China devalues yuan; US stockmarket crashes

[Birdjaguar]

I'd look at the real income growth of the lower income 99% of the population, and compare it to the major assets price inflation (stocks and housing).

Or you can look just at median household income, It is easy to find but I don't know how reliable is the following data:


If asset prices are rising much faster than media income, who is buying all the assets and bidding the price up?

If the comparison is house prices against income growth, then certainly middle income income has been mostly flat for a long time and house prices are up since 2008. Money has been flying into real estate for a decade and the rich are buying up homes to rent and flippers are growing as part of the equation. also, the prospect of Air bnb rentals is more and more attractive. And college debt makes this situation hard of millenials. I don't think it is a precursor to a recession though.

 

[Patine]

Could be correct, but what would happen if we reverted? What kind of chaos would we see and for how long? Would increasing global prosperity continue? Putting the genie back in the bottle is not usually possible.

GLOBAL prosperity? Less than 20-25% of the world's population can be called anywhere near to "prosperous." I admit that Third World nations and First World slums aren't AS BAD as they were, comparatively, in the '80's, but I'd hesitate greatly to use such a bold term as "global prosperity" just yet. There's a lot of work to be done, but increasing "resting on laurels" also.

 

[Birdjaguar]

GLOBAL prosperity? Less than 20-25% of the world's population can be called anywhere near to "prosperous." I admit that Third World nations and First World slums aren't AS BAD as they were, comparatively, in the '80's, but I'd hesitate greatly to use such a bold term as "global prosperity" just yet. There's a lot of work to be done, but increasing "resting on laurels" also.

Small changes to those living at the very bottom are significant in their eyes. Going from earning $1 per day to $2 per day is a doubling of their resources. "Increasing global prosperity" means just what it says: more people are more prosperous now than in the past and that trend is continuing. Overall life expectancy is increasing.

 

[innonimatu]

I will agree that among the major world economic blocks the US seems to be the strongest now, but it also has the world's major asset bubble. Even much of the lending done in Japan and Europe ends up being converted to dollars and to assets in the US. Plus many wealthy chinese were moving capital there. The reason is is so storing is that it is the one major block where government does not act like a headless chicken in times of crisis, it has the tools to intervene financially and does so. That translates to "confidence" for holders of paper wealth and keeps drawing them into the US. Not to the benefit of the US population imo, but it does strengthen the conservation of the current socioeconomic system there.

Strategically the US is trying to stop China dead on its tracks, prevent it from further advancing to #1 economic power in the world. It seems to be having an effect already. They can't retaliate too hard or their game of quietly taking that #1 spot is up, getting into a cold war now would leave China surrounded by an hostile alliance (Russia could be bought to be a neutral third party, not an ally of China) lacking some critical technology and, most importantly, the resources to keep its population happy during such a competition. This is why I see the direction of this confrontation being on Washington, and that is a huge advantage in the fight. Imho the chinese are bound to lose the "trade war", in the sense that their rise is going to be successfully checked. They're only fighting over the size of the loss. China's loss is assured from the moment they were unable to pry off from the US alliance either its major asian allies (Taiwan, South Korea and Japan) and its european allies. Now and for the foreseeable future they have failed at that.

The end result aimed at by the current US government will be a US still dictating policy in Asia at the cost of Europe moving somewhat apart from the US, and Russia and India doing some kind of non-aligned movement thing. It won't be the old cold war repeated, no such deep division, but it will be a long-term fight between US & asian allies vs China. At least that seems to be the envisioned roadmap now. This roadmap depends on circumstances and options by people on power, it can be changed.

A new financial meltdown now will probably initially tie the incompetent european governments with their EU governance disaster even deeper with the US, the are incapable of saving their precious project without american financial help, as they were back in 2008. The joker in this is that the current american administration may not resist the impulse of seizing the opportunity to break that project instead of helping them again. It'll be very interesting if that happens. The US 2020 election is rather important for the world at large.

 

[Imaus]

It looks like everything has slowed down or stabilised as of today...?

 

[Birdjaguar]

It looks like everything has slowed down or stabilised as of today...?

yes; often it is important to wait and take a perspective longer than daily or even weekly. Monthly works too. How about annually?

 

[Akka]

I find this whole thing with something like fascination.
The "fun" thing with Trump, is that he's so completely deranged he simply doesn't care for anything, and as such is able to do things and get away with it because "well, it's Trump", that anybody with any shred of brain or decency wouldn't even dare to think about. Usually it spells doom, but sometimes it actually allows to break all the façade and see what kicking the anthill can do.

When it comes to dirty realpolitik, I just don't get why the West has happily, in effect, allowed itself to subsidize China into becoming their new rival (and potential overlord), though I suppose it feels like the realities of the market just kicking back toward those who try to use it for their own benefit. Trump actually daring to facetank openly the elephant in the room is an interesting development which is bound to have "interesting" repercussions, good or bad, cynical or not.

 

[Birdjaguar]

I find this whole thing with something like fascination.
The "fun" thing with Trump, is that he's so completely deranged he simply doesn't care for anything, and as such is able to do things and get away with it because "well, it's Trump", that anybody with any shred of brain or decency wouldn't even dare to think about. Usually it spells doom, but sometimes it actually allows to break all the façade and see what kicking the anthill can do.

