The infinite force of central planning meets the immovable object of capital markets

Yu Yongding, a former member of the Monetary Policy committee of the Chinese Central Bank has just said

"the situation is ultimately unsustainable. The longer it continues, the more violent and destructive the final adjustment will be. "

He is referring to the relentless recycling of Chinese trade surplus in the form of US paper which is increasingly looking like it will never get repaid. His chief rhetorical question is key: "The question is: what losses is China willing to bear in its foreign exchange reserves in order to slow the pace of the renminbi appreciation?"

His conclusion:

If there is any lesson China can draw from the US debt ceiling crisis, it is that it must stop policies that result in further accumulation of foreign exchange reserves. Given that many large developed countries are simply printing money (and the recent rumours are that the US might return to quantitative easing) China must realise that it can no longer invest in the paper assets of the developed world.

The People’s Bank of China must stop buying US dollars and allow the renminbi exchange rate to be decided by market forces as soon as possible. China should have done so a long time ago. There should be no more hesitating and dithering. To float the renminbi is not costless. However, its benefits for the Chinese economy will vastly offset those costs, while being favourable to the global economy as well.
http://www.zerohedge.com/news/former-pboc-member-situation-unsustainable-longer-it-continues-more-violent-and-destructive-fin

Meanwhile the Japanese are now supposed to act tomorrow in order to support the dollar:

Just out from Bloomberg: Finance ministers and central bankers are preparing a statement to release before the open of Asian markets, the Nikkei newspaper reported, without citing anyone. Japan may intervene in currency market if dollar falls. G-7 finance ministers, central bankers expected to express confidence in dollar, pledge liquidity. U.S. to explain fiscal rebuilding efforts." [so no more sniping at S&P and actually doing its job eh?] "Japan to express intention to maintain Treasury holdings. G-7 expected to show support for EU fiscal efforts."

As is the ECB in order to support Italian and Spanish bonds:

And while the G7 is about to realize that when faced with a $100 trillion (equities plus debt) market onslaught its printing powers are next to laughable, Dow Jones reports that the "ECB is weighing Italian, Spanish bond buying on a massive scale." Two take homes: i) the Fed has just lost its competitive advantage of doing idiotic things on a massive scale as the world wake up to tits trickery (unless of course the Fed resumes said thing on a massiver scale, which it will), and ii) tomorrow is the day when the infinite force of central planning meets the immovable object of capital markets. We will find out who blinks first in a few hours.
http://www.zerohedge.com/news/g7-preparing-statement-support-dollar-eu-fact-everything-would-otherwise-collapse-tomorrow-asia

Guess who told em to..? Yupp our friends Goldman Sachs:

As expected, Goldman, who came up with the promptly imploding plan of using the EFSF as a EUR rescue mechanism, is now scrambling to come up with yet another Eurozone rescue plan. Below is the full text of what Francesco Garzarelli just released as a prompt to Trichet. Gone are the days of nuance: the note is titled brutally enough Europe Should Say That BTPs Are ‘Cheap’.

Just in case anyone is confused of course. We expect the ECB head to pretty much read from this note to "clients" verbatim. In a nutshell, Goldman's view is that, "Italian government bonds are fundamentally attractive, but we have reached a point where only the European authorities can credibly signal this is the case. Secondary bond market purchases by the ECB are needed to stabilize markets in the near term. The 10-yr BTP spread to Bunds could fall back to around 200-250bp in such a scenario." Sure. It will work. For a week or so. Then what?
http://www.zerohedge.com/news/goldman-scrambles-tell-ecb-what-say-later-today

And then of course well see what FED has up its sleve.. Q3 anyone?

Isn’t these interventions the sign a wonderful free market and the natural work of the market forces and invincible hand? Or am I missing something? Fact is 80 years of soviet central planning coulden't acheive anything even remotley - well planned...

Personaly I really do think Germany - sorry EFSF takes on a very substatial risk by getting involved in these Italian and Spanish endevours.

Anyway seems to be intervention week starting Monday?