers in Clarence Monday about his plan to crack down on China's manipulation of its currency rates. He says such manipulation gives China an unfair advantage in international trade at the expense of US jobs.

Schumer unveiled a bill that would penalize China and other offending countries by placing tariffs on their exports and banning their companies from receiving US government contracts.

Schumer says the US Treasury Department continues to drag its feet in declaring China a currency manipulator.
For years, Schumer has been beating his mercantilist drum on China's currency peg. His argument is ridiculous for many reasons. First, as a liberal, Schumer supports statist takeovers of large swaths of the American economy yet, we are led to believe, he objects to China's currency policies, on principle, as a violation of "free trade." Second, Schumer's argument is economically false and ignores the wider context. His policies would lead to higher prices for American consumers and hurt the very people he is supposed to be claiming to help

The idea that China "manipulates" its currency is hypocritical at best. Responding to Schumer's 2005 proposal to place a tariff on China's goods, Stefan Karlsson wrote:

Had he been genuinely opposed to currency manipulation he would favor the abolition of the People’s Bank of China, the Federal Reserve and all other central banks. Any currency created by a central bank is bound to be manipulated. In fact, manipulating the currency is the task for which central banks were created for. If they didn’t manipulate the currency, there would be no reason to have a central bank.Needless to say, Senator Schumer, being a unrepentant statist, don’t favor the abolition of the Fed or call for the Chinese to do away with the People’s Bank of China. Instead he calls for the Chinese to do away with their peg to the dollar and float the yuan. According to Senator Schumer, currency pegs represent manipulation while currency floats doesn’t.

But how could it be argued that a floating fiat currency is not manipulated? First of all, the very existence of exchange rate fluctuations between different geographic areas is a manipulation as a free market monetary system -the gold standard- would not have such fluctuations based on national borders.

Today, most countries do not intervene directly in currency markets but instead, manipulate the value of currencies through control of short term interest rates. Karlsson writes:

Through its direct control of short-term interest rates as well as the strong influence on money supply and long-term interest rates this imply, central banks strongly influence exchange rates and often use that influence in a mercantilist ways. This means that even if we narrow the definition of currency manipulation to manipulation of the currency for mercantilist purposes, floating currencies are certainly manipulated.
In other words, the whole apparatus of central banking can be thought of as nothing more than a system to manipulate currencies. There is virtually no other reason for its existence.

So, if Schumer and his ilk are, at best, disingenuous about their motives for wishing to "punish" China, what are they really after? What is the economic argument behind these claims?

Ultimately, Schumer's mercantilist goal is to drive up prices of Chinese goods relative to American goods so that American exports are relatively cheaper which supposedly will support American companies and their union workers. Of course, this is all couched in "fair play" and "level playing field" rhetoric, but really, all Schumer is hoping to do is to manipulate foreign currency values in support of less efficient American manufacturers, in such a way as to get Americans to pay higher prices.

Thanks Chuck!

To understand the mechanism a little better, consider what would happen under a gold standard.

Under an actual world free banking system in which private companies issued banknotes redeemable in gold, there would be no issue (Of course, separate countries could choose to enforce the rule of law or have different legal customs, etc. but ignoring that for sake of this example) . Buying from China would, in practice, be like buying something from across the street. They would accept the bank note and could redeem it in gold or spend it on something else. It doesn't matter if they are across town, across the river, or across an ocean.

Now let's say you have a system where a country issues its own domestic currency (dollars, yuan, yen, pound, etc.), but each currency is backed by gold. Say there are 100 paper dollars in the U.S. backed by 100 oz. of gold so that the dollar is worth 1 oz. of gold. And, in China there are 100 yuan backed by 100 oz. of gold so that one yuan is worth 1 oz. of gold:

100 paper dollars, 100 oz. of gold === 1 dollar / oz.
100 paper yuan, 100 oz. of gold === 1 yuan / oz.
Exchange rate === 1 dollar / 1 yuan

Now, say the U.S. buys $50 worth of goods from China. We ship $50 to China, and they ship us some electronic toys or whatever. China now redeems its 50 paper dollars and receives a shipment of 50 oz. of gold from the U.S.:

50 paper dollars, 50 oz. of gold === 1 dollar / oz.
100 paper Yuan, 150 oz. of gold === 0.67 yuan / oz.
Exchange rate === 1.5 dollar / 1 yuan

The yuan has become more expensive in dollars. It costs you 1.5 dollars to buy a yuan, whereas before, it only cost you 1 dollar.