When it comes to dirty realpolitik, I just don't get why the West has happily, in effect, allowed itself to subsidize China into becoming their new rival (and potential overlord), though I suppose it feels like the realities of the market just kicking back toward those who try to use it for their own benefit. Trump actually daring to facetank openly the elephant in the room is an interesting development which is bound to have "interesting" repercussions, good or bad, cynical or not.

The potential of China's huge market and workforce were/are too tempting to not pay attention. China's current situation/posturing was all in the future when things began to take shape in the 80s.

 

[Timsup2nothin]

Two billion prosperous Chinese converted to Western Consumerism and endlessly buying crap is too easy to pass off as "the tide that lifts all boats."

 

[Lexicus]

I just don't get why the West has happily, in effect, allowed itself to subsidize China into becoming their new rival (and potential overlord),

The short answer is that the opening-up of China to the West has provided the capitalists with the greatest "industrial reserve army" in world history.

 

[Patine]

The short answer is that the opening-up of China to the West has provided the capitalists with the greatest "industrial reserve army" in world history.

Except it was Deng Xiapeng who allowed those gates to be opened in the first place. No Western politician, diplomat, or economic figure, or any combination thereof, can take credit for "breaking down" those gates from the outside. And China has also benefitted greatly from the "biggest market of consumers in absolute cheap, mass-produced trash" in history as well - the 1990's and onward Western consumer market.

 

[innonimatu]

I certainly cannot blame the chinese for copying what had been the successful american model, and the german 19th century model, of development: entice the foreigners with the size of your market and your resources, get technology, and protect your companies.

Those whom I blame are the ones who believe that the invisible hand of the international market is by itself a good tool for development of a country. It's not, a country that practices laissez-faire either is already developed (and risks going backwards) or won't get there. A few smaller ones sometimes get lucky and benefit from special circumstances.

 

[Tristan_C]

I certainly cannot blame the chinese for copying what had been the successful american model, and the german 19th century model, of development: entice the foreigners with the size of your market and your resources, get technology, and protect your companies.

I would call China's strategy mercantilist, and this trade war, a response-in-kind to mercantilism, likewise. But the goal in each country is to raise labor and capital within its borders, rather than a large national cash reserve for cranking out wooden warships. So this distinguishes it from the classic definition of mercantilism we have from Europe's colonial age. I don't have a problem with the new goals really, but the methods are quite ancient.

The terms "invisible hand" and "laissez-faire" are used in describing how a market prices goods in microeconomic theory. A better macroeconomic term for what you're objecting to here would be the notion of "playing fair," on the assumption that tariffs are playing rough. The game-theoretic outcome is for everyone to either play rough or collude to play fair.

 

[FriendlyFire]

A new financial meltdown now will probably initially tie the incompetent european governments with their EU governance disaster even deeper with the US, the are incapable of saving their precious project without american financial help, as they were back in 2008. .

EU aging and retiring population is going to cause a recession, short of successful waves of young immigrants coming in to change the demographics or major advances in robotics. EU banks trying to starve off this decline are building up debt is only a short term solution. I doubt the US will be able to seriously do anything it has its own demographic problems as its only just slightly behind where the EU is.

 

[FriendlyFire]

I would call China's strategy mercantilist, and this trade war, a response-in-kind to mercantilism, likewise. But the goal in each country is to raise labor and capital within its borders, rather than a large national cash reserve for cranking out wooden warships. So this distinguishes it from the classic definition of mercantilism we have from Europe's colonial age. I don't have a problem with the new goals really, but the methods are quite ancient.

The terms "invisible hand" and "laissez-faire" are used in describing how a market prices goods in microeconomic theory. A better macroeconomic term for what you're objecting to here would be the notion of "playing fair," on the assumption that tariffs are playing rough. The game-theoretic outcome is for everyone to either play rough or collude to play fair.

Its the same path that was pioneered by countries before it like Japan, Taiwan and South Korea
Government investment / subsidies into developing key industries, theft of IP from the west, Huge investments into modernization, education all behind a protectionist market to shield its developing industries from foreign take over and competition.

China is pretty much using the same playbook, its not like the US is any better right ? GFC of 2008 would be exhibit A of market manipulation, Bailouts, subsidies and for key industries.
Besides Western companies have been making a fortune in profits in China 35 (34-37) Bil per year ? Trump wants a fair market ? Even more US companies will offshore then, no more requirements to be part owned by Chineses, IP protections and lowering of tariffs by both the US and China ? Make China Great again.

But its not about fairness otherwise Trump would have long signed the TPP. It would have opened up markets in key countries like Japan and South Korea for the US.

 

[Hrothbern]

There is actually never a fair level playing field for trade.

Not even within countries between urban and rural, but more so between countries, and most severely so between countries with strongly differing economies and standards...
everything is asymetrical in settings, and the gross effects are asymetrical as well.
How big the net effects are is a matter of regulation: the amount and how smart.

