Asia set to dump unofficial dollar peg

[Xenocrates]

http://www.btimes.com.my/Current_News/BT/Tuesday/Corporate/BT566231.txt/Article/

LI YONG, China's vice minister for finance, said he had heard a "rumour" that the US dollar was headed for a 25 per cent drop. If the gossip was true, the consequences would be "shocking", he said.
Li's comment, which he made at a discussion on global financial imbalances last week at the annual meeting of the Asian Development Bank in the Indian city of Hyderabad, was aimed directly at fellow panelist Tim Adams, the US Treasury undersecretary of international affairs.

The unspoken message was: "Don't try to talk the US dollar down."

And Adams knew better than to ask, "Well, what are you going to do about it?" The answer to that question has already begun taking shape: Asia may be getting ready to fix its currencies to a local anchor, dumping the region's unofficial US dollar peg.

This could have serious implications for the USA, as they would have to earn foreign currency instead of continue selling debt. It looks like the World is waking up to the fact that the USA has no intention of ever repaying its debt.

1) How much of this is due to America's war in the Middle East and Mr Bush's 'conservativism'?
2) What will America's response be?
3) How will the rest of the World deal with the collapse of the American market?
4) Can the forum economists explain this story to the rest of us?

 

[Kozmos]

Good. Very good.

 

[kronic]

Good. Very good.

Not really.

 

[silver 2039]

By peg this means that this is the benchmark that these nations use? I'm intrested in the economics behind this.

 

[JohnRM]

If the American economy collapses, the hardest hit nation will be PR. China itself. After that, Japan, South Korea, Europe, Canada, and Mexico. These people will do anything they can to prop up the US Economy.

 

[Uiler]

If the American economy collapses, the hardest hit nation will be PR. China itself. After that, Japan, South Korea, Europe, Canada, and Mexico. These people will do anything they can to prop up the US Economy.

On the other hand if the US dollar drops past a certain point it might cause more damage to their economy to prop the dollar up then to let it drop. If they crunch the numbers this way they might sell off their dollars figuring that since either way they're going to be hard hit they might as well try to take the path which does the least damage. It's also possible that if news (either real or imaginary) hits countries that another country X is going to go and do a big dollar sell-off there might be a rush to sell off their dollars first to try to recoup as much money because as soon as one country sells its dollars the dollar will drop like a stone. I'm not an economist though.

The recently released "Empire of Debt" (written by right-wing isolationist small government conservative businessmen who worship Warren Buffet so not left-wingers) makes the interesting point that if a correction happens both China and the US will be heavily hit. However, afterwards (assuming neither have sucumbed to internal problems, esp. China) China will still have a heap of factories that can start making things to sell. Japan also still has factories as does SE Asia. Europe like Japan tends to go into value-added goods but they still have production capabilities. The US however will have nothing, very little production capability and since will be broke (as will everyone else be...) no money to build it. All it will have is brand-names. The other countries could trade with themselves I guess. I mean Japan and China are already big trade partners for example. The US however will be left out in the cold.

 

[punkbass2000]

By peg this means that this is the benchmark that these nations use? I'm intrested in the economics behind this.

All your questions answered here.

 

[JerichoHill]

China has a vested interest in the US economy.

Plus, the US has plenty of production capacity to rebound, our economy is different from China. I have to disagree with the fear-mongers out there.

Only Canada of the G7 nations right now is even bothering to pay down its national debt. And that's because of what appears to be a very good leader adept at comprimising. While I wish all G7 countries would pare down debt like Canada is, they're not. The public debt is a factor that is touted, but its not the economically important one. THAT factor is the national deficit and ratios it has with other economic variables.

And yeah, that other topic is good too, plus umm, wheres that ask an economist thread?

 

[punkbass2000]

wheres that ask an economist thread?

You might consider changing your sig to include a link to it.

 

[Red Stranger]

It looks like the World is waking up to the fact that the USA has no intention of ever repaying its debt.

