Commodities, USA Chinese Economies, USD and Yuan - The Relation

As of May 2008, USA is seeing a slow down, China is seeing higher inflation, Commodities are at all time highs. I tried to think logically through all this to see what some of the outcomes could be.

1. Chinese inflation at 8.5% yoy, near record highs
   1. Increased production costs, higher export prices [6]
      1. Imported consumer goods get more expensive in USA [6]
         1. Additional upward pressure on USA inflation [12]
            1. US Fed eventually increase fed rates [18]
               1. USD rises [18]
                  1. Commodities cool down [18]
      2. Less US demand for imported consumer goods , especially with high gas and food prices [12]
         1. Less production in China  [18]
            1. Chinese economy slows down  [24]
            2. Less demand for commodities from China [18]
               1. Commodities cool down [18]
   2. Chinese Yuan rises [6]
      1. Exports become less profitable [6]
         1. Chinese economy slows down [12]
   3. Chinese central bank controls inflation (this week boosted bank reserve requirements by 50 basis points to a record high of 16.5%) [12]
      1. Chinese economy slows down [18]

To conclude, over the next 2 years, I expect to see the following in chronological order:

• Higher Chinese inflation
• USA further slows down
• Chinese Yuan rises
• Chinese economy slows down
• Commodities cool down
• USD rises