Currency manipulation and threats from both sides of the Pacific has heightened the rhetoric of lately. But many of these issues are not so easily explained in a couple of sound-bites from either pundits from the right or left.
The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation. # Blog - Dollar to collapse?
Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. ... "China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.
"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.
Often these concerns are addressed as Global Imbalances (IMF, UN, World Bank). We will need to look at a variety of theories about exchange rates and capital flows to understand these issues more fully...
Posts: 7939 | Location: Santa Barbara | Registered: 19 July 2005
**** Disclaimer: The information in this weblog is provided "AS IS" with no warranties, and confers no rights. This weblog does not represent the thoughts, intentions, plans or strategies of my owner. It is solely my own personal opinion. Inappropriate comments will be deleted at the authors discretion.***
"I stand or fall on my own words."
Posts: 7253 | Location: PORTLAND | Registered: 07 November 2005
China's whole economy is Fake ___________________________________________________ Again: tell Wal Mart, Tom Friedman and the investment class whom you share more with than us! I think we already know this
"a long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason."
Posts: 1944 | Location: Beautiful New Paltz, NY | Registered: 04 July 2006
Loganthor, are you serious? You know I have to criticize a conservative on a weekly basis whether they need it or not.
Well if you mean fake in the fact that their whole economy is gaged for export to only one country then, yes I might say that.
A monopsony (one buyer) is an enviable position to be in. In many ways better than a monopolist. The USA can easily get our t-shirts and underwear from every country in the world. But honestly who is going to take Chinese "trinkets" as some people describe their products.
The EU is not so receptive as massive inflows of any product or service. An interesting side note is that the EU would accept textile imports from Somalia but not Kenya. A little like yes we will accept imports from countries that have no industry but when approached by a country that could actually use the increased trade...NO thanks. We have had so much from China that it hurt many of our traditional trading partners. They would be happy to supply us again.
Africa does not even have a market that could handle the extra flow. And South America will not like it either. Mexico is still upset by the Chinese ruining their toy industry. I was exposed to it when a retail chain I was working at could not send any toys to our company stores in Mexico. I am sure they will not accept anything like dumping on their market.
Posts: 7939 | Location: Santa Barbara | Registered: 19 July 2005
We have had so much from China that it hurt many of our traditional trading partners. They would be happy to supply us again.
You might believe thats a good but I do not. Senator Bernie Saunders spoke about military procurement and how NAFTA the process has been affected by NAFTA According to Senator Saunders, steel production is down so much that the military can no longer purchase sufficient steel to maintain the military needs. That is scary and I find it disturbing that it gets no attention from either the left or right wing press.
"a long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason."
Posts: 1944 | Location: Beautiful New Paltz, NY | Registered: 04 July 2006
You might believe thats a good but I do not. Senator Bernie Saunders spoke about military procurement and how NAFTA the process has been affected by NAFTA According to Senator Saunders, steel production is down so much that the military can no longer purchase sufficient steel to maintain the military needs. That is scary and I find it disturbing that it gets no attention from either the left or right wing press.
James, can you be more specific? Is it good that China replaced our traditional partners or that maybe they can get back into the game?
Did Saunders say that our steel production is now in Mexico and Canada? And that we should somehow be worried about that?
If we need to worry about Mexico and Canada, then we have one shit load of worries!!! I guess in that regard, I am so glad we did pass NAFTA. Again we could not have done it without Clinton.
Thank you so much Clinton.