Consequently, under a gold standard of this kind, if one country tends to export more goods, it will begin to acquire imports of gold and its currency will appreciate. This naturally tends to make its goods more expensive and makes other countries goods less expensive. In our example, China would now find American goods cheaper, and Americans would find Chinese goods more expensive. This process tends to restore the balance of trade.

But what happens if a government controls the creation of the paper currency? Under a gold standard, if a government begins to increase its paper currency stock, what would tend to happen? Here again is the original case:

100 paper dollars, 100 oz. of gold === 1 dollar / oz.
100 paper yuan, 100 oz. of gold === 1 yuan / oz.
Exchange rate === 1 dollar / 1 yuan

Now, assume the American government arbitrarily creates 10 times as much paper currency:

1000 paper dollars, 100 oz. of gold === 10 dollar / oz.
100 paper yuan, 100 oz. of gold === 1 yuan / oz.
Exchange rate === 10 dollar / 1 yuan

Just as before, it would appear to the Chinese that American goods are cheaper and Americans would find that Chinese goods are more expensive. To a mercantilist like Schumer, this is wonderful, because China will now tend to buy more American goods which increases exports and benefits U.S. exporters.

But, what if China maintained a policy of pegging it's currency to the U.S. dollar? For example, let's say the U.S. government creates 10 times as much money, and China follows suit:

1000 paper dollars, 100 oz. of gold === 10 dollar / oz.
1000 paper yuan, 100 oz. of gold === 10 yuan / oz.
Exchange rate === 1 dollar / 1 yuan

The U.S. dollar may start to lose value against other currencies, but against the yuan, it stays "pegged." See the
chart below which shows how this has actually occurred.

So, if China is "manipulating" its currency, what does Schumer label the Federal Reserve's creation of over a trillion dollars to bail out banks and keep a lid on interest rates that has the U.S. dollar falling against other currencies?

Schumer is right that if China appreciates its currency, all else equal, it would tend to make Chinese goods more expensive. But, has anyone asked why we want to make goods more expensive? If China wants to sell us stuff for really cheap, uh, shouldn't we take that deal? Essentially, Schumer is saying to China: "either make your goods more expensive to Americans or we will pass a law to directly make your goods more expensive to Americans (via tariffs)."

Following the broken window fallacy, Schumer ignores the benefit to Americans and American businesses of paying less for these goods. The money saved by not spending so much on these goods, is purchasing power that allows individuals to buy more things than otherwise. He is also ignoring the law of comparative advantage. For example, maybe Americans can produce bananas better than Central Americans (in some kind of banana making Olympics), but we are better off letting them make bananas so we can focus on what they can not do - things such as inventing and building high technology components.

To be fair, China is engaging in a policy that distorts markets but equally as much as the policies of the United States central bank. China has made a conscious decision to support their own domestic manufacturers at the expense of the purchasing power of their own citizens. Also, the domestic inflation they are creating to maintain the peg, is creating a massive bubble in their domestic real estate and stock market. But, we should care about that because...well, ask Chuck.

Karlsson proposes a great idea for the Chinese:

As we have seen with Japan, having a currency float is thus more effective if you wish to manipulate your currency for mercantilist reason. If China really wanted to nail Senator Schumer, they could just adopt Japanese strategy of having a currency float and then reduce interest rates and undertake other measures to encourage capital flight. Then the yuan would actually end up weaker than it is now, while Senator Schumer would be deprived of its argument for imposing tariffs.

If Schumer and his union masters really wish to adopt free market principles, I have a few higher priority ideas they could pursue...


C.W. said...

Doug, that was a good article.

I would like to point out one more aspect of the current situation that many, especially in Washington, ignore. During the last twenty to thirty years, dollars have accumlated overseas at an amazing rate. In public and private hands, there are almost as many dollars outside our borders as inside (slightly confused by the purchase of our Treasury debt by foreigners).

There are, I think, two major reasons for this accumulation. The use of the dollar as a reserve currency, and many foreigners would rather hold dollars than their own country's money.