Wait a minute. How do you figure that? The US had always pay back its debt and interests. That's why the US is the most trusted economy in the world.

 

[El_Machinae]

I see how you think that, because the individual bonds and coupons are always paid.

I think that the actual fear is that the US will devalue their currency (even more) to pay the future coupons and bonds.

 

[Xenocrates]

Wait a minute. How do you figure that? The US had always pay back its debt and interests. That's why the US is the most trusted economy in the world.

This is how I figure it:

US Military spending is 49% of their budget.

The US military spending was almost two-fifths of the [World] total.
The US military spending was almost 7 times larger than the Chinese budget, the second largest spender.
The US military budget was almost 29 times as large as the combined spending of the six “rogue” states (Cuba, Iran, Libya, North Korea, Sudan and Syria) who spent $14.65 billion.
The six potential “enemies,” Russia, and China together spent $139 billion, 30% of the U.S. military budget.

http://www.globalissues.org/Geopolitics/ArmsTrade/Spending.asp

I compared to Nazi Germany before:

Spending on armaments was only 10% of government spending in 1933, gradually increasing to 25% by 1935.

http://www.alternatehistory.com/gateway/essays/NaziEconomy.html

I think the figures speak for themselves. We know the Americans like weapons, but this is just silly.

 

[Blazer6]

If people look at the budget as a part of a nations GDP, it would look minor since there is that much more money made compared to other countries and some who spend half of their revenue on it but get ignored for having a smaller number to spend.
link
I wouldn't trust any domain outside .gov or .mil for proving a point on matters like this.
A little reading on why the budget is even that high would explain the costs of supporting so many people overseas and the capability of conducting war quickly and effectively.


I figure that this will not happen any time soon, since the Yuan is being kept artificially low for any number of reasons to make trading with China cheap.

 

[Goonie]

China has a vested interest in the US economy.

Plus, the US has plenty of production capacity to rebound, our economy is different from China. I have to disagree with the fear-mongers out there.

Only Canada of the G7 nations right now is even bothering to pay down its national debt. And that's because of what appears to be a very good leader adept at comprimising. While I wish all G7 countries would pare down debt like Canada is, they're not. The public debt is a factor that is touted, but its not the economically important one. THAT factor is the national deficit and ratios it has with other economic variables.

And yeah, that other topic is good too, plus umm, wheres that ask an economist thread?

To be fair, the Liberals did pay down the national debt while they were in office as well.

 

[Joker85]

This is how I figure it:

US Military spending is 49% of their budget.



http://www.globalissues.org/Geopolitics/ArmsTrade/Spending.asp

I compared to Nazi Germany before:



http://www.alternatehistory.com/gateway/essays/NaziEconomy.html

I think the figures speak for themselves. We know the Americans like weapons, but this is just silly.

As of 2003, total United States Military spending was at 3.7% of GDP. You are confused with discretionary spending.

If we were spending 49% of our budget on military we'd have a 6.5 trillion dollar defense budget, and quickly go the way of the soviet union. "49 percent of budget" is intentionally misleading to give the impression we spend half of our money on the military when in reality less than 4 percent is spent.

Don't let that get in the way of your nazi comparisons though. Carry on.

 

[amadeus]

This is how I figure it:

US Military spending is 49% of their budget.

Defense spending is around $400B out of a $2.57T federal budget. I'm no Einstein, but I don't think $400B is 49% of the budget.

http://www.alternatehistory.com/gateway/essays/NaziEconomy.html

I think the figures speak for themselves. We know the Americans like weapons, but this is just silly.

Appropriate enough that the site you find that information from is called "alternatehistory.com"

Anyway, defense spending as a percentage of the U.S. GDP is down from the last 20, 30, 40, or 50 years. Even excluding Israel, we aren't the highest defense spenders as a percentage of GDP in the industrialized world. Greece, Singapore, and the "People's Republic" of China all spend higher percentages.