The Oil Drum

This is on Round-Up, Oil Drum Canada

"When the fixed exchange rate regime is terminated, then newly minted funds from the foreign central bank no longer act to support the value of the US dollar and maintain low US interest rates. In effect, there is nothing left to support the US consumer anymore. The value of the US dollar collapses and US interest rates skyrocket. The skyrocketing interest rates cause a real estate crash. The collapsing value of the US dollar causes the price of gold to skyrocket. And needless to say, the stock market collapses.

At this time, the key foreign central bank that is artificially supporting the US economy at present is the central bank of China.

The point is rapidly approaching when China’s central bank will be forced to abandon their fixed exchange rate regime. On March 20, 2007, the governor of China’s central bank stated for the first time that they “will not stockpile foreign exchange reserves any more” (an extraordinarily important comment that few people took note of). Given the present state of affairs, how could that possibly be accomplished without the abandonment of the fixed exchange rate system? They will realize that the alternative to this (keeping the policy in place) can only result in the destruction of the Chinese economy. When the peg on China’s foreign exchange rate is dropped, the US economy (as well as the global economy) will implode."

http://www.prudentbear.com/articles/show/2001

Ol' Charley stole the handle, and the train it won't stop going, no way to slow down. - Jethro Tull