Posts: 7939 | Location: Santa Barbara | Registered: 19 July 2005
Loganthor, are you serious? You know I have to criticize a conservative on a weekly basis whether they need it or not
Puke!!!! you make my sensibleness hurt
How can you criticize ME!!!! I'm not the one running around with a fake economy, like China. Although it would be pretty cool to take the $10 I have in my wallet and arbitrarily tell people that it is worth $100 and force that on the world. Their currency isn’t pegged to anything based in reality. Some fat Communist came up with the number using a dart board, tequila and a stripper. Not that there anything wrong with that. Except that they purposely do it for the express purpose of undercutting the US, in a economic war we had no idea we are engaged in. Stupid ****ing Wal-Mart Sheep
**** Disclaimer: The information in this weblog is provided "AS IS" with no warranties, and confers no rights. This weblog does not represent the thoughts, intentions, plans or strategies of my owner. It is solely my own personal opinion. Inappropriate comments will be deleted at the authors discretion.***
"I stand or fall on my own words."
Posts: 7253 | Location: PORTLAND | Registered: 07 November 2005
Might I say the same thing? From a person that has no idea of what a J curve is, that can not tell the difference between a marginal utility curve and a marginal Carman fart curve.
quote:
Their currency isn’t pegged to anything based in reality.
That is unless you count the US dollar.
quote:
Some fat Communist came up with the number using a dart board, tequila and a stripper.
Can't deny that but with supply and demand after that will dictate the relative prices and the amount of injections from the central bank.
There is a reason to under value your currency when you want to expand your export industries. The Japanese have successful done it for decades. ADJUSTING CHINA’S EXCHANGE RATE POLICIES-PDF
quote:
Yes, criticism of China in the United States would likely be more muted if the ongoing recovery were not so “jobless,” if employment in the US manufacturing sector had not (mainly for other reasons) declined so much in the three-year run-up to this presidential election year, if so much attention were not focused on the very large bilateral US trade deficit with China instead of China’s economically—more meaningful overall balance-of-payments position, and if the United States had not done such a poor job of improving its saving-investment imbalance—particularly in the public sector.
Yes, Euroland’s criticism of China would no doubt be less pronounced if Europe had not compiled such an anemic average growth performance over the past three years, if the European Central Bank had been somewhat more aggressive in lowering interest rates, and, most telling, if the real tradeweighted exchange rate of the euro had not appreciated so much (17 percent) since (the US dollar’s peak in) February 2002.
Yes, criticism of China in Japan would probably be less sharp if Japan had not been struggling with weak economic growth (until very recently) and deflation and if Japan had not increasingly found its leadership within Asia being challenged by a rising China. True, Japan also has been engaging in largescale, protracted, one-way exchange market intervention to keep its currency (the yen) from rising; indeed, Japan’s intervention in the first quarter of 2004 was just about as large as China’s intervention for all of last year.
Posts: 7939 | Location: Santa Barbara | Registered: 19 July 2005
First let me quote from a lecture about Arbitrage. A very important issue in my classes.
quote:
Cross Rate is the third exchange rate implied by any two exchange rates involving three currencies. Example: Suppose that in London $/E=$ 1.5, while in Tokyo, $/ L=$ 2. The implied cross rate between pounds and euro is the E/ Lrate. If $/E=1.5 and $/ L=$2 and E/ L=($/ L)/($/E)=2/1.5=4/3. The arbitrage opportunity arise if any of the three exchange rates considered in above example differs drastically from one other. (From the PDF: The Structure of the Market
The whole piece is interesting but let me create a scenario about what the Chinese would have to do to unload their Treasury Bonds.
Well first they need to unload the bonds. If there is no takers then the price will just drop like a rock. It can have an effect of raising interest rates. But if they are foolish to try to sell in an auction that has no buyers then let them-I say.
As the price is dropped then savvy investors will buy the bonds below market prices. This is where the Fed could step in and scoop up that some of that trillion dollars of easy money. The prices drop in half then only half a trillion needed.
Then the Chinese will need to convert their dollars into other currencies. If they decide to go with straight to the Renminbi (RMB) then again they will be facing an uphill battle. As they flood the market each additional trade becomes less and less value derived from that trade. Over supply of dollars and an under-supply of RMB.
If one way then it opens up an additional market for arbitrage in the three way as noted in the lecture notes. And either way that will result in their currency skyrocketing in price that will kill any chance of trade with any country.
