NationStates Jolt Archive

The dollar has plumeted to a record low today and a record low against the Euro despite US jobs growth. Is this a reaction to the election result?

The dollar has plumeted to a record low today and a record low against the Euro despite US jobs growth. Is this a reaction to the election result?
Current Account Deficit.

And our treasurer doesn't care, thinks everything is 'peachy'. I have no idea why this doesn't scare more people.

Maybe they just want to stick to their farms with their guns and incestuous heterosexual relationships and never worry about traveling abroad or dealing in any kind of international transactions.

Its the dang Republicans, when evil cheating Clinton was in office the dollar was strong! But when the good born again Christian was elected the dollar value was gone with the wind. How could that evil flip flopper John Kerry get in Bushs way of decreasing the dollars value?

If you dont know that this is sarcasm you should be shot in the head.

And what do you think is the impact on the US economy when the dollar is low versus yen, frank, euro, etc?

And what do you think is the impact on the US economy when the dollar is low versus yen, frank, euro, etc?
To be frank, I failed high school economics. (Not literally, but I did hate that class.) I have no idea, but what I do know is that travelling to Europe, as I intend to in a few months, is extremely bloody difficult on an American salary, and getting harder by the day.

If it's not the last four years of conservative fiscal politics, I would appreciate an explanation of what it is, then (no sarcasm intended).

Irrelevant.

Since Nixon finalized the removal of gold backing in the representative value of the dollar, it has become nothing more then a traded commodity on the stock market. At best speculative, at worse an insightful guess.

And regardless of whether it's up or down, the US economy is so intertwined with the nations of the world it has positive and negative effects regardless of its change in value. As the value of the USD goes up... the price of imports goes down. Lowering the cost of living, but bear in mind that the exports of the US also become more expensive and decrease in number, so the economics balance out to a net gain of nothing. Likewise, if the USD goes down, the number of exports increase and that extra income is then turned right around to pay for higher imports. It's all a wash.

This is a Macro view of course, the real issue is with the trade balance. That is the figure that should be worried over, not how many USD's translate into wooden nickels. :D

Irrelevant.You can't tell me it's irrelevant when everything in europe is growing progressively more expensive, and I intend to live there for 6 months on a bank account in American dollars. I'm sorry but this deeply affects me and ergo, pisses me off.

It's a matter of how much I should be able to get over there for my money, I'm really less interested in the academics behind it than I am in getting what goods I should be able to for my dollar.

You can't tell me it's irrelevant when everything in europe is growing progressively more expensive, and I intend to live there for 6 months on a bank account in American dollars. I'm sorry but this deeply affects me and ergo, pisses me off.

I only meant it in terms of the effect to those in the US. As for you being in another country where you are loosing money because of the exchange... I am very sorry.

Though on the bright side if you are earning some money in EU's you are getting paid a ton more then you would in the US.

Yeah I know it's a pathetic attempt to chear you up, but it's all I got right now. Still I hope you enjoy your stay there. Consider yourself lucky. I dont think I will ever be able to visit another country at my current pay scale. Someday though...

PS: My comment was not intended to be a reply to you but the original. Seems the severs here are running slow and you managed to get a reply in before my appeared.

What you're all forgeting is that the Euro is not only backed by several nations, it is much newer than the dollar. And the dollar hasn't been readjusted for ages now.

The election result has not had a positive effect on the dollar, and there is every reason to believe that it is a factor in the continuing downward trend of the dollar. The American economy is in big trouble. The price of imports are going up, and you are importing more than you are exporting, your government is spending more than it is earning, foreign investment is virtually non-existent, and your buying power as a group is decreasing with every slip of the dollar.

Furthermore the huge deficet between government earning and spending is wholey caused by the actions and policy of the current government, who deliberately turned their backs on established bi-partisanly supported economic policy.

Basically Bush's economic policy is highly radical and apparently in effect somewhat ruinous.

Though on the bright side if you are earning some money in EU's you are getting paid a ton more then you would in the US.Ah, I don't have a work visa. Just a residence one to study in a university over there. And I'm not there yet, so there's still time for it to improve, or as I predict, drop even further. And while I'm not the kind of screaming liberal to go "OMG KERRY WOULD HAVE FIXED EVUREETHANG", I'm having a hard time not connecting this steady drop with Bush's fiscal policies and international distrust of and dislike for America augmented by his re-election.

Meh. Bush is doing bad things with the economy, I will admit. But 9/11 had a MAJOR part in the initial plummit of the economy. The WTC were major economic centers for the US. Taking them down is almost as bad as taking down Wall Street. Also, with the knowledge of the tallest buildings in America being taken down, consumer confidence dropped out of fear. Henceforth, if people don't buy, comapnies don't sell, so they dont' have profit, so they have excess goods. To counteract this, they slow production, and to try making profits, they fire excess workers, who then take government money from welfare.

