Wednesday, March 31, 2010
Bad Vibes
China's foreign reserves topped 3 trillion. Three quarters of it originates in the USA. The U.S. unemployment rate is 10%. As Roubini said: This looks like a duck, quacks like a duck, it is a Peking Duck. Meaning that China is manipulating its currency to better exploit the USA. It cannot - will not - go on for long. China is underestimating the violence underlying American character.
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9 comments:
This might lead to war, but considering that America just elected Obama I don't think that this country has any right to complain. The election of Obama will probably make our trade deficit worse, and I personally think that the coming of Obamacare will lead to the collapse of the American semiconductor industry.
China is manipulating its currency in order to give itself a larger advantage than it otherwise would have due to cheap labor. But just because the Chinese are in the wrong does not mean that we are in the right.
Trade war maybe, but even that is unlikely. Before it got to that, China would probably let its currency appreciate. The U.S. isn't the only country peeved by this.
You are right about the violence of the American character but it only comes into effect if America feels (rightly or wrongly) that its existence is threatened. Overvaluing your currency is very far below the threshold that would be necessary to provoke violence. It's not even clear to me that invading Taiwan would do it anymore, at least under an Obama administration. The US lost tens of thousands of boys in Korea, mostly to Chinese bullets and has spent billions ever since then keeping US troops there (and to thank us Korea is helping to bankrupt the US auto industry) and this is wonderful thing for the people in S. Korea who would otherwise be living (or dying) in Kim's hellhole, but it's not really clear what benefit the American people got out of this deal.
K
K
America "bought" a very good ally in Korea. A tough country and good soldiers. South Korea adds to American power a lot.
REgarding China, with 10% unemployment in the USA (17% real), things could be difficult to manage even for Obama. And a country with trillions of dollars in the bank is a tempting target for adventurers, such as the English in the 17th Century.
We don't have to invade to keep the trillions - all we have to do is like what Kim Jong Il did in N. Korea. We declare a new currency (the new American peso) and declare old dollars to be worthless or exchangeable at 1000 to 1.
K
Ha ha ha...
or maybe you are not kidding?
K is not kidding, in principle anyway.
It must be remembered that although the Chinese hold the money, the USA controls its real value.
There has been so much money printed by the US that it is inconceivable there will not be a big inflation quite soon.
When you owe the bank $100, you have a problem. When you owe the bank $100,000, the bank has a problem.
Anon.
The Americans have the 'extraordinary privilege' (Gen de Gaulle) of paying off their obligations with promissory notes that they can print at will. The Chinese know this as much as anyone. That they seem unable to break out of this relationship points to the clout that the US enjoys; there is no other market around with the depth and resilience of the US, in which the Chinese can hope for a reasonable and safe return for all their efforts. They certainly would not be able to do the same with India or Japan. Obama can sew up the Buchananite vote in a couple of years by talking up the China threat. He will save his powder till then.
Yes the Chinese are in somewhat of a bind and they know it - this will restrain their aggressiveness for now - their whole prosperity (for now) depends on the West, especially America, buying their cheap goods. On the other side, there is no potential for adventurism either - it's not like the Spanish who filled galleons full of Inca gold - all there is in the Chinese vaults is paper. The whole dance of world trade must continue because if the music stops we are all in very big trouble.
K
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