We're doing to them what they did to us for the last 20 years.... its a monetary war. they are f***ed as long as our dollar is weak.
We're doing to them what they did to us for the last 20 years.... its a monetary war. they are f***ed as long as our dollar is weak.
The US had some gut-wrenching busts when we were in that young, high growth mode. China will have some too. It goes with the territory of emerging high growth economies.
They have a real estate bubble and the central bank is tightening to pierce it. By the time a central bank or government realizes it has an asset bubble on its hands, it is too late. The big question is how much bad debt is being supported by inflated real estate. I don't think anyone knows.
The effect on us could be benign in that we go from importing inflation to importing deflation, or it could be the bonfire of the fiat currencies. It will be interesting to say the least.
Rational Economics wrote:
China is now preparing to release the dollar peg, and will do so in the next few years, shifting purchasing power from the US to China. The Chinese will start consuming the goods they currently export to the US, making them prohibitively expensive for Americans. So China will prosper while the US suffers a hyperinflationary depression and economic ruin.
Letting the Yuan float doesn't make Chinese manufactured goods cheaper in China. It makes US manufactured goods cheaper in China. It will also make Chinese manufactured goods more expensive in the US, thus we import less from China. Will that cause hyperinflation in the US? Not even close.
More expensive Chinese imports doesn't mean the US won't be able to buy cheap crap. Mexico, India, Vietnam, Brazil, and about 100 other countries will be more than happy to sell us cheap crap. Just because floating the Yuan will be good for the average Chinaman doesn't mean it will bad for the average American. Economics is NOT a zero sum game. That's rational economics for you.
If the yuan was "floated" tomorrow, it would not rise like people assume. Let me explain why...prices of cotton in china are over $2 a pound while march cotton in the US is about 1.75, there is an arbitrage spread but its should not be 50c a pound.
is cotton over valued or is its denominating currency (yuan) overvalued? the other way you could look at it is the cotton undervalued in the US or is the dollar undervalued?
gn1tmac wrote:
We're doing to them what they did to us for the last 20 years.... its a monetary war. they are f***ed as long as our dollar is weak.
No, they aren't. They're only f***ed as long as they keep their currency pegged to the US dollar. The Chinese government has now realized that the problems caused by the peg outweigh the benefits it provides, and they are preparing to pull the plug on the dollar. China has a large middle class with a high savings rate, and thus a solid internal market for the goods it currently exports to the US. They don't need Americans to buy their exports anymore.
gn1tmac wrote:
If the yuan was "floated" tomorrow, it would not rise like people assume. Let me explain why...prices of cotton in china are over $2 a pound while march cotton in the US is about 1.75,
Foreigners cannot really play in the China RMB denominated futures market. But the point is right on the money - because the renminbi is artificially cheap, ALL assets are being bid up in China.
Property is in orbit. Price/Income in the US was 6.5 at the peak, 8 in Japan 1990, now is 20 in China. This has to fall.
Consumers are crossing the border from Shenzhen to buy groceries in Hong Kong.
There are numerous other examples of inflation in China that is out of control.
The fact is - the central government does not have control of the economy any more. Wild swings like this are going to be commonplace for the next 3-5yrs.
Historically, nearly every old world nation breaks up when democracy and freedom arrive. The USSR, old Soviet Empire, old British Empire, old US/European colonies of Asia, Yugoslavia, Africa, Ottoman Empire, India/Pakistan/Bangladesh, etc. are examples of break ups. Palestine/Israel and the United States are the rare exceptions of countries which remain intact. Palestine/Israel have ben together for 7000 years of recorded history, the United States has a system which reconstitutes itself preserving unity. China's history is full of turmoil and reorganization by successive conquerors. Today the people of Mongolia, Manchuria, Tibet, Guangzhou, Han Islamic, and Caucasian Islamics want to separate from China but have been repressed by the facist People's Government. Russia is ripe for further break up, releasing hundred of millions in Islamic Mongol-Caucasus republics.
TCB wrote:
R U Nuts wrote:You have got to be kidding me. China lurching into a great depression (as the world's second largest economy and by far the largest source of world economic growth recently) at this time, while the rest of the world is in a VERY shaky recovery?!?
That is a very silly thing for you to say. Twenty five years ago, people were saying all the same things about Japan as they are saying about China now. Japan had grown rapidly for many decades, it was buying up American properties and American debt in huge amounts, it was saving and investing tons of money and spending almost nothing. It had become the second largest economy in the world and people were expecting it would be 3-4 times larger than the US by now. Japan went through a decade long depression while the American economy experienced incredible growth during the tech boom. Just because China's economy has grown 10% per year for the past two decades doesn't mean it will keep doing that forever. In fact, a lot of investors are betting heavily that the Chinese miracle is just about over. A lot of publications have extensively written up the idea as well, so don't think I came up with this on my own from nothing.
Every once in a while you get a great post like this on letsrun. Well done TCB. Oh and by the way "R U Nuts" your American History Textbook called and would like a word, specifically with the 1920s chapter.
Thankfully, we in the USA have more nukes, if it gets really nasty.
: ) wrote:
Thankfully, we in the USA have more nukes, if it gets really nasty.
not for long...
Geographically isolated nations like Japan, England, United States are easier to keep intact. The natural islands and oceans keep out enemies. Nations on major land masses never remain intact. They always get chopped up into pieces. Russia, China, Persia, Turkey, Germany, etc. have temporary borders in the long run.
Mr. Obvious wrote:
Procrastinator wrote:Mid term, China will correct. Long term, China has another problem...
http://en.wikipedia.org/wiki/File:Sex_ratio_below_15_per_country_smooth.pngYup, this has the potential to be a hugely destabilizing influence. What do countries do w/ an excess of young adult males? They send them to war.
Bingo.
You are awarded one Army commission.
: ) wrote:
Thankfully, we in the USA have more nukes, if it gets really nasty.
Who needs nukes when you have these:
http://www.popsci.com/scitech/article/2004-06/rods-godhttp://www.foxnews.com/scitech/2010/12/10/navy-railgun-shoots-bullets-electromagnet/http://www.dailymail.co.uk/news/worldnews/article-1250734/U-S-Star-Wars-laser-plane-shoots-ballistic-missile.htmlBlowing.Rock Master wrote:
Letting the Yuan float doesn't make Chinese manufactured goods cheaper in China. It makes US manufactured goods cheaper in China. It will also make Chinese manufactured goods more expensive in the US, thus we import less from China. Will that cause hyperinflation in the US? Not even close.
More expensive Chinese imports doesn't mean the US won't be able to buy cheap crap. Mexico, India, Vietnam, Brazil, and about 100 other countries will be more than happy to sell us cheap crap. Just because floating the Yuan will be good for the average Chinaman doesn't mean it will bad for the average American. Economics is NOT a zero sum game. That's rational economics for you.
If China's currency rises dramatically against the US dollar, the Chinese will be able to outbid Americans for everything, not just goods produced in China. As the goods produced in Mexico, India, Vietnam, Brazil, and about 100 other countries (including America) start flowing to China, they will stop flowing to America, bidding up prices dramatically in terms of US dollars.
The concept of "zero sum game" is inapplicable here. When one nation's currency rises against another, the supply of goods in the global economy doesn't increases. Instead, the balance of purchasing power changes so that one nation (China) is able to buy more while the other (America) is able to buy less. Economics isn't a zero sum game, but in order for a nation to increase its standard of living, it actually has to become more productive. China's rise will not make America more productive, it will make only make it less consumptive.
China's rise has caused prices for commodities to rise worldwide, regardless of money supply.
The bailouts of the last few years will just make costs go up even more.
China with a stronger currency will further inflame the bid on the global commodities markets, which despite the 2008-2011 downturn in OECD comsumption, prices have still gone up.
Rational economics meet oil scarcity.
China buying more oil isn't going to make it cheaper even if we consume less. Its not going to make finished goods any cheaper either considering how much energy plays a role in 'finishing' the product.
inb4 solar panels and cowfarts.
Saudi Oil reserves overestimated by up to 40%.
The U.S imports just over 2 million barrels of oil a day from KSA (Kingdom of Saudi Arabia) Kuwait, UAE. But China imports over 3 million barrels of oil a day from these same 3 nations.
Even more dangerously, China imports another million barrels a day from Iran, which has had declining production the past 10 years and has likely entered terminal decline with a surging population and domestic oil consumption (export land model).
Venezuela another major Chinese and American producer, has had similar issues, with declining production and surging population growth and domestic demand.
Mexico has demonstrated similar trends, albeit slightly less pronounced than Iran or Venezuela.
The middle eastern nations have expressed no interest in pricing their Oil in Yuan. They have more interest in a basket of currencies, and also Gold.
Changing the dominant currency from Dollar to Yuan will do nothing to remediate the coming Oil shortage caused by declining world production of Oil and surging population growth and oil consumption in the Middle East.
Chinas biggest enemy to growth is not the U.S. Its the economies of the middle east.
Even if China's currency becomes the world's reserve currency, it has come to late to the party. The world is now on a terminal decline path with global exports of all commodities likely falling over the coming decades.
For China, which takes these commodities and essentially turns them into finished products for the rest of the world this is a disaster regardless of its military might, or currency status.
No amount of money will convince a country to export its own oil and cause shortages within its borders. The same can be said of food, water, electricity and any other commodity.
forget the histrionics. what does the preponderance of the evidence say? and what does the history look like? China's having some inflation problems and they will need to keep prices under control, lest they find the growth problems that other countries have experienced. The Chinese economy, however, is just scratching the surface of its potential. But aside from inflation and corruption, I have to wonder about how seriously we should take the economic numbers we hear from China. There does seem to be visibly booming growth over the past thirty years, but as in a recent NYT article on investing in China, it is very difficult to trust the accounting, as well as the gov't numbers. I think that some correction is not unlikely but right now we are near the beginning still of an upward economic cycle and China has strong currency reserves, extremely favorable savings rates and it has cornered much of the industrial production of the world, so my sense is that it is going to see strong continued growth for at least the next four to six years before the next bubbles burst. Perhaps what will happen is that China's growth will be reduced from, say, 14 to 10 percent by accounting scandals (overstatements), inflation, and its own housing bubble, but I've yet to see any evidence as to a big fall right now as global investment is increasing and most nations are growing again.
There is absolutely no way the renminbi will become a reserve currency.
The US has +150yrs of settlement bank history, a market exposed to not only US standards, but global standards. The US clearing market is the most efficient in the world. It is ludicrous to suggest that Chinese banks will ever have the wherewithal to compete in this space.
Recently an Indian company was granted a US$1.5bn contract to build steel and coking plants in China. This is a domestic project, with most expenses in RMB. they were given a loan for US$1.3bn, and maybe RMB300mm. Even Chinese banks cannot finance and layoff a RMB10bn loan. If they can't do this, how will they clear for global FX markets, LCs, deposits, etc. This is just a silly promo idea, designed to make those who do not understand the market mechanisms (both inside and outside China) to think, "The RMB is a global currency"
I have only been to one place where RMB was favored as a currency payment option - North Korea.
I don't believe ANY of the GDP/economic statistics coming out of China. 9% GDP growth for 10 straight years? I call bs.
RE: China's bubble is caused by all the reasons you swear cause bubbles: extremely low interest rates, over spending by the government, irresponsible printing of money by the central bank. China has been growing at an unsustainable rate and the government has been making that possible.
From what I've seen, China's housing bubble is probably a lot larger than Japan's was (truly making the mother of all bubbles). Many people have been saying that China's housing bubble is on the verge of a collapse for over a year now, so that may be evidence as to why it doesn't exist. Or, it may just be because the Chinese government is suppressing information about it or preventing people from acting to deflate it. I don't know of anytime in history where a large number of people with strong evidence pointed out a bubble only for it to not be there. It might just need something to pop it (like a sudden rise in interest rates or a rumor about a bank's insolvency).