Personally, I think welfare should be much stricter than it is. Here's my Welfare Plan:

1) One to Six Month "Free Trial" of Welfare to help you stay decent while looking for a job

2) Upon experation of the "Free Trial", and you are still on welfare, cheap-ass government housing is provided. These houses give you only the essentials and NOTHING MORE. These are made only to keep you alive and half-comfortable. Insentive to get you out to work.

3) Upon a said amount of time living off of step two (or right away, whichever), the government basically then controlls your life. Everything you own is placed in a single account, and you have a card or two to access it. The government keeps track of what you buy. The person is not allowed to keep any cash on them at all (this can be amended for saftey and security reasons). The government monitors and controls everything you buy. Should you buy a non-essential item, the government confiscates it and deducts a fine from your account.

4) Taxes are VERY low for people on welfare due to the lack of free-spending money. In return, the government controlls your life.

5) If necessary, such as a person has tried for years on end and has continuously failed to find a job, the person may do community service for just enough to balance the account with maybe $10 extra incase grocery prices on an essential item go up.

6) Medical care is provided, but it is minimal.

7a) Their vehicle is sold, and a cheap-ass government car is issued. Again, the use of the vehicle is monitored by the government.

7b) Gas is issued, but at a small fee. The person may not buy any more gas for their vehicle.
================

All in all, it gives people incentive. I've seen many a dtory about people living off welfare and having video game systems, top-of-the-line computers, cell phones, etc, and they complain about not being able to feed their children.

Sorry for those that just got fired and are hard workers, but that is what the Free Trial is for.

The dollar going down is the markets natural way of reaching equilibrium on the trade scene, the last time the dollar showed serious signs of decline the G8 intervened, this time some, particularly Japan, but that has only slowed the decline, not halted it. That being said there seems to be a lot of ignorance when it comes to strengths of currencies, there is nothing inherently better with a currency that has a 1:1 ration with a dollar than one that has a .5:1 ratio.

The dollar has plumeted to a record low today and a record low against the Euro despite US jobs growth. Is this a reaction to the election result?

It's lower than during the great depression?

I'm having a hard time not connecting this steady drop with Bush's fiscal policies and international distrust of and dislike for America augmented by his re-election.

Again the value is a comodity, not due to a fiscal plan, though the policy of the Bush administration to bolster the buisness sector should level off or edge up the dollar, similar to the stock market jump after he was re-elected. But that is probably more about investor reverance for stability then a blessing of Bush.

I think that once Iraq settles and resembles what Afganistan is now, you will see the dollar back to where it once was. The market hates instability, causes the oily folicles of the greasy day trader to act like people caught on fire with little regard for common sense. And I beleive that the majority of the slip in value is directly linked to the terrorist issue. You only need to match up the US war actions vs the dollar decline to see the corrilation. Notice how the near full employment numbers from the labor department have little effect, though in the EU unemployment is near 10-15%. So it obviously has little to do with productivity. :) Also notice how the stockmarket crash in March of '01 did little to effect the USD.

In reverse it can have the opposite effect on the EU who generally stayed out of the fray and maintained there market stability.

But remember it's all speculation, if the traders were to get the impression that the USD was going back up you would see the EU drop as they move their money back to the dollar. It sucks for us all, but that is basically what goes on.

It's lower than during the great depression?
The Euro wasnt around during the Great Depression... ;)

And our treasurer doesn't care, thinks everything is 'peachy'. I have no idea why this doesn't scare more people.

Maybe they just want to stick to their farms with their guns and incestuous heterosexual relationships and never worry about traveling abroad or dealing in any kind of international transactions.
They've learnt from the Australian situation in the Asian Currency Crisis. Push down the dollar, and improve your exports. That's why they're in favour of a weak dollar.

They've learnt from the Australian situation in the Asian Currency Crisis. Push down the dollar, and improve your exports. That's why they're in favour of a weak dollar.
What kind of exports do we have to offer to the rest of the world, exactly? Again, not trying to be sarcastic, I'm sincere about trying to understand this, since I know I don't. All I understand is that living in Europe for a few months is going to drain me at this rate.

What kind of exports do we have to offer to the rest of the world, exactly? Again, not trying to be sarcastic, I'm sincere about trying to understand this, since I know I don't. All I understand is that living in Europe for a few months is going to drain me at this rate.

The list of US exports is so long I am not going to bother with most all of it but a few really really really large ones are:

Automobiles, jetliners, computers, music, movies, books, software, games, hardware, satalites, clothing, freedom, tourism.