For us, it means that we have bought lots of stuff and never had our checks cashed. We got lots of stuff for money that was made-up by the Fed and sent overseas. What a deal!

It also means that there is a lot of money just sitting outside, hanging over us, potentially coming back to us at any time foreigners decide they don't want it any more. I think the drop in the dollar is at least some of that coming back.

When all of that "money" does come back, it will raise domestic prices dramatically. Our exported inflation - all that made-up money - would come home to roost. It is not something we can do much about as far as I can see. The questions are what will cause the return and how fast will it happen.


Doug Reich said...


Thanks for your comments.

I'm not sure I completely agree with you or perhaps, I don't completely understand your argument.

I'm not sure I agree with you that money from overseas will come flooding back in at some point as I believe most of these dollars end up reinvested in the U.S.

Dollars held by foreigners, unless they are kept in a vault or under a mattress type of thing, get invested in a dollar denominated asset or the currency gets sold in the foreign exchange market. Foreign central banks typically just buy U.S. Treasury bonds and notes. Private foreign banks, sovereign wealth funds, etc. can buy anything, etc.

In other words, these dollars rarely just sit there doing nothing. The owner will want some return or he will sell his dollars for another currency.

To the extent that foreigners prefer to hold dollar denominated assets, like U.S. bonds or stocks, rather than convert them to their own currency, this tends to keep the dollar's value higher than otherwise and also serves to keep our interest rates lower than otherwise.

As the U.S. has gone on a printing money spree and as our government's debt explodes (investors assume we will print dollars to pay it back), they prefer to sell dollars rather than hold dollar denominated assets.

For many years, the U.S. has bought stuff from other countries and they have turned around and used the dollars to buy things like U.S. treasury notes. These foreign purchases are a pretty large source of demand for our debt. As our debt grows, these foreigners will be less likely to want to own or purchase more U.S. debt and that will tend to put downward pressure on the dollar. This happened in an extreme way in 2009.

The dollar has come back a little in 2010 since other countries are also printing money and U.S. interest rates are forecasted to go higher as the Fed tends to wind down some of its money creation.

C.W. said...

Doug, the theoretical answer you gave me is correct for all currencies that I know of except for the U.S. dollar for the last 30-yeas or so. What is different for the dollar is that it was the only strong currency after WWII and it became the reserve standard for central banks. Not only do we have a trade deficit, but a current account deficit spanning three decades. The build up of dollars over seas is quite high.

The holding of dollars overseas can be divided into two segments. First, let’s consider the privately held dollars. Normally, your analysis would be correct, but in fact there grew to be something called Euro-dollars, which today is not confined to Europe, but spans the world. These are dollars invested or placed in dollar denominated assets that originate outside of the U.S. They are part of the world economy. For example, if you do a net search you can find rates for dollar deposits in banks worldwide. There is a futures market for Euro-dollar deposit interest rates. Under certain circumstances it could very well be the case that it is better for the holders of these assets to sell the dollars for Euros, Yen, whatever, and thus return the dollars to the U.S. Last I looked, the Euro-dollar market amounted to between $900B and $1T. In addition, there are several small countries that use dollars as their currency.

The other segment of dollars held outside of the U.S. consists of foreign central bank holdings of dollars as reserves, like they hold gold. Yes, some of this has been turned around and “invested” in U.S. Treasuries. But certainly not more than half of it, otherwise the dollars would not be reserves. Again, last I looked, the dollars held by central banks amounted to $9T to $10T.

Let’s say that half the central bank reserves is held as reserves, in digital space. That plus the $1T of privately held dollars gives us a total of about $5.5T in dollars sitting outside of the U.S., all of it the result of inflation, all of it claims upon our economy, all of it sitting there because the foreigners holding it think that it is in their best interest to continue to do so. If and when they change their mind and begin cashing in those claims, we will see an increase of demand, and thus price inflation. If it happens quickly it will be a flood. I don’t know if it will be. To flood us with dollars wouldn’t be in the best interest of anyone, but as we recently saw with the financial panic and crisis, once things get going, they can go badly.

Doug Reich said...


I think I understand the confusion between us.

I fully agree that there are foreign holdings of dollar denominated assets throughout the world. The eurodollar market is trillions and central bank reserves on behalf of foreign central banks is large, etc.

