Currency Wars

[TakeAStepBack]

...China is being accused of manipulation to undervalue. (edited for mistake in text)

Also, what is it that China did in 1913 to secretly devalue the dollar?

Um, nobody is saying China had anything to do with the federal reserve act of 1913. I was pointing out that the dollar is being devalued as you said that the devaluation was so unseen, no one has noticed it.

Let's stay on topic and focus on what the problem's supposed to be. Here's the historic exchange rate of yuan/dollars:

So just what is the complaint here. Are we mad because China devalued our dollar since '03 or are we mad because we want more dollar devaluation that China's been stealing from us since '80?

I think China is being accused of as follows. Which is likely where the author of the book, I'm hoping, will draw some interesting insight. I've yet to read the book.

How China manipulates its currency
The foreign exchange market and currency values can appear imposing and abstract. Yet currency is simply a commodity. Its value is set by supply and demand. The higher the supply of a currency relative to demand, the lower the value. And vice versa.

So if China wanted to decrease the value of the yuan relative to the dollar, it would simply increase both the supply of yuan and the demand for dollars by selling the former and buying the latter. A country that does this over time thus accumulates large reserves of foreign currencies. And according to data from the IMF, this is the case with China, as you can see in Chart 2.

China's accumulation of foreign currency reserves is unprecedented. It's gone from just under $4 billion in 1980 to $3.18 trillion today, most of which consists of dollars. This represents an increase of nearly 80,000%! And what does China do with all of its excess dollars? It lends many of them back to our federal government to finance its massive deficits -- $1.1 trillion, to be precise.

The impact of China's currency manipulation
With the preceding discussion in mind, the negative aspects of China's currency manipulation may not seem obvious. We print money, give it to them for their artificially cheap goods, they give it back to us with interest, we print more money to pay the interest, and on, and on. While this has contributed to a significant trade imbalance with China, the cost of our borrowing to finance the deficit has been limited effectively to the cost of printing dollars -- which nowadays we do by pressing a button on a computer.

For many years, a number of economists even believed this cycle was beneficial to the American economy. As late as 2007, a paper was published by the Federal Reserve Bank of Philadelphia, titled "Trade Deficits Aren't as Bad as You Think" (PDF file, Adobe Acrobat required). It argued that trade deficits were good because they "shift worldwide production to its most productive locations, and allow individuals to smooth out their consumption over the business cycle."

Unfortunately, this line of thinking didn't account for the volume of dollars that flooded back into the American economy. These dollars made their way into the housing sector and fueled the then-burgeoning real estate bubble. Federal Reserve Chairman Ben Bernanke calls this his "savings glut" hypothesis. The implication is that we are where we are because of these capital flows. And these capital flows are the natural consequence of China's currency manipulation. In the greatest irony of all, in fact, it's for this reason that China strictly limits capital flows into its economy.

Obama signals tougher stance on China trade practices - Los Angeles Times

I believe the US is calling on China as a manipulator to keep their currency deliberately undervalued.

 

[TakeAStepBack]

Sorry for the confusion too. I'm doing 3 things at once and errors in the message on this topic only exacerbate confusion. My apologies.

 

[expat_panama]

...I believe the US is calling on China as a manipulator to keep their currency deliberately undervalued.

Please say what you want. Sounds like you believe China hurts us by selling only 6.3 yuan for a dollar and we want them to give us more yuan for a dollar. Big words hide muddled thinking. One of your links had this plot:

It suggests yuan/$'s been falling since 80 and that's how they got their gdp up. It's wrong. Reality is that yuan/$ is less now than it was in '80 and the exchange difference has little to do with their gdp growth and less to do with ours. Horribly confused muddled thinking.

 

[TakeAStepBack]

It suggests yuan/$'s been falling since 80 and that's how they got their gdp up. It's wrong. Reality is that yuan/$ is less now than it was in '80 and the exchange difference has little to do with their gdp growth and less to do with ours.

I personally do not buy that articles narrative in total. There are calls for China to "stop manipulating its currency" attempting to keep it undervalued against the dollar. there seems to be some common concensus that would indicate that it was lower than most projections in exchange, up until just a few years ago. (there are graphs of every size and shape regarding this from dozens of mouthpieces).

So I'll ask, what is your take on the calls for China to stop manipulating its currency?
Ive read everything from the above, to shifts away from the dollar and direct exchange/swaps between India, japan, etc...

 

[expat_panama]

...what is your take on the calls for China to stop manipulating its currency?...

The callers are stupid for two reasons.

First reason is they won't say if they want more yuan for a dollar or less yuan for a dollar --probably because they simply don't know what they want but what ever they don't have they're sure it's all China's fault that they don't have whatever they want. OK, maybe it's not stupid and that it would be more accurate to say it's BIG TIME STUPID.