The last bit is only a couple remarks of my opinion. ;) But really if you are uncertain as to what the US offfers the world you only need look at how you are interfacing with the internet and realize that without the US inginuity you would not be able to make these posts. After all, Windows, Linux, Machintosh are all US products of briliance. Regardless of whether you get the blue screen of death on a regular basis or not.

And what do you think is the impact on the US economy when the dollar is low versus yen, frank, euro, etc?

This is good for the U.S. This makes U.S. goods cheaper in Europe, or in the EU countries, anyway. You can look back to the mid '80s when the dollar was sky-high against yen to see how bad the trade deficit was with Japan. The U.S. devalued the dollar and trade started to pick up again.

From a strictly nationalistic viewpoint, it's a little depressing. But who cares, it's all just numbers. Now, we can't afford that quart of French wine, but you can buy some more Nebraska beef.

Regards,

The Euro wasnt around during the Great Depression... ;)

I know that but he said it was at a record low, that would mean lower thatn during the Depression.

He was clear about it beaing a record low against the euro, pay attention.

It does not worry me very much considering that the Euro is barely 4 years old and the first thing it did on introduction was drop 20%.

Considering that during that same period the dollare was very near it's high mark is also not an issue.

As many noted here - a cheap dollar has many advantages.

It could in fact be an economy stimulator, creating jobs. There will be a greater demand for American made goods, as they will be cheaper. But it sucks for us, in the sense if we want to buy other countries made goods.

I personally am indifferent to it... But, I am rejoicing as this is making the Canadian currency stronger.

The devalued dollar actually has the potential to cause problems inasmuch as the national debt is, in fact, a REAL debt. Countries such as China buy bonds from us and that is what constitutes the debt. Given the comparitive strength of the Euro, it is a real possibility that countries that presently hold bonds with us could sell off their American bonds in favor of bonds in the stable Euro. And what do you think happens when those American bonds are sold off?

I know that but he said it was at a record low, that would mean lower thatn during the Depression.
Those are totally different kinds of worth, but from certain perspective, yes, the dollar is at a much lower value than during the Depression and has been for a very long time. That is, you could buy a lot more with a dollar during the Depression than you can now.

The problem during the Depression was that a dollar was much much harder to get.

I'd say that the dollar being at a low point against the Euro and other currencies, plus the job increase, is a good sign for the US economy. Not out of the woods yet because the trade deficit is still huge and other nations are now less willing to invest in the US to rebalance it, preferring China. However, as the dollar continues to slide down that would make imports more expensive, exports cheaper and the consumers more willing to spend in domestic products.

And what do you think happens when those American bonds are sold off?
They are held by other people. And when the bonds have to be paid, say, in 20 years, you give the money to the holder, regardless of who was the original buyer.

How much the bonds are sold and at what price is just an indication of how people think the US economy will do and whether it's worth their trouble to hold the document for 20 years or they can get a better deal now. But, as always in the market, this is just an opinion; more or less informed, but an opinion just the same.

Exchange rates are what governs how much of a foreign commodity you can buy not the dollar level. If you go to Europe and exchange 1 dollar you will now get 1.29 Euros minus an exchange rate. However, with the growth of the Euro to the dollar, exchange rates will be higher as investors will be less willing to take on more dollars.

What this means is that the cost of imports will increase as foreign companies and American importers will have to suffer this exchange rate hike. Prices of American goods will be unchanged here, you will be paying the same price for the short run. However, if the trend continues, investors will begin to shy away from the dollar, and that could cause a number of major problems, as the dollar could further decline, and a harsh inflation could take place.

One way I can relate this to Bush's policies is through a $5 billion corporate tax cut initiated early in his first tenure that was ruled illegal by WTO. It caused retaliatory international tariffs in Europe and worldwide that were growing by a percent a month.

Just one of the mistakes Bush has made that went very unreported.

It could in fact be an economy stimulator, creating jobs. There will be a greater demand for American made goods, as they will be cheaper. But it sucks for us, in the sense if we want to buy other countries made goods.

It would be if it weren't for the fact that most major American exporters are so globally based that most of their factories are overseas.

I like the dollar declining in value. It means I can buy American stuff even cheaper then over here (Europe) even with shipping included. Other Europeans think alike and buy American stuff instead of the European equivalents, leveling the difference.

I like the dollar declining in value. It means I can buy American stuff even cheaper then over here (Europe) even with shipping included. Other Europeans think alike and buy American stuff instead of the European equivalents, leveling the difference.

That is incorrect, as solely American produced goods will be the same price but any good that involves exports or is an export will increase in price.

That is incorrect, as solely American produced goods will be the same price but any good that involves exports or is an export will increase in price.
If a European wanted to buy something from the US with a cost of US$20, they would have had to fork out around 25 euros in 2000. Now it's more like 17.

