US Dollars? Do you have anything of real value?

[civ_king]

Cool in this topic I learned about undervalued currencies.
I would enjoy a world without the ((Politically Correct)) Hegemony of America...
This is just another story in a series of forecasts that the wealth of world will move east from west.

Maybe it is from all the huge social experiments that were going on in the west? Like taxing the people so much to pay for pointless credits to arts or cultural investments and bureaucrats.

sir yessir, the US is in decline General YEC!

 

[Winner]

Well, of course, it's just opinion because the only way to know would be to allow the yuan to float freely which it does not. So ask yourself...what is the most important objectives of the Chinese government?

It's pretty clear that near full employment and export markets (37% of GDP) are what the Chinese need to continue to fuel their GDP growth and maintain stability politically. Their domestic market is in its infancy so the best way to do this is peg their currency for strong exports. They can't switch from external to internal demand as a economic driver.

If they allowed their currency to float freely I'm not sure you could find anyone who believes it wouldn't trade very strong but hurt their main goal, employment.

Here's a piece that can give you a baseline on valuation.

http://www.voxeu.org/index.php?q=node/3666

What's interesting is eight of the eleven Asian countries within the top thirty economies (the exceptions are India, Indonesia, and Korea) are on the list of significantly undervalued currencies, and the list is dominated by eight Asians out of eleven countries on the list. This simply suggests the not so controversial view that Asian countries have undervalued their currencies as a strategy to generate employment growth with China leading the way at 40% overvaluation.

I think a more provocative question is China's exports currently account for about 10% of the world's exports and are almost tied with Germany for the No. 1 position in the world. If these numbers continue to grow at their historic 25% rate (and world exports at their historic 10% rate), then by 2020 exports from China would account for almost 50% of the entire world's exports. Is such a situation is economically and politically possible? I would suggest not for two reasons but no need to clutter the thread further.

It's been some time since I took some basic courses in economic relations, world trade etc., but...

Isn't China essentially subsidizing the rest of the world? If they are keeping the prices of their products low by regulating the value of their currency or/and by using dumping schemes, export subsidies etc., they're essentially giving us stuff for sub-standard prices only to keep an illusion of rapid economic growth, trade surpluses and high employment - right?

 

[Elta]

To a degree, but if they had to pay their workers what they are really work it would employ more people world wide.


Overall China keeping prices is low is a gain for the U.S. at least.

Not for the Average Manual laborer in the U.S. though - Not at all really.

 

[Winner]

Well, obviously it's hard to explain to workers in the less-sophisticated branches of industry that their work is too expensive, but in the long run, Chinese (East Asian) dumping will create a pressure to move away from low-cost manufacturing towards hi-tech industry/services, won't it? (Of course you have to have a working education system in order to make that transition.)

In the end, China will be stuck with huge low-cost manufacturing industry and when the cost of Chinese labour goes up and when the dumping practices end, it could be a huge problem for China. IMHO.

And there are other huge negatives resulting from this policy - environmental devastation, too rapid urbanization, social destabilization, increasing reliance on export markets and imports of raw materials etc.

IMO the EU, US, Japan and others should eventually force China to adopt sensible monetary policies. The West can't tolerate such huge trade deficits forever.

 

[Elta]

It is not going to last forever, I am quite sure the Chinese are making the right choices to keep their people as happy as they can for as long as they can.


What that means now is getting everyone who wants to live in a city into one, 700 million Chinese will likely move into cities in the next 50 years...... The plan for after that, I am not sure.

P.S. William McDonough is being paid obscene amounts of money to build/design Cradle to Cradle cities all over China for the new urbanization. If they go through with it - China will be one of the greenest countries on Earth.

Keep your fingers crossed.

 

[J-man]

It would be very bad for China and the Middle-Eastern countries if the dollar falls. Their export products would be come very very expensive in the US.

 

[Whomp]

It's been some time since I took some basic courses in economic relations, world trade etc., but...

Isn't China essentially subsidizing the rest of the world? If they are keeping the prices of their products low by regulating the value of their currency or/and by using dumping schemes, export subsidies etc., they're essentially giving us stuff for sub-standard prices only to keep an illusion of rapid economic growth, trade surpluses and high employment - right?

