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China has allowed its currency, the yuan, to revalue a bit more against the dollar. Next to real estate, currencies are one of my favorite soapboxes to jump onto, so here goes.

If our economy were growing strongly, and if as a result the Fed were actually having to “fight inflation,” this would be great news. I’m all for free markets and floating currencies. But we’re too far down the rabbit hole- our economy is about as strong as a cancer patient with severe bone marrow depression, so this type of move has to be “measured” in order to keep it from cratering our (and the world’s) growth. I’ve written various posts and articles about it, like here and here.

China allows the yuan to gain (and Japan the yen, for that matter) by purchasing fewer Treasuries with the hundreds of billions of dollars we send them. This decrease in treasury demand will result in lowering of treasury prices and a corresponding increase in yields.

So what?

So this: for those of you playing along at home, this would mean

• Cheaper dollars

• Higher gold

• More expensive oil

• Higher mortgage rates (you just think the bubble is bursting now)

• Higher rates on those credit card balances which enslave many of us

• More competitive prices for U.S. goods overseas (one glimmer of light in a murky swamp)

Too much too fast, and we could be looking at a deflationary spiral that would make the Japan of the 80s look like a cakewalk. And yes, it’s all our fault for not being more sensible with our personal, corporate and government spending. But as Walter Cronkite would say, that’s the way it is.

So let’s all thank China for doing what it should have done years ago, and letting its currency begin to find a “fair” level against the dollar.

But let’s not rush ‘em.