The contrary is true for US people who want to buy something from Europe.

The dollar has plumeted to a record low today and a record low against the Euro despite US jobs growth. Is this a reaction to the election result?
I do not believe that it is not at a "record low". I remember when the Canadian dollar was actually valued at 5 cents more than the US dollar back in the mid 70's. It was only a brief period but it did happen.

I do not believe that it is not at a "record low". I remember when the Canadian dollar was actually valued at 5 cents more than the US dollar back in the mid 70's. It was only a brief period but it did happen.
Well, it's a record low against the Euro. Against other currencies is another story. The Canadian dollar is not doing too bad lately, but it's also sliding against the Euro, although much more slowly.

If a European wanted to buy something from the US with a cost of US$20, they would have had to fork out around 25 euros in 2000. Now it's more like 17.

The contrary is true for US people who want to buy something from Europe.

Dollar levels don't effect anything between the two nations besides exchange rates. Right now it would cost a great deal to convert dollars to euros because euros are growing and dollars are shrinking so nobody wants to hold dollars. This means that companies exporting to Europe must convert euros back to dollars and it is extremely cheap to do so. While importers have to convert from dollars to euros so they have to charge more. So basically I just agreed with you and wasted my time.

This could be a tactic by the fed to narrow the trade gap America has in goods flow. However, with our huge deficit and national debt, the impact the devaluation of our dollar has on US Govt. bonds could be devastating.

This is great news. With such a low dollar, it is cheaper to manufacture in the US, and invest here. Already, I heard that a DaimlerChrysler plant in Austria shut down, and is moving production to the US.

The dollar going down is the markets natural way of reaching equilibrium on the trade scene, the last time the dollar showed serious signs of decline the G8 intervened, this time some, particularly Japan, but that has only slowed the decline, not halted it. That being said there seems to be a lot of ignorance when it comes to strengths of currencies, there is nothing inherently better with a currency that has a 1:1 ration with a dollar than one that has a .5:1 ratio.
Yes, I'm not fond of the fact that Asian central banks buy bonds heavily. While it is enough to pay for our trade and budget deficit, it keeps the dolar strong. Even worse, when the global business cycle enters its inevitable downturn, these banks can't buy as many bonds, and interest rates will skyrocket more than they would if times were good.

http://www.chron.com/cs/CDA/ssistory.mpl/business/2886718
Appearantly, some in the EU are seeking for a response to the rising euro. I'm glad its proponets, mostly the French, are isolated. They are interferring with the natural equilibrium of the market. A better solution would be to use the strong euro to their advantage. Invest more overseas. Afterall, most other major economies aren't as regulated as the Eurozone, so it is more likely that they'll get bigger returns overseas. Europe thinks it's still a production and consumption powerhouse, but it isn't growing at all. What they don't realize is the incredible amounts of capital they have. They should use it to their advantage.

http://www.chron.com/cs/CDA/ssistory.mpl/business/2886718
Appearantly, some in the EU are seeking for a response to the rising euro. I'm glad its proponets, mostly the French, are isolated. They are interferring with the natural equilibrium of the market. A better solution would be to use the strong euro to their advantage. Invest more overseas. Afterall, most other major economies aren't as regulated as the Eurozone, so it is more likely that they'll get bigger returns overseas. Europe thinks it's still a production and consumption powerhouse, but it isn't growing at all. What they don't realize is the incredible amounts of capital they have. They should use it to their advantage.


You can bet on this, within twenty years:he eurozone will be abandoned; the eurozone countries will cede their soveignty to a supra national body; or, they will have third world economies.

You heard it hear first.

You can bet on this, within twenty years:he eurozone will be abandoned; the eurozone countries will cede their soveignty to a supra national body; or, they will have third world economies.

You heard it hear first.
I agree one of those three things will happen, but the former two are more likely. Anyhow, let's focus on the next few years, on what will happen to the dollar-euro relationship. We can't also rule out other currencies. After all, some central banks see a falling dollar as a stumbling block for the world economy.

They've learnt from the Australian situation in the Asian Currency Crisis. Push down the dollar, and improve your exports. That's why they're in favour of a weak dollar.
Problem is - the US is already running a huge trade deficit with China ($400 billion and climbing). With so many US factories set up in China and the Chinese economy growing so rapidily, a low dollar only exacerbates the problem. The US is actively lobbying the Chinese govt to lower the value of the Yuan, which is set too high against the US$, thus giving it a big advantage in Trade.

The trade deficit (along with the current account deficit) is why the US$ is so low, and with Bush back in power, it'll go lower. His policies aren't aimed at restraining the deficit. The Iraq war is going to cost $Billions, he wants to cut taxes (reducing the tax take), privatise Social security (at an est. $4 trillion cost to do so) and increase military spending. So the US is going to continue running a massive deficit for a long time to come. Which means a falling dollar.