Imports will be cheap for them but the export market will drop like a rock. A major downturn in their company with massive bank failures that will collapse their economy.
Then the Fed jumps back in and "absorbs" the excess liquidity it created by selling bonds to people looking for a good investment in the USA including US investors. The exchange rate went down through arbitrage or direct intervention by the Chinese but not nearly as drastic as their currency appreciated. And that one trillion was really not that much after all.
Trading partners step in to fill the void and everyone happy...
Posts: 7939 | Location: Santa Barbara | Registered: 19 July 2005
Bring in the I.M.F. With growing political pressure to tackle the trade deficits with China, Washington and Brussels teamed up at the I.M.F. to increase the organization's ability to monitor "all major emerging market currencies." China lobbied hard against the passage of the new measure, which it viewed as aimed at the yuan. Still, because of the voting structure at the organization, the United States and European countries were able to push through the rule change.
In Washington, Secretary Paulson praised the measure, saying it would "permit firmer surveillance in areas such as insufficiently flexible exchange rate regimes." It is hoped that the I.M.F. will provide further evidence that China is intentionally manipulating its currency. This, in turn, would give Washington and Brussels political cover to impose sanctions on Chinese imports. ...
Still, China will take a cautious approach to revaluation. Moving too fast would cause Beijing's dollar denominated reserves to decrease in value. Therefore, even after this fall's national congress, it is likely that little will change in Beijing's stance on its currency appreciation.
About what I am saying also. But do note that it is not the USA alone that pushed it through. When you have the EU and US on the same side then it is pretty hard to stop those measures, of course depending on the level of majority needed (50,70,85%).
Posts: 7939 | Location: Santa Barbara | Registered: 19 July 2005
At a time when even the Wall Street Journal has disappeared into the maw of a huge media conglomerate, the New York Times remains an independent newspaper. But it doesn’t show any independence in reporting or in thought.
The Times issued a mea culpa for letting its reporter, Judith Miller, misinform readers about Iraq, thus helping the neoconservatives set the stage for their invasion. Now the Times’ reporting on Iran seems to be repeating the mistake. After the US commits another senseless act of naked aggression by bombing Iran, will the Times publish another mea culpa?
The Times editorials also serve as conduits for propaganda. On August 13, a Times editorial jumped on China for “irresponsible threats” that threaten free trade. The Times’ editorialists "do not understand that the offshoring of American jobs, which the Times mistakenly thinks is free trade, is a far greater threat to America than a reminder from the Chinese, who are tired of US bullying, that China is America’s banker.
We are already knee deep in his little straw-man arguments. So far we are exposed to the evil Murdoch, lack of good reporters especially on economics (which where did this guy get his degree?), hints of a conspiracy since they can not think for themselves, neocons under the bed, US imperialism even when it is China that is making threats and throw in propaganda even if unsubstantiated.
Irresponsible threats seems to be one way to describe it, but not that I am worried at all what they say. And yes it does threaten free trade, but they will lose out on any war of trade, as I clearly define out above.
"Offshoring of American jobs" is what I would also describe as free trade. The basis of any trade is the transfer of jobs from one economy to another and then the reverse process occurs. The amount that we offshore is minor compared to what we inshore-that is to transfer jobs from one job to another or one region to another. But this is not a one way direction, once they receive US dollars their is nothing that benefits them until they trade them for things they want to buy from us.
China is not "our" banker but the whole world holds our national debt. If they want to play around let them... Why should we worry if they want to subsidize our consumption or even our debt by loaning us money at higher rates than what they get paid?
Posts: 7939 | Location: Santa Barbara | Registered: 19 July 2005
Posted by Gerry: If you understood the first article, which I posted earlier, than your next article us superfluous, is it not?