Second reason is that exchange rates don't make any difference. Yeah, the callers are saying it makes a difference as to whether China buys more stuff from us than we do from them but that's crazy --payments always balance. If I sold a T-bill to a US broker for dollars that I spent on gold, then I'd get the same gold as if I'd gone to a Chinese broker that handled the trades in yuan --regardless of today's exchange rate. The only difference being the yuan trade 'hurts' the trade deficit.

Big deal.

 

[TakeAStepBack]

First reason is they won't say if they want more yuan for a dollar or less yuan for a dollar --probably because they simply don't know what they want but what ever they don't have they're sure it's all China's fault that they don't have whatever they want. OK, maybe it's not stupid and that it would be more accurate to say it's BIG TIME STUPID.

I'm inclined to agree with this. It certainly appears the callers aren't sure what they want and if pushed to come up with an answer and show their work, it would likely be quite subjective.

Second reason is that exchange rates don't make any difference. Yeah, the callers are saying it makes a difference as to whether China buys more stuff from us than we do from them but that's crazy --payments always balance. If I sold a T-bill to a US broker for dollars that I spent on gold, then I'd get the same gold as if I'd gone to a Chinese broker that handled the trades in yuan --regardless of today's exchange rate. The only difference being the yuan trade 'hurts' the trade deficit.

I get that much. What i'm looking at, along with this, are the reserves China is holding in dollars.

Big deal.

Perhaps. But i'm inclined to believe there is more than meets the eye. Usually when economic intellectual clashes ensue, there is a reason. It can be difficult to pinpoint the true nature of the situation, but I believe there is a trade war in the works with China. That could quickly escalate into a currency one and translate damning outcomes for the US.

 

[expat_panama]

...when economic intellectual clashes ensue, there is a reason. It can be difficult to pinpoint the true nature...

Not really. When the reason's business then someone makes an offer and they either strike a deal or they go elsewhere. When it's politics we hear about who's the unAmerican bad guy stealing more than his fair share, and then what we're seeing is opposing hacks in a power struggle.

...I believe there is a trade war in the works with China...

Politicians are saying that a lot lately. Sure, we trade a lot more with Canada but Canadians don't talk funny like the Chinese do --ok they do but they not while eating rice with sticks. Politicians want easy votes and funds from unions for tariff welfare promises, but trade deficit/currency rants are a scam.

Let's say I swap a T-bill for gold using yuan and the trade deficit rises. No jobs are shipped overseas and no dollars are touched but the loonies bellyache. Then the exchange rate changes big time (up or down no matter) and I swap the same gold back for the same T-bill in yuan and the trade deficit falls right back where it was. No jobs are shipped back, no dollars are touched, no trade deficit change, but the loonies bellyache and complain about unfair manipulation hurting us.

Hey, it's great entertainment, but I just don't want my taxes raised to pay off unions.

 

[EdwardBaiamonte]

The currency wars are really a form of classism writ large in invisible ink in the economy.

The first people to get access to the new bucks get the biggest bang from them.

Who are the first people to gain this advantage?

The banksters who get them lend money they never had to people who must pay them back for this largess AT INTEREST.

of course thats more off base and liberal than usual. Throughout American History the small debtor Democrats were the one who wanted inflation to pay for their debts.

Your knee jerk class warfare BS isn't helping you to think before you write.

 

[EdwardBaiamonte]

Is it that the PRC's some how hurting us with what, too many renmimbi? Too few? Do we want a stronger dollar vs the yuan or not?

What they really mean is that China is hurting us by selling us low priced goods. Its so mean of them to enrich us that way!! I hate low prices myself!

Our problem is that liberalism made us uncompetitive, not that China gives us great prices. The liberal will imagine some bureaucrats can shuffle some papers and fix the problem, but in reality it can only be fixed by digging in and learning how to compete with them.

 

[TakeAStepBack]

Is it that the PRC's some how hurting us with what, too many renmimbi? Too few? Do we want a stronger dollar vs the yuan or not?

What they really mean is that China is hurting us by selling us low priced goods. Its so mean of them to enrich us that way!! I hate low prices myself!

Our problem is that liberalism made us uncompetitive, not that China gives us great prices. The liberal will imagine some bureaucrats can shuffle some papers and fix the problem, but in reality it can only be fixed by digging in and learning how to compete with them.

This isn't a partisan issue. Both parties pursue the same endless spending and deficit/debt increasing policies. You're aren't seeing the bigger picture. I tend to agree that the social progressives of today are economically inept. But so are the chicken hawks who push for war at the expense of the same aim. I tend to identify best with classical liberalism leaning libertarian. Which is more the true conservative platform than the neocon one of today.

 

[EdwardBaiamonte]

This isn't a partisan issue. Both parties pursue the same endless spending and deficit/debt increasing policies. You're aren't seeing the bigger picture. I tend to agree that the social progressives of today are economically inept. But so are the chicken hawks who push for war at the expense of the same aim. I tend to identify best with classical liberalism leaning libertarian. Which is more the true conservative platform than the neocon one of today.

it seems you are splitting hairs. 100% of the energy for a Balanced Budget Amendment, for example, comes from the Republicans and has done so 20 times since Jefferson. Newt's BBA passed the House and failed in the Senate by one vote. In 2010 they introduced at least 3 BBA's.

Democrats have always been openly opposed. It takes a sharp eye to see the big picture though since independents decide elections meaning you have get independent and even Democrat votes to win. You can never tell what a politician really thinks but still they usually make their leanings clear.

Libertarians, conversely, are impotent but straight shooters who have been far far less influential than saintly lying Republicans.

 

[TakeAStepBack]

3,000 years late.....

 

[expat_panama]

...What they really mean is that China is hurting us by selling us low priced goods...

So all this phony 'currency war' nonsense is just a hollow smokescreen over imports.

It doesn't stop there though. Cheap imports is just another phony diversion tossed it to mask the real problem: lazy power-hungry thugs in US factories that are trying to live off our taxes. This whole China problem has no solution in either monetary or trade talks. The only solution here is telling our domestic union thugs to get a life.

 

[editec]

...I believe the US is calling on China as a manipulator to keep their currency deliberately undervalued.

Please say what you want. Sounds like you believe China hurts us by selling only 6.3 yuan for a dollar and we want them to give us more yuan for a dollar. Big words hide muddled thinking. One of your links had this plot:

It suggests yuan/$'s been falling since 80 and that's how they got their gdp up. It's wrong. Reality is that yuan/$ is less now than it was in '80 and the exchange difference has little to do with their gdp growth and less to do with ours. Horribly confused muddled thinking.

Yup, I think you're more or less right about that, EXPat.

Given the state of the Chinese governments holding in foreign currncies?

The Yuan is probably set too low.

However, that exchange rate is not the root cause of our trade imbalance with China.

 

[expat_panama]

...The Yuan is probably set too low...

If that were true then Chinese oil and gold could be had below market. They can't so it isn't.

However, that exchange rate is not the root cause of our trade imbalance with China.

Not the 'root cause'? Exchange rates have NO affect on trade balances! Never have and never will.

 

[EdwardBaiamonte]

The only solution here is telling our domestic union thugs to get a life.

yes the liberal unions are a huge huge problem indeed but so are the 10 million liberal illegals, $15 trillion debt, taxes that export jobs, huge waste in health care, etc etc

 

[EdwardBaiamonte]

The Yuan is probably set too low.

Yes, the nerve of them, charging us such low prices!!!

 

[TakeAStepBack]

Pretty good read so far. In case it was missed, the Author is James Rickards. A bit about James:

James Rickards is the author of Currency Wars: The Making of the Next Global Crisis, published by Penguin/Portfolio, November 2011.

He is Senior Managing Director at Tangent Capital Partners LLC, a merchant bank based in New York City, and is Senior Managing Director for Market Intelligence at Omnis, Inc., a technical, professional and scientific consulting firm located in McLean, VA. Mr. Rickards is a seasoned counselor, investment banker and risk manager with over thirty years experience in capital markets including all aspects of portfolio management, risk management, product structure, financing, regulation and operations. Mr. Rickards' market experience is focused in alternative investing and derivatives in global markets. He has also served as General Counsel at several alternative asset management companies and a stock exchange facility and is expert in fund governance and international fund structures.

Mr. Rickards' career spans the period since 1976 during which he was a first hand participant in the formation and growth of globalized capital markets and complex derivative trading strategies. He has held senior executive positions at sell side firms (Citibank and RBS Greenwich Capital Markets) and buy side firms (Long-Term Capital Management and Caxton Associates) as well as technology firms (OptiMark Technologies and Omnis). Mr. Rickards has been a direct participant in many of the most significant financial events in recent decades including the release of US hostages in Iran in 1981 and the LTCM hedge fund collapse of 1998 in which Mr. Rickards was the principal negotiator of the government-sponsored rescue. He was involved in the formation and successful launch of several hedge funds and fund-of-funds. His advisory clients include private investment funds, investment banks, litigation counsel, high-net worth individuals and government directorates. Since 2001, Mr. Rickards has applied his financial expertise to a variety of tasks for the benefit of the U.S. national security community and the Department of Defense. Mr. Rickards is licensed to practice law in New York and New Jersey and various Federal Courts and has held all major financial industry licenses.

 

[Truthmatters]

Mises HAHAHAHJAHAHAHAHAHAHA

 

[TakeAStepBack]

Actually no, James Rickards wrote the book. You're not very smart, heh?