Problem is - the US is already running a huge trade deficit with China ($400 billion and climbing). With so many US factories set up in China and the Chinese economy growing so rapidily, a low dollar only exacerbates the problem. The US is actively lobbying the Chinese govt to lower the value of the Yuan, which is set too high against the US$, thus giving it a big advantage in Trade.

The trade deficit (along with the current account deficit) is why the US$ is so low, and with Bush back in power, it'll go lower. His policies aren't aimed at restraining the deficit. The Iraq war is going to cost $Billions, he wants to cut taxes (reducing the tax take), privatise Social security (at an est. $4 trillion cost to do so) and increase military spending. So the US is going to continue running a massive deficit for a long time to come. Which means a falling dollar.

Do you actually know how silly that sounds?

Go lower! I can buy more on eBAY in US$ due to stronger Oz dollar.

:)

Go lower! I can buy more on eBAY in US$ due to stronger Oz dollar.

:)


Already the current account balance is closing.

laissez faire rules.

Do you actually know how silly that sounds?

Why does it sound silly? That's exactly right. Look at every economist model or chart available; they all say the same thing.

Look, a "weak" currency only means that its cheap to buy right? So a "weak" dollar means more people buy them and exports from the US are cheaper. This is a HUGE boon to manufacturing sectors and most other sectors; thus the Bush administration wanted to boost exports by setting their monetary policy to favor a weak dollar. Thus US Exports are cheaper, imports are (relatively) more expensive and consumers the world over buy more US goods.

China has pegged the Yuan to the dollar (thus the Yuan stays the same relative value to the dollar no matter what happens to the dollar). Such statist monetary policies are very useful for developing nations who have fluxuations in their own currency too often. However China is growing at what is known as a "superheated" rate, growth percentages that make the Yuan significantly skewed in proportion to the dollar, this inbalance is growing larger due to the increasing "weakness" of the dollar and the increasing strength of the Chinese ecnomy.

Thus this pegged Yuan and the weakening dollar combine to create a significant value inbalance for Chinese goods: the US is losing money because the Yuan is getting cheaper in relative value instead of more expensive!

What the poster is saying is that the trade imbalance with China is getting worse, not better. The Bush administration really needs to light a fire under the Chinese to readjust the Yuan's value (I've seen indications that small progress has been made on that front). Once the Yuan is revalued to a more reasonable level, the "weak" dollar will boost exports more effectively.

These boosted exports will help pay for all the rest of the US government's expenditures.

So tell me, how is that silly?

Thank you Medici. I was just going to say that, but I doubt I'd say it with such clarity.

--snip--

For the most part, you are right on.....

Why does it sound silly? That's exactly right. Look at every economist model or chart available; they all say the same thing.

Look, a "weak" currency only means that its cheap to buy right? So a "weak" dollar means more people buy them and exports from the US are cheaper. This is a HUGE boon to manufacturing sectors and most other sectors; thus the Bush administration wanted to boost exports by setting their monetary policy to favor a weak dollar. Thus US Exports are cheaper, imports are (relatively) more expensive and consumers the world over buy more US goods.

China has pegged the Yuan to the dollar (thus the Yuan stays the same relative value to the dollar no matter what happens to the dollar). Such statist monetary policies are very useful for developing nations who have fluxuations in their own currency too often. However China is growing at what is known as a "superheated" rate, growth percentages that make the Yuan significantly skewed in proportion to the dollar, this inbalance is growing larger due to the increasing "weakness" of the dollar and the increasing strength of the Chinese ecnomy.

Thus this pegged Yuan and the weakening dollar combine to create a significant value inbalance for Chinese goods: the US is losing money because the Yuan is getting cheaper in relative value instead of more expensive!

What the poster is saying is that the trade imbalance with China is getting worse, not better. The Bush administration really needs to light a fire under the Chinese to readjust the Yuan's value (I've seen indications that small progress has been made on that front). Once the Yuan is revalued to a more reasonable level, the "weak" dollar will boost exports more effectively.

These boosted exports will help pay for all the rest of the US government's expenditures.

So tell me, how is that silly?


And how do the chinese manage to peg the Yuan to the $? Assuming, of course, you know the difference between a convertible and non-convertible unit of currency.

The US dollar drops while the Canadian dollar rises. Man.. that's just wierd.

The US dollar drops while the Canadian dollar rises. Man.. that's just wierd.

No its not...it should drop...the dolar is overvallued....

The Canadian dollar rises in value compared to the American dollar, by any chance?