As long as massive amounts of cheap imports from China take place, meanwhile with high efficient machinery-techs, based also on very cheap labor cost and low labor standards...
wage increases on existing jobs and wage levels for new jobs (the hammer) in developed countries are surpressed, and besides many other negatives, as a consequence a healthy and stable level of inflation is surpressed.

As long as massive imports take place from countries that do not have for example the cost of climate sustainability in their cost, domestic sectors that do have climate sustainability in their cost face unfair trade.

As long as the "cheap" imports are small compared to the domestic economy, and the domestic economy has many opportunities to grow and relocate jobs... it increases spending power, does not bite hard and helps less developed countries to catch up in "everything" or have a stable position at a similar percentual growth but lower GDP per capita level like South Europe (and unfortunately like for example Latin America since the 60ies a lower percentual growth).

The effect imo of China so globally bigggg... that many former cheap cost countries have their export position affected and the "overall" global effects start getting negative for the halfway and full developed countries.

Fair trade for traders, for international companies, the main gospel past WW2, is not automatically fair trade for countries.
It never was, but now the negatives start outgrowing the positives.

Those negatives biting some countries, some kind of economies, much earlier and harder than others.

 

[Tristan_C]

As long as massive amounts of cheap imports from China take place, meanwhile with high efficient machinery-techs, based also on very cheap labor cost and low labor standards...
wage increases on existing jobs and wage levels for new jobs (the hammer) in developed countries are surpressed, and besides many other negatives, as a consequence a healthy and stable level of inflation is surpressed.

Yeah, that. Hard to compete with a country that has no environmental regulations, no organized labor, prints money to subsidize export industries, and dumps all its plastic into the Pacific. But that sounds like an argument for tariffs, and there appears to be some hostility to tariffs around here because of who is implementing them.

 

[FriendlyFire]

Yeah, that. Hard to compete with a country that has no environmental regulations, no organized labor, prints money to subsidize export industries, and dumps all its plastic into the Pacific. But that sounds like an argument for tariffs, and there appears to be some hostility to tariffs around here because of who is implementing them.

Have you seen the pollution in China ?
If Republican states want breath in freedom from enviromental regulations, they should just do what China is doing and enjoy the same living conditions.

FFS if you want tariffs and a protectionist economy there is a right way to implement this.
You do so by subsidies, preparing industries for tariffs and then ramping them up slowly, You also have to deal with WTO and fallout as you disolocate trade from your allies and neighbours.

 

[El_Machinae]

Yeah, that. Hard to compete with a country that has no environmental regulations, no organized labor, prints money to subsidize export industries, and dumps all its plastic into the Pacific. But that sounds like an argument for tariffs, and there appears to be some hostility to tariffs around here because of who is implementing them.

Things like 'no environmental regulations' and 'subsidizes exports' aren't things to compete against, unless you think that your own citizenry will make bad long-term decisions when given free stuff. But no politician can say that, obviously. Yeah, China is also polluting the Commons (Trump's 'competing' against that was to also dump into the Commons).

I guess kudos to Trump for always talking about China 'stealing our money' and you re-interpreting rationalizations that he's never expressed.

 

[Socrates99]

Yeah, that. Hard to compete with a country that has no environmental regulations, no organized labor, prints money to subsidize export industries, and dumps all its plastic into the Pacific. But that sounds like an argument for tariffs, and there appears to be some hostility to tariffs around here because of who is implementing them.

Its not "who" its "how." We've had tariffs on Japan truck imports for decades. It's why Toyota manufactures trucks here. A net gain for the US. Its effects on other industry are minimal. Work trucks are a little expensive, whatever. There are many similar long standing tariffs and agreements already in place.

The steel and aluminum tariffs are meant to revitalize America's steel industry. It might add some steel work jobs but hinders companies that use steel. American steel has never been dead. I'm a brewer, Chinese steel has a terrible reputation in our industry. It rusts when I shouldn't and isn't as strong. Most of us avoided Chinese steel before the tariffs anyway. The tariffs have increased the price of American steel, that's how the market works. It slows expansion and increases production costs for industries that use steel. That tariff is having much more widespread effects on multiple industries that may wind up as a net negative when companies unable to shoulder the increased production costs go offshore.

Then there's the retaliatory tariffs China was forced to impose due to Trump's bellicosity. Because of his over the top rhetoric against China they would look weak at home if they did not retaliate. The agriculture sector is losing billions. Taxpayers are bailing farmers out with subsidies so as a direct result of the trade war. So the party of fiscal responsibility is forced to dump billions of federal spending just to keep their rural base from revolting. Even if some deal is made where China removes its embargo/boycott of US ag products their importers have made new deals with other suppliers like Brazil.

On top of that there's the just plain petty and stupid ones like the 25% tariff on solar panels. Kind of specific coming from the "global warming is a hoax" guy don't you think. That's not intended to help a specific US industry. It's just there to "own the libs."

Tariffs can be good when they're well thought out and their ripple effects are taken into account. The problem is we have a diphorsehocky who bankrupted himself multiple times going head to head with the people who've taken a communist country and turned it into the fastest growing economy in the world. I guess it is "who" but mostly in the sense that he is abysmally out of his league.