The issue is not that it lacks facts, but that you lack the ability to connect the dots. Roll Eyes
Oh, I understood it fine. But instead of a knee jerk reactions (like your first post) you may actually follow your own advice. I presented my first link since it had a very thorough analysis of the issues and did not use faulty logic to come to some biased conclusions. I want to come to an understanding beyond some sound-bites from either a "conservative" or a "Progressive".
Now that you read it, can you compare and contrast the two articles? What things were confusing in either passage? And what did you learn from either one?
Posts: 7939 | Location: Santa Barbara | Registered: 19 July 2005
Posted by Gerry: If you understood the first article, which I posted earlier, than your next article us superfluous, is it not?
The issue is not that it lacks facts, but that you lack the ability to connect the dots. Roll Eyes
quote:
Oh, I understood it fine. But instead of a knee jerk reactions (like your first post) you may actually follow your own advice. I presented my first link since it had a very thorough analysis of the issues and did not use faulty logic to come to some biased conclusions. I want to come to an understanding beyond some sound-bites from either a "conservative" or a "Progressive".
Now that you read it, can you compare and contrast the two articles? What things were confusing in either passage? And what did you learn from either one?
If that were so why "schlepp" my above quote from a different thread and plant it here? Where no one can read your "excellent" thorough analysis....Hmmm? Why not address it where it was? Not so sure of your thorough analysis, that you have to drag posts from one thread to another and become personal. That no work Ronnie!. That's the typical MO of a person who cannot debate.....a straw man.
Posts: 863 | Location: West Palm Beach, FL | Registered: 21 June 2007
And just what does the U.S. produce that China wants to buy? Not much. Maybe they'll buy some of our "for sale" highways, perhaps good farmland, national parks, and the like. Products? Which ones?
They can use dollars to buy oil from the sheikdoms. They certainly have enough of them to out-bid us as their oil requirements grow.
As long as the dollar remains an international exchange medium, no problem. Since countries seem to be lowering their dollars as a percentage of their basket currencies, just at what point does this cease to be?
We're still waiting for the Chinese demand for American products. Perhaps they are waiting for us to produce something they actually want or need. Ultimately, they'll end up producing it themselves. At that point, we can hold out our begging bowls for the clothing on our backs...it will all be produced in China.
Read something other than conservative economists, Rutherford. There is more than one school of substantial economic thought out there.
Retired Monk "Ideology is a disease"
Posts: 3412 | Location: denver co | Registered: 17 April 2007
Let’s briefly review the “China threat” and then turn to the real problem.
Members of the US government believe, as do many Americans, that the Chinese currency is undervalued relative to the US dollar and that this is the reason for America’s large trade deficit with China. Pressure continues to be applied to China to revalue its currency in order to reduce its trade advantage over goods made in the US.
The pressure put on China is misdirected. The exchange rate is not the main cause of the US trade deficit with China. The costs of labor, regulation and harassment are far lower in China, and US corporations have offshored their production to China in order to benefit from these lower costs. When a company shifts its production from the US to a foreign country, it transforms US GDP into imports. Every time a US company offshores goods and services, it adds to the US trade deficit.
Conclusion on Misalignment of the RMB Given the dynamic character of the Chinese economy and the margin of uncertainty surrounding underlying parameters, it would be naïve to pretend that estimates of the misalignment of the RMB can be made with great precision. That said, so long as China continues to run surpluses on its current and capital accounts (while its economy is overheating) and maintains binding restrictions on capital outflows, and so long as there are serious global payments imbalances afoot, there is a compelling case that the RMB is presently undervalued—on the order of 15 to 25 percent.
I have heard that it is as much as 75% overvalued meaning that now it should be reduced to 2 RMB per Dollar.
I am not sure if he even understands offshoring. He says we have offshored our production but we are now producing more than ever in the History of the USA. It looks like he uses offshoring to describe any time we import goods or services, and does this mean that our FDI is the only reason that China developed their production capability?
He assumes that we can not compete because of their low labor costs, and less regulation. But many developing countries worry about not being able to compete with our superior levels of capital and our worker productivity. This just translates to comparative advantage. My advice is to read In Defense of Globalization-Bhagwati.