America's got a bit of a bad cycle going on with China. It needs to break soon, or there will be problems.

Australia has had a great few years in exports to China, but that will slow down now, thanks to the rising value of the Australian dollar compared to China. Australia exports things like: metals, food and livestock to China and other countries. The high price of metals will help offset the exchange rate, though.

China's economy is about to collapse.

Take my word for it.

China's economy is about to collapse.

Take my word for it.

No way...how much you wanna put on that?

No way...how much you wanna put on that?


1,000,000 YUAN.

1,000,000 YUAN.

A cool mil yuan? You're on...the Yuan is undervalued....

A cool mil yuan? You're on...the Yuan is undervalued....

Yeah, okay.

But let's make it a real future contract.

bump,

china is FUBARED, you heard it here first,

Maybe they just want to stick to their farms with their guns...

Honestly, if I had the chance, I'd do that too. But I wouldn't be supporting George Bush, or heterosexism. No, I'd use my gun to keep that guy and others off of my permacultural sustainably organic farm. :)

Rather than simply trust your word, I'd rather trust your data and your interpretation of it. Care to share why you think this will happen?

You see, I'm no stranger to bullshit claims of expertise, I make them occasionally myself ;). China's economy IS in danger of collapse, but the weaknesses are known to the Chinese and are being provided for (whether or not if they are successful remains to be seen).

I've studied extensive reports on their economy and its future, and it seems things will likely be okay. Their cooldown might be rough, but not a full-fledged collapse as far as I can tell. What do you see differently?

...Or was that simple bs?

The US dollar drops while the Canadian dollar rises. Man.. that's just wierd.


Ummm, during the late 60's early 70's the Canadian dollar was worth much more than the US dollar. How's that for weird? :eek:

Rather than simply trust your word, I'd rather trust your data and your interpretation of it. Care to share why you think this will happen?

You see, I'm no stranger to bullshit claims of expertise, I make them occasionally myself ;). China's economy IS in danger of collapse, but the weaknesses are known to the Chinese and are being provided for (whether or not if they are successful remains to be seen).

I've studied extensive reports on their economy and its future, and it seems things will likely be okay. Their cooldown might be rough, but not a full-fledged collapse as far as I can tell. What do you see differently?

...Or was that simple bs?

No, it's not BS. You are making the mistake of many econ grads and are assuming that a national economy is a linear model, in layman's terms you see it as a continous function of its inputs.

That is not the case. In fact economies tend towards divergent boundary conditions whenever they are measured. Hence dislocation in an artificially supported economy is almost guaranteed. Developed economies have enough captial surplus to weather these changes, developed ones do not. China is just to poor to support the coming collapse. So bye-bye China.

And yes, I do know what I am talking about.

If the Chinese economy collapses watch out for the third world war.
The policy that China used to follow of one child per family must surely have produced a surplus of young men that are in their twenties by now.
Imagine that there may be (arbitrarily) fifty million young Chinese men with no hope of getting married because of the relative scarcity of young women.
Where do they go?
What do they do?
Join the army.
What other country in the world can field an army of fifty million men?
What do you do with an army of fifty million men?
You send them off to fight.
And you send them when your economy is in the dumps and you are looking to take the heat off the domestic situation by galvanizing the population against a foreign enemy instead of allowing them to fixate on domestic crises.
And you do it in such a way that it looks like you were provoked.
Even if you have to manufacture the circumstances of provocation.
It worked for George Bush.

If the Chinese economy collapses watch out for the third world war.
The policy that China used to follow of one child per family must surely have produced a surplus of young men that are in their twenties by now.
Imagine that there may be (arbitrarily) fifty million young Chinese men with no hope of getting married because of the relative scarcity of young women.
Where do they go?
What do they do?
Join the army.
What other country in the world can field an army of fifty million men?
What do you do with an army of fifty million men?
You send them off to fight.
And you send them when your economy is in the dumps and you are looking to take the heat off the domestic situation by galvanizing the population against a foreign enemy instead of allowing them to fixate on domestic crises.
And you do it in such a way that it looks like you were provoked.
Even if you have to manufacture the circumstances of provocation.
It worked for George Bush.


You have to fund said army however, and china cannot.

Ten years from now there will be a famine there. Don't say I didn't tell you.

No, it's not BS. You are making the mistake of many econ grads and are assuming that a national economy is a linear model, in layman's terms you see it as a continous function of its inputs.

That is not the case. In fact economies tend towards divergent boundary conditions whenever they are measured. Hence dislocation in an artificially supported economy is almost guaranteed. Developed economies have enough captial surplus to weather these changes, developed ones do not. China is just to poor to support the coming collapse. So bye-bye China.

And yes, I do know what I am talking about.