I agree with with both your posts. Inflation and interest rates would've been much higher without the export boom from China.

You've also addressed my second question in your other post. If China were to continue at their current pace of 25% annual export growth they'd be 50% of world export markets in a decade. The problem with this assumption is as China gets richer, its labor costs will increase, and the more labor-intensive processing trade will begin migrating to lower labor-cost countries such as India and Vietnam. The second issue is political where other big economies will find it impossible to accept such a high level of dependence on imports from China. My guess is the 25% export growth will have to moderate considerably to be acceptable and their domestic market will need to become more prevalent in the process which would help with a much stronger currency.

 

[Verbose]

I feel pretty confident the Chinese are well aware of the impossibility of indefinitely growing their economy on exports. Afaik what everyone is looking for is the point when Chinese domestic demand really takes off, and China can start growing less dependent on foreign exports. I would assume they are milking the current opportunity fingers crossed that's how they will eventually get out of it, no?

 

[Cutlass]

China still has a vast pool of labor that is essentially still in third world living standards. So they have more than a bit of cushion on labor costs. But down the road the one child policy is going to be felt in that. The question is how they handle the transition from a cheap labor to valuable labor economy.

 

[Verbose]

China still has a vast pool of labor that is essentially still in third world living standards. So they have more than a bit of cushion on labor costs. But down the road the one child policy is going to be felt in that. The question is how they handle the transition from a cheap labor to valuable labor economy.

Afaik China is still internally split, proceeding at a dual speed with regards to economic reforms. The problem is that the people are bleeding through in massive numbers between the two areas. As a Chinese, your opportunities still differ depending on the administrative classification, the household registration (hukou), of where you belong, never mind where you're actually located.

 

[Daftpanzer]

I noticed that nobody mentioned the huge bailout/stimulus 'spending'. Which is really the printing of large amounts of money without equivalent growth of real wealth, as I understand. And it seems this will be a recurring thing from now on. How will this not devalue the dollar?

Obviously the whole system is way too complicated for any single human brain to understand all of it at once. I admit to finding the doom 'n gloom stuff really addicting.

 

[Cutlass]

I noticed that nobody mentioned the huge bailout/stimulus 'spending'. Which is really the printing of large amounts of money without equivalent growth of real wealth, as I understand. And it seems this will be a recurring thing from now on. How will this not devalue the dollar?

Obviously the whole system is way too complicated for any single human brain to understand all of it at once. I admit to finding the doom 'n gloom stuff really addicting.

Simplest version of monetary theory: quantity of Money * Velocity of money = Price level * Quantity of goods and services up for sale.

You're talking about moving one variable out of four and thinking you know what the other three will do.

 

[Daftpanzer]

Hey, I didn't say I knew what was going on In fact, I asked a question...

So how does pumping all that money into the system not devalue the dolar? Is it just not that big a deal on the grand scale of things?

 

[Cutlass]

You missed my point. By looking only at the money supply you over simplify and thereby fail to understand what is going on. Money velocity is in the tank. A huge increase in money supply was necessary to balance the equation. Many people look at the basic money supply and say "OMG INFLation". But the real point is that without that huge increase in the money supply there would have been extremely severe deflation. And deflation on that scale would have certainly kicked off a global great depression. But people also overlook the fact that when velocity returns to normal the government can withdraw money supply, and by doing that keep the equation in balance without out of the ordinary inflation. Further, there's so much slack in the real economy that price increases outside of oil and agriculture (which are segments of the economy that march to their own drummers, not to global or national economic trends) are next to impossible.

So to answer your question, it does not devalue the dollar because the value of the dollar is a more complex equation. And the other parts of the equation do not support the idea that the dollar must devalue.

 

[xchen08]

Hey, I didn't say I knew what was going on In fact, I asked a question...

So how does pumping all that money into the system not devalue the dolar? Is it just not that big a deal on the grand scale of things?

There is no need to ask. The Fed, among other institutions regularly publish the actual, measured inflation numbers, and we aren't seeing any. So whatever the reason (Cutlass is most likely correct) pumping all that money into the system is not devalueing the dollar.