It must be realized that most LICs do use devaluation as a way to stimulate export growth and tend to have some variety of fixed exchange rate, so the Chinese doing this should not surprise us.
Gerry if you want to discuss this or any other issue about China and their economy, NP.
Posts: 7939 | Location: Santa Barbara | Registered: 19 July 2005
And just what is the U.S. producing? War goods add what to the wealth of an economy? Nothing.
They add jobs with nothing to purchase with the wages. What is purchased is purchased on "credit" from the Chinese. What do we have in exchange for Chinese products? Highways, parks, farmland.
Are we going to sell them smart bombs and ICBM's? Nope.
Retired Monk "Ideology is a disease"
Posts: 3412 | Location: denver co | Registered: 17 April 2007
Clearly, it is a mistake for the US government and economists to think of the imbalance as if it were produced by Chinese companies underselling goods produced by US companies in America. The imbalance is the result of US companies producing their goods in China and selling them in America.
Yes clearly it is a mistake for the US... since it is the manipulation of the Chinese Central Bank and the capital account controls that are creating the environment that allows Chinese companies to undersell other countries in the world, and to create an imbalance in BoP. And thus no US companies are not producing "their" since the Chinese government does not allow FDI to have more than 49% of any venture.
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Many believe the solution is to force China to revalue its currency, thereby driving up the prices of 70% of the goods on Wal-Mart shelves. Mysteriously, members of the US government believe that it would help the US consumer, who is as dependent on imported manufactured goods as he is on imported energy, to be charged higher prices.
Duh, no, but then the Libs are pandering to unions and workers now.
quote:
China believes that the exchange rate is not the cause of US offshoring and opposes any rapid change in its currency’s value. In a message issued in order to tell the US to ease off the public bullying, China reminded Washington that the US doesn’t hold all the cards.
Well of course, but the USA holds the biggest cards since this is our economy and not theirs. As a monopsony we are actually in a better position than the Chinese. Nothing says we must to buy from them, but they have very few possible other buyers to sell to.
Posts: 7939 | Location: Santa Barbara | Registered: 19 July 2005
Originally posted by Ronald Rutherford: [QUOTE] Yes clearly it is a mistake for the US... since it is the manipulation of the Chinese Central Bank and the capital account controls that are creating the environment that allows Chinese companies to undersell other countries in the world, and to create an imbalance in BoP. And thus no US companies are not producing "their" since the Chinese government does not allow FDI to have more than 49% of any venture.[QUOTE] And that 49% is enough when the U.S. parent sub-contracts its labor to the Chinese firm. [QUOTE]Many believe the solution is to force China to revalue its currency, thereby driving up the prices of 70% of the goods on Wal-Mart shelves. Mysteriously, members of the US government believe that it would help the US consumer, who is as dependent on imported manufactured goods as he is on imported energy, to be charged higher prices.
quote:
Duh, no, but then the Libs are pandering to unions and workers now.
I seem to notice that a $100 pair of shoes still costs $100 even though the labor costs have gone down drastically. A $40 blouse for my mom still costs $40...made in China.
quote:
Well of course, but the USA holds the biggest cards since this is our economy and not theirs. As a monopsony we are actually in a better position than the Chinese. Nothing says we must to buy from them, but they have very few possible other buyers to sell to.
Other than a billion other Chinese, I suppose they don't...except for the EU which seems to be increasing their trade with China. Just what cards do we hold when we can't even produce enough clothing to cloth ourselves anymore? And who is supporting our deficit spending? Wall Street? Nope. Our cards are a "bluff hand".
Retired Monk "Ideology is a disease"
Posts: 3412 | Location: denver co | Registered: 17 April 2007
Interesting article from the IMF. It could go into a lot of different threads but pertains to capital flows and China so this seems appropriately. The Rise of Sovereign Wealth Funds
Posts: 7939 | Location: Santa Barbara | Registered: 19 July 2005
The U.S. Dollar Index plunged to new record lows Wednesday after comments from Chi Siwei, vice chairman of the standing committee of Chinese National People's Congress, sparked fears that China will diversify its $1.4 trillion foreign-exchange reserves away from dollars.
Cheng said: We should take advantage of the appreciation of strong currencies to offset the depreciation of weak currencies. He later clarified that by saying, 'I didn't mean we should buy more euros.' The Dollar index, which tracks the greenback against the currencies of six major trading partners, was last down 0.9%, at 75.365, and hit an all-time low of 75.075 in intraday trading. At that low, the dollar tracker has lost 4.1% over the last month and 10% since the end of 2006.
Although Cheng 'has a history of making broad economic comments that often do not reflect actual policy ... today's reaction speaks volumes about the extent of anti-dollar sentiment present in the foreign-exchange market right now,' said Boris Schlossberg, senior currency strategist at DailyFX.com.
I wonder how the nihilist thought we would reduce our supposed deficit. Does anyone remember that during the 1985-1987 period that the US dollar dropped 40% before the Europeans and others decided to try and halt the declining dollar.
quote:
<a href="http://www.iht.com/articles/2007/11/07/america/france.php?WT.mc_id=rssfrontpage">A resolute Sarkozy is cheered in the U.S. Congress</a> He was able to chide the Bush administration to take a leadership role on climate change and to beware the steady decline of the dollar - to a position harming European exports to the United States - and still draw applause.
"Those who admire the nation that has built the world's greatest economy and has never ceased trying to persuade the world of the advantages of free trade expect her to be the first to promote fair exchange rates," he said.
"The yuan is already everybody's problem. The dollar cannot remain solely the problem of others. If we are not careful, monetary disarray could indeed morph into economic war, and we would all, all of us, be its victims."
It is worth noting that with Chinese Yuan being undervalued and pegged to the US dollar then the EU suffers some of the uncompetitive advantage on the world market especially with respect to the US markets. And over at the ET they are discussing Dollar Dump - China Edition.
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They can't de-couple. The Chinese government is in a more serious bind here than the US government. If the Chinese dump the dollar in favor of the euro, then they have the effect of placing an enormous burden on the ability of their best customer to purchase their products. I would take significant redirection of Chinese trade from the American market to European or other markets to be a more serious indicator that something is amiss.
The Chinese need the American export market or their economy collapses. For the US, a serious dollar decline suddenly makes American products more competitive relative to other advanced economies. There's some indication that GM intends to shift production out of its Canadian factories to the United States because of the rise of the Canadian dollar.
When the loonie was at .60 on the dollar, that meant that a CAN$50/hr wage and benefit cost $30/hr American. And at the same time, the comparable US wage was $60-75/hr including retiree benfits. Now with the new UAW contract, that wage has dropped to around $48/hr American, while at the same time the Canadian cost has risen from around $30/hr US, to around $50 US. They shifted healthcare costs for retirees over onto this VEBA, and now the games different.
The convergence of VEBA deals to shrink healthcare costs, and downward pressure on the US dollar coming from the Chinese mean that in the next few years, American advanced manufacturing is going to have a huge cost savings in wage terms over their counterparts in the rest of the developed world. And if trade balances between the US and EU start to shift in favor of the US, then this is going to mean that European economies are going to be less able to soak up surplus Chinese production.
My prediction?
China ends up pulling a Japan circa 1987, and goes into severe economic decline. And that creates a political crisis. And there's now guarantee that the new regime in Beijing is going to be as pacific as the current. If China can't secure raw materials through commerce, then outright conflict seems like a real possibility. Particularly by proxy in Africa, by which I mean China may fuel conflict on that continent in order to seize natural resources.
Basically what I have been saying.
Posts: 7939 | Location: Santa Barbara | Registered: 19 July 2005
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