The yuan eventually floats

MarketWatch: Investors will be on the lookout for evidence that China is denting its sizable foreign exchange reserves when the People’s Bank of China releases data for January on Sunday, potentially underlining fears that Beijing is in danger of running out of ammunition as it battles a crisis of confidence.

“In a nutshell, we believe capital outflows will continue as long as markets expect the Chinese yuan to depreciate,” said analyst David Fernandez at Barclays, in a note.

Most economists expect a sharp drop in reserves—ranging anywhere from $38 billion to $180 billion—as investors continue to withdraw funds from the country. The country’s reserves had fallen a record $108 billion to $3.3 trillion in December.

$180 billion is nearly a point of US Real GDP, a big inflationary factor in  the 6.2% YoY home appreciation.  That means medical, at 5%, homes at 6%, but headline inflation has been near zero, so imagine the price deflation on the rest of consumer goods.   That kind of price distortion gets corrected.