However, I do not think that those holdings have the potential to be inflationary in the way that you mean. You seem to be implying that you think that these dollars will be redeemed from these accounts and "spent" at some point thus creating inflationary pressure on prices. If I'm misinterpreting, then let me know.

I think where you are in error is that this money is already "spent". The non-US banks which hold eurodollar deposits only hold a fraction of these deposits in true reserve. They use this money to invest in other assets with some return. They can invest in government bonds, equities, corporate bonds, etc.

In other words, I don't think it is as if this is a pot of idle money waiting to be spent - it is money already in savings that is held in the form of cash plus various investments.

Really, conceptually, the way to think about this is in terms of what constitutes the "money supply." The Federal Reserve creates money when it purchases government bonds on the open market. It pays for the bonds with counterfeit electronic deposits. The recipients of these fake dollars deposit them into a commercial bank somewhere. First, this represents a creation of money and is inflationary. Second, the commercial bank can create money when it lends these deposits through the fractional reserve process.

However, the real culprit is the Federal Reserve system original creation of dollars. These dollars end up all over the place as you say. They end up not only in U.S. banks and in circulation, but also in foreign depositary institutions, central banks, etc.

How this money ends up causing inflationary price increases depends on several factors. For example, it depends on how rapidly the new money is spent throughout the economic system. The total money supply can be captured to a large extent by looking at stats like M2 and the now unpublished M3.
This is a pretty good way to gauge what is going on.

Right now, if you look on the Federal Reserve system's balance sheet in liabilities, you will see 2 major items: currency in circulation and reserves. These 2 items make up the "monetary base". In effect, the currency in circulation is the total amount of money the fed has ever created and is outside the federal reserve system. right now that number is at about $930B. The "reserves" are at about $1.1T. This is money held by the Federal Reserve system on behalf of other banks. These reserves have massive inflationary potential as it represents holdings of member banks that could be withdrawn and pyramided through the FRB process.

The Fed has been publicly discussing ways in which it can rid itself of this potential through various mechanisms.

However, in aggregate, the money supply has been decreasing lately, because even though the Fed has created all this money, banks have deleveraged by decreasing their loans outstanding which has an exponentially decreasing effect on the money supply aggregates.

Let me know if this helps.

C.W. said...

Okay, I'll try another approach. If you look at the ballance of payments, that is, all transactions, including purchases of government securities, investments, income, trade, and probably smuggling, the U.S. has had a deficit every year since 1982. See:

That means, Doug, that, no, many of the dollars sent overseas, whether circulating or sitting or being used as pillow stuffing, have not come back to the U.S. You keep talking about pots of money sitting idle. I have not mentioned any pots. I have been referring to dollars outside our borders. The issue isn't what those dollars are doing, but that they aren't doing anything here.

It means that when a foreign bank receives Euro-dollar deposits and loans them out, they aren't being spent in the U.S., but overseas.

It means that many of the dollars hoarded by central banks are not being reinvested in the U.S. Take China, for example, at the end of 2009, it had "reserves" of $2.4T. It had bought nearly $1T of U.S. bonds, another $500B of other U.S. government securities, and a marginal amount of direct investment. There was about $900B of dollars that were still not back in the U.S. They were actual reserves, sitting, just like their gold stash.

Your comments do not account for the continuous balance of payments deficit, the known use of Euro-dollars, and the known accumation of central bank reserves in 150 other countries.

Yes, the Fed hasn't been able to inflate our domestic money supply for a while. Nevertheless, we still had a balance of payments deficit in the last quarter of 2009. So we are still exporting dollars that will not come home, at least not yet.

Doug Reich said...


Yes, of course the U.S. has run a so-called "account deficit" but this is just accounting. The dollars we spend on exports that are not used to purchase U.S. physical goods are used to buy U.S. dollar denominated securities unless they are put in a mattress.

Yes, dollars are used as an international reserve currency just as gold used to be.

China holds most of its dollar reserves in bonds. No one knows the exact composition. Do you really think they have $900B of physical cash sitting in a vault somewhere? How do you know that?

U.S. M3 is about $14 trillion.

If $900B or some amount on that scale was taken out of circulation and put into a collective mattress, it would have represented a pretty substantial deflation. That money would have been created originally, spent, and then taken out of circulation.

These "hoards' to which you are referring would not represent "fresh" money since they have already been put into circulation at one point. I guess to the extent that they were created, spent, then vanished, then reappeared, I could see that having an effect but how do you know this? How much is the hoard, where is it, etc.? And how much is that relative to the current creation of reserves versus deleveraging in the banking system through loan attrition.

Money in eurodollars and in foreign central banks are usually held in short term obligations (money markets) like governmnent treasury bills, commercial paper, or are loaned to other banks to meet reserve requirements, etc.

Where else would you spend dollars unless you buy goods or dollar denominated securities like corporate paper, government bonds, equities, etc.? People that control billions of dollars don't leave it in a mattress.

You have to give me some examples if I am missing something.

C.W. said...

Sorry, I have to do this in two parts;

Part 1

First, I said balance of payments, not balance of trade. The balance of payments deficit is not as high as the balance of trade deficit because it does include investments made by China and otherS in U.S. Treasuries plus private investments in the U.S. from abroad. Consequently, your following remark did not follow because those transactions were already included. Dismissing it as “accounting” misses the point and is inaccurate.

Second, you cannot use “dollar denominated security” when talking about international trade. You have to be clear about the originating country of the security. Many “dollar denominated securities” are originated in London, for example. Their purpose is not to invest back into the U.S. Check the stated purpose for these securities. Now say that the security is a bond and the purpose is to build a power plant in Central Europe. It is probably the case that some of the items used to build the power plant are purchased in the U.S., and therefore will show up in the U.S. balance of trade figures. But then the bonds must be paid off, and must be paid in dollars, so the dollars have to be accumulated and paid to London, and we will see then a deficit on our balance of payments.

No, I didn’t say that China has physical dollars. They happen to be digital. What I maintained is that of the $2.4T of dollar “reserves” about $1.5T has been put back into the U.S. The remainder isn’t being used to buy U.S. stuff, because we wouldn’t have a trade deficit or a balance of payment deficit then. A central bank’s gold reserves aren’t circulated, why are you having so much trouble in considering that dollar reserves are treated that differently. The only reason why China and a few other countries are putting their dollar reserves into Treasuries is because they have more reserves than they need, called excess reserves. It isn’t only the U.S. that has a balance of payments deficit with China, so does the Euro block.

Other than the money held by central bankers, which are reserves, in the same sense as gold would be, I wonder where you got the idea of “hoards”? Dollars are circulating, but on the whole something like a $1T are circulating overseas.

You said, “Money in eurodollars and in foreign central banks are usually held in short term obligations (money markets) like government treasury bills, commercial paper, or are loaned to other banks to meet reserve requirements, etc.” Where did you get this idea? Show me evidence that dollars in foreign private banks are held in U.S. securities. The evidence is just the opposite. Foreign private banks have lots they can do with dollars without sending them here. Also, please refer us to the document showing that the Euro block central bank, for example, has put all of its dollar reserves in U.S. commercial paper or any other investment. No foreign bank can loan money for Fed reserve requirements. That is done between domestic banks who are members of the Federal Reserve System.

end of part 1

C.W. said...

Part 2

I have no idea what you might mean by “fresh” money. Every year since 1982 money has been withdrawn from the U.S. and sent overseas. Why haven’t we missed it? You know the answer, Doug, the Fed just created more. Let’s say that there wasn’t a balance of payment deficit, then the Fed would have created less. The Fed aims at a domestic inflation of 1-2%. If people ritually burned up a billion dollars a year in some bizarre religious sacrifice, the Fed would just create more. Where is the issue?

Your last paragraph seems to suggest that you have not considered the distinction between domestic and foreign currencies. In many respects, international trade is not a special subject. Fundamentally, trade is trade. Under a gold standard, there would be some swings in relative prices as gold was moved from one country to another, due mostly to changes in resources, discoveries, technical innovation, and just normal changes in economic relationships. But today we have an international currency situation built for manipulation of currencies, abuse, and inflation. Then, after WWII, the nations of the world gave the U.S. permission to make-up as much money as it wanted by making the dollar the equivalent to gold, and the U.S. eventually did so, beginning about 1982. As the balance of payments shows, we have been doing it constantly, consistently, and massively.

Why are foreigners willing to put up with it? For private individuals, it is because doing businesses in dollars is convenient. Everyone accepts dollars. Also, for many, dollars are safer and more secure than their own country’s currency.

Central banks have accepted it because their managers went to the same schools and read the same books as our central bankers. Inflation is good. Having more currency is good. They are nuts, but there you are. I didn’t say it made sense, I just am pointing out facts. I don’t know why facts are so hard to get across, but I haven’t given up yet.

So, Doug, if you are still not accepting my point, try a different approach. Show how the balance of payments, which includes all, every, totally inclusive, the entire universe of movements of money in and out of the U.S. can show a deficit for 28 years and there not be a huge number of (mostly digital) dollars wondering around or sitting outside the U.S.

End of comment. Thakn you

Doug Reich said...

Your original point seemed to be that there are dollars abroad which amount to claims on us.

You said:

"It also means that there is a lot of money just sitting outside, hanging over us, potentially coming back to us at any time foreigners decide they don't want it any more. I think the drop in the dollar is at least some of that coming back."

If foreigners lose trust in the US as they are doing in terms of too much debt supply, etc. then they will start selling US bonds and US dollars and this will lead to higher interest rates and a falling dollar. But I don't think that this is what you are arguing.

So, let's say I buy a t-shirt from a British guy for $20 US. Assuming he doesn't burn it or put it in his mattress, he takes the $20 and can either convert it to pounds or he can deposit it in a eurodollar account. The $20 either ends up in a private eurodollar account or ends up with a foreign central bank if the eurodollar bank converts.

If it ends up in a eurodollar bank, what do you imagine happens to those dollars? What does the eurodollar bank do with that money? Who do they loan it to? I contend they lend a lot of it back to the US in the form of commercial paper purchases, equities, government bonds, etc. - things that US dollars buy.

Second, if the foreign central bank holds it as a dollar reserve and they have a surplus, what do you think the foreign central bank does with the dollars? Do they literally hold them as physical dollars (digitally, same thing), without buying treasury bills, stocks, commercial paper, etc.?

What do you mean that this money could "come back"? Yes, I agree that America gets a benefit from the dollar being used as a reserve currency. This tends to drive up the extent to which we can run a trade deficit without it hurting the value of the dollar,i.e., it creates more demand for dollars than otherwise. (But the world chooses to hold dollars as a reserve.) What would coming back mean?

I have never read or seen evidence that central banks sit on idle cash (meaning cash not invested in treasury bills or something that earns interest).

I'm just saying that this money that has been created that resides everywhere is inflationary. I don't see the dollars in foreign central banks or in eurodollar banks as an "additional" potential supply of dollars that will cause even more dramatic price inflation than has already been created. In other words, I think the market value of the dollar reflects the total supply of dollars vis-a-vis another currency already.

If the U.S. dollar stopped serving as a world reserve currency, it would drop in value and cause higher prices in the U.S. for imports. The drop in the dollar that has occured has already caused many foreign central banks to publicly call for an alternative to the dollar.

Currency Rates said...

These dollars rarely just sit there doing nothing. The owner will want some return or he will sell his dollars for another currency.

Anonymous said...

According the the federal reserve, "because they are close substitutes for deposits at domestic banks, Eurodollar deposits of nonbank US entitites at foreign branches of US banks are included in the monetary aggregate M3; Eurodollar deposits of nonbank US entities at all other banking offices in UK and canada are also included in M3.

Therefore I don't think it matters where these deposits are? Surely the inflationary impact of their return to US banks (as opposed to the foreign banks) is already reflected in the broad money aggregates?

C.W. said...

Anon, you are correct about M3, except that the Fed stopped publishing M3 in 2006. The conspiracy theorists claim that the Fed didn't want people to know how many dollars were really floating around.

Just being in the moneitary aggregates doesn't convert to impact. When a dollar is in a foreign bank, pocket, or government reserve, it isn't being offered for US goods or assets. So, no, those dollars do not exert an upward pressure on US prices.

Isn't it interesting that when the begining of this thread appeared we were concerned with how the Fed was going to absorb all the reserves it created and issues like this one. Now, next to the euro, the dollar sort of looks "sound" and we wonder if the world is going back into recession.

I just wrote about the mess China is in. When China's bust comes, we will even forget about the euro. HA!