China Threatens To Trigger Us Dollar Crash

[Mvic]

Quote from PARACLESE:

ah shit doesn't the truth hurt. They talk about inferior chinese products, what about gm and ford? I wouldn't call mcdonalds fine cuisine either. Lets sink deeper : US treasuries and paper dollars? What happens when you dilute a bottle of liquor 20x? no more liquor just the illusion, the smell. Last I checked the dollar is cotton, and backed by... by.... future hopes and promises, of future generations. Is this patriotic? some seem to think so. oh and .. the fed will always save us. there you have it, your very own personal saviour. which creates more problems than it solves, after all , they are the ones doing all of the prinitng.

Here's a scenario for you: let the yuan trade freely and get rid of Chinese restrictions on foreign imports, allow foreign ownership of companies in China, and respect international patent law, essentially enforce WTO membership rules. You know where that 1Trillion surplus is going? It is will be going to defend their yuan and subsidize their many state owned businesses.

The reason we have the excesses in consumption is BECAUSE of the easy credit and BECAUSE China's artificially low yuan is essentially subsidizing the inflation rate in the US. If the Yuan wasn't rigged inflation in the US would be 10-30% higher and rates would be much higher too and consumption obviously much lower even with cheap Chinese products (which ofcourse wouldn't be so cheap anymore). Throw in the fact that the playing field in terms of trade, asset ownership, and corporate and patent law is not at all level and you have a recipe for what we have now:a very unhealthy unsustainable economic relationship that is bound to cause political friction. My point is: fix these things now while they can be fixed, rather than waiting until the imbalances are so huge that they collapse under their own weight. If we don't the political friction that will ensue will be much worse.

 

[Sparohok]

Quote from AAAintheBeltway:

That's why we are a superpower and they aren't.

Solving trade problems with military power is like doing open heart surgery with a broadsword. A poor choice even in the last resort.

So, what <i>is</i> your policy recommendation, AAA?

I've made mine: raise the taxes Bush cut, cut the reckless spending Bush raised, and buy back our debt from China. Either that, or get used to being kicked around by third world countries.

Martin

 

[PARACLESE]

How about learn, spend less, save more, invest prudently type shit, huh? All I hear about is regulation, more regulation higher taxes, lower taxes, he said this and she said that, we should point the finger at him or point the finger at her. I wonder when we will all collectively own up to eachothers mistakes. I have. It is much different when you walk in ALLs shoes. The truth is shown for all to see.

 

[ptunic]

There has been some heated rhetoric regarding China's international economic policies the last few years. This is just rhetoric though; it is neither in China's interests nor the US's to act on increasing trade barriers.

All three Democratic President candidate front-runners said they would (while modifying) not repeal NAFTA, for example. They might use rhetoric to their political advantage, but at the end of the day, their economic advisers will see to it (and they are smart enough to listen) that the US doesn't make in major policies mistakes in this area such as increasing barriers to trade substantially. Even if Congress votes on this, expect it to be extremely watered-down and mostly symbolic, or vetoed.

Same on the Chinese side, these are idle threats. China is just pointing out economic and mathematical truths here; a more rapid appreciation of the yuan versus the dollar would almost certainly go hand in hand with a reduction in the accumulation (if not selling) of some of their significant holdings in US Treasury debt, and this could cause problems. They are just pointing out the idiocy of the demand for a violent devaluation of the US dollar against the yuan.

It is in the interests of both sides that international trade remains stable, and for China to continue to allow the yuan to make incremental -- not drastic -- progress towards flexibility.

 

[lite]

if truth to be told, the US is in decline ever since 2000. dollar most likely will continue to fall. china is diversifying it's reserves to include euro, Aussi dollar, and pound.

and china is not just "producing cheap nike shoes". look around, everything you see is made in china. you computer is made in china (or at least partially), the car you driving have components that are make in china. you furniture is most likely made in china, your tv is made in china, your dishwasher, your microwave, your stove, your house is built from materials that are imported from china. 20% of the seafood you consume is from china. your clothes, your processed food, your ipod, everything! china's export is still growing at over 20% per year, and the export of high-tech products has been growing at an average annual rate of 43 percent for the past few years.


corporations know nothing about loyalty, all they want is to maximize profit.

if china becomes a more important market for them, i wouldn't be surprised to see big corporations relocating their headquaters to china

 

[lite]

Quote from ptunic:

There has been some heated rhetoric regarding China's international economic policies the last few years. This is just rhetoric though; it is neither in China's interests nor the US's to act on increasing trade barriers.

All three Democratic President candidate front-runners said they would (while modifying) not repeal NAFTA, for example. They might use rhetoric to their political advantage, but at the end of the day, their economic advisers will see to it (and they are smart enough to listen) that the US doesn't make in major policies mistakes in this area such as increasing barriers to trade substantially. Even if Congress votes on this, expect it to be extremely watered-down and mostly symbolic, or vetoed.

Same on the Chinese side, these are idle threats. China is just pointing out economic and mathematical truths here; a more rapid appreciation of the yuan versus the dollar would almost certainly go hand in hand with a reduction in the accumulation (if not selling) of some of their significant holdings in US Treasury debt, and this could cause problems. They are just pointing out the idiocy of the demand for a violent devaluation of the US dollar against the yuan.

It is in the interests of both sides that international trade remains stable, and for China to continue to allow the yuan to make incremental -- not drastic -- progress towards flexibility.

so true.

 

[Mvic]

Quote from lite:

so true.

Well at least the Chinese gave us fair warning and telegraphed what they were going to do. It is always a mistake not to take your adversaries threats at face value when you are a sovreign power, especially when the means to carry out the threat is at their disposal.

 

[achilles28]

Quote from moo:


The Chinese are not forcing you Americans to overconsume, it's your own decision to sink ever deeper into debt. And thus there is no amount of yuan revaluation nor import tariffs that will solve this problem. The solution can be seen in the mirror, but most of you just refuse to look.

Thank you.

If America would just stop running massive deficits, the whole problem would go away.

 

[moo]

Mvic, you are right that the Chinese should get rid of the stupid restrictions concerning foreign investments, trade, etc. But it is their decision to make, not yours, even though you Americans seem so eager to push other nations around. In any case the US is in no position to tell China what to do.

Quote from Mvic:

The reason we have the excesses in consumption is BECAUSE of the easy credit and BECAUSE China's artificially low yuan is essentially subsidizing the inflation rate in the US. If the Yuan wasn't rigged inflation in the US would be 10-30% higher and rates would be much higher too...

So, since CPI has been around 2-3% recently, you are saying it would have been 0.2-0.9% higher? Even if interest rates (both long and short) were that much higher, I am quite sure your situation would not be much better. Perhaps your housing bubble, overindebtness and overconsumption problems would be marginally smaller, but you would still have them. And focusing on the wrong problem will not help you solve the right one.


Here's an interesting article from someone who does see the situation realistically.
http://onlinejournal.com/artman/publish/article_2283.shtml

The delusion that the US is "the world’s sole superpower," whose currency is desirable regardless of its excess supply, reflects American hubris, not reality.
...
If China ceased to buy US Treasuries, Bush’s wars would end. The savings rate of US consumers is essentially zero, and several million are afflicted with mortgages that they cannot afford. With Bush’s budget in deficit and with no room in the US consumer’s budget for a tax increase, Bush’s wars can only be financed by foreigners.
...
How did a people as stupid as Americans get so full of hubris?

 

[MajorUrsa]

Quote from krazykarl:

Things change.

http://china.seekingalpha.com/article/33834

Do you consider a good trader to be someone that leverages %500 of their yearly salary to purchase equities?

The Chinese had issues with dope that almost destroyed their society. This time around it's Credit.

Yes, good point, they do seem to have a problem with all types of addictions, but I don't see much difference with the US population in that respect. US has an entire state devoted to gambling, alcohol was recently an important enough problem to have it totally banned, thus allowing the mafia to get a real foothold, and more recently, opium, both from Afghanistan and coke from Columbia is causing world-scale problems. And let's not forget the 'addiction to oil'.

Anyway, I don't think you can blame the current stock-bubble and the pending problems with the US$ on a group of gambling chinese housewives.

Ursa..