Interesting to think of myself as an econ grad. Aside from my reading of the Economist every now and then I have rather limited experience with Economics as a study. I tend to think of myself as more of a traditional capitalist-businessman type.

China is poor in what ways? Dislocation in what sectors? Capital surplus is one of the Chinese's greatest strengths. I don't understand what you're talking about; it seems that you're taking an assumption to an illogical conclusion without a suitable premise. Assume I'm about 4 years old for a minute or two and explain it, long and slow, with big pictures and 5 words per page.

...'cause seriously, it doesn't sound right to me at all.

Interesting to think of myself as an econ grad. Aside from my reading of the Economist every now and then I have rather limited experience with Economics as a study. I tend to think of myself as more of a traditional capitalist-businessman type.

China is poor in what ways? Dislocation in what sectors? Capital surplus is one of the Chinese's greatest strengths. I don't understand what you're talking about; it seems that you're taking an assumption to an illogical conclusion without a suitable premise. Assume I'm about 4 years old for a minute or two and explain it, long and slow, with big pictures and 5 words per page.

...'cause seriously, it doesn't sound right to me at all.

I gotta go buy cigarettes, but I'll be back and lay it out in tedious detail.

Okay, I'm back.

China, even at the current value of the Yuan still has less productive workers than the US, or Europe for that matter.

In order to overcome this shortfall china has pegged the Yuan to the dollar at an artifically low level. They do this by buying US debt securities. This accomplishes two things: 1) it keeps the Yuan low and grants chinese manufacturers a comparative advantage; and 2) puts US "quality" added goods at a distinct disadvantage in the chinese market. In other words, they are getting the benefit of non-tarrif trade barriers and manufacturing subsidies at then same time by clever use of fiscal policy.

In layman's terms, they are extending least marginal utillity of their goods with fiscal policy.

Well bravo for you china. You have found a way to play the keynsian game without actually recording a deficit. But what is the problem? That's right those bonds eventually become due. And what are they worth then? I'll tell you. They are worth only what the global market will bear.

So now china is in a funny place: the government has lost a shit load of money overnight because its assets - some of them at least - are not worth what they were; the deficit in funds effects china's ability to control its fiscal policy; and, to cap it off, the only place that china can look to to recoup its losses is its export market - which has just lost its comparative advantage.

Most nations go through this: The US did early on - but really before the world economy was global so it didn't matter; and Japan did in the 80s. BTW japan still has not recovered from playing this game with the US, look at the Nikkei.

So why is china a basket case more than japan though. That's what your asking after all. Well simply put, it has no established property rights, no democracy, no rule of law and no safety net for the unemployed. Thus, unlike japan, when the readjustment comes, china will spin into chaos. The dislocations caused by the loss of manufacturing advantage and a massive increase in the national debt will force china into a recessionary cycle. Couple this with the lack of defined property rights and net direct investment will fall off too - it'll become a viscious cycle. So bye-bye china. Next time learn that economies are built from the ground up, not the top down. And don't say hernando desoto didn't warn you.

Also, india is screwed too. And for the record I told people not to invest in "free" Russia. If you want a non-US place to put your money, try the UK, they at least respect the free market.

Failing that, once the tokyo banking imbalance works out, Japan is okay too,

Bump.

Pay attention it'll make you rich.

<snip>

In layman's terms, they are extending least marginal utillity of their goods with fiscal policy.

<snip>


Nicely argued, but this line really cracked me up.

I'll have to try it next time I'm talking to some laymen down the pub. :D

In order to overcome this shortfall china has pegged the Yuan to the dollar at an artifically low level. They do this by buying US debt securities. This accomplishes two things: 1) it keeps the Yuan low and grants chinese manufacturers a comparative advantage; and 2) puts US "quality" added goods at a distinct disadvantage in the chinese market. In other words, they are getting the benefit of non-tarrif trade barriers and manufacturing subsidies at then same time by clever use of fiscal policy.

In layman's terms, they are extending least marginal utillity of their goods with fiscal policy.

Well bravo for you china. You have found a way to play the keynsian game without actually recording a deficit. But what is the problem? That's right those bonds eventually become due. And what are they worth then? I'll tell you. They are worth only what the global market will bear.

So now china is in a funny place: the government has lost a shit load of money overnight because its assets - some of them at least - are not worth what they were; the deficit in funds effects china's ability to control its fiscal policy; and, to cap it off, the only place that china can look to to recoup its losses is its export market - which has just lost its comparative advantage.

Nope. I'm still lost. You're arguing that the creditor of US debt securities is at a disadvantage? Does that mean that the US will default on its debt when it comes time to pay up?

Either I misunderstand greatly what a debt security is, or you're arguing that China is investing in bad debt and will get burned because the US won't own up come payday.

However, China does have rule of law and property ownership laws that are still modernizing (so yeah, they're still behind the times), but they also have the "endless cheap labor" that makes all the difference in Textiles and such, where they have no real competitor.

Its true that China is at a disadvantage in IT or intellectual property fields compared to India or the US, right now they make cheap, low skill goods, so those factors don't matter as much. How would their exports get burned when they don't have serious competition in their key export fields?

So two more questions for you; Why would the Debt securities depreciate so much in value? And why would China's export market dry up without the loss of competitive advantage?

As I have seen it, the pegged Yuan is only partly responsible for their huge advantage; removing it is key to slowing down growth to more sustainable and reasonable rates. Not the beginning of the end...

Nope. I'm still lost. You're arguing that the creditor of US debt securities is at a disadvantage? Does that mean that the US will default on its debt when it comes time to pay up?

Either I misunderstand greatly what a debt security is, or you're arguing that China is investing in bad debt and will get burned because the US won't own up come payday.

However, China does have rule of law and property ownership laws that are still modernizing (so yeah, they're still behind the times), but they also have the "endless cheap labor" that makes all the difference in Textiles and such, where they have no real competitor.

Its true that China is at a disadvantage in IT or intellectual property fields compared to India or the US, right now they make cheap, low skill goods, so those factors don't matter as much. How would their exports get burned when they don't have serious competition in their key export fields?

So two more questions for you; Why would the Debt securities depreciate so much in value? And why would China's export market dry up without the loss of competitive advantage?

As I have seen it, the pegged Yuan is only partly responsible for their huge advantage; removing it is key to slowing down growth to more sustainable and reasonable rates. Not the beginning of the end...


Okay yes, the US is absolutley going to default on its debt. (Technically)

The comercial paper that china now holds is only worth what someone else will pay for it. The US is not about to buy it back electively, so they have to sell it to someone else if they want to convert it. But who? The euro is well up against the dollar, so already they have lost money.

As to the rest, at some point, the Yuan is going to have to float. No more pegging due to holding debt instruments. At that point the cost of chinese goods skyrockets. As it is still cheaper, ceteris paribus, to manufacture in europe or the US right now, their entire export market - the only way they can recoup the lost money - is fucked. Bye, Bye china.

Thank god they only have 17 ICBMS. Hopefully I'll be behind the panty shield by then.

And no, they are communist, there is no rule of law in china. But go ahead, invest if you want, just don't bitch when it all goes pear shaped.

But surely if China goes under, it'll drag the US down with it. Do you know how many (hundreds of) billions of US$ US companies and investors have tied up in China right now?
Not even the Chinese Govt knows for sure, which is part of the reason they've resisted floating or devaluing the RMB. For fear of some being imediately taken out if they do.
But if their economy goes down, do you think they'll let that money leave? I don't. Think what that'll do to the US economy if China decides to nationalise all those US-owned factories and deny the investment money to leave.
And don't think they wouldn't if they thought it would be good for their economy.

But surely if China goes under, it'll drag the US down with it. Do you know how many (hundreds of) billions of US$ US companies and investors have tied up in China right now?
Not even the Chinese Govt knows for sure, which is part of the reason they've resisted floating or devaluing the RMB. For fear of some being imediately taken out if they do.
But if their economy goes down, do you think they'll let that money leave? I don't. Think what that'll do to the US economy if China decides to nationalise all those US-owned factories and deny the investment money to leave.
And don't think they wouldn't if they thought it would be good for their economy.

Look at the big picture.

If the Yuan floats, we make money in our direct investment now. Instantly. It's all pump and dump. Sure there will be individual dislocations, but not generally. Plus we get to flabble on about how "china" ripped us off. We have a huge economy, but more frightening than our GDP is our retained surpluss. The US owns about 70% of the world. We can lose china and recover. They however do not have the amount of retained surpluss to weather thier coming crisis.

Facts:

- The US as huge Current account deficit, you are importing more than you export, therefore you lose cash reserves
- The US as a huge deficit, the US state is spending more money than it is receiving throught taxes. Therefore it issues debt.
- The US dollar is hitting new lows against the Euro and other currencies


The US is losing money, making debts, by "transfering" consumption from the future to the present. These debts mean a rise in interest rates, which cause a decline of the relative value of the dollar, which in internal matters, means inflation (since a currency is a comodity like all others: Too much in the market, and its price falls). Note that the debt of the US is issued in Treasury bonds. A danger with bonds resides in a weak U.S. dollar. If the dollar weakens, foreign holdings of our debt become expensive. Since they are denominated in dollars, foreign investors lose part of their assets. Recently, there was an anomaly in the bond market. As the stock market dropped over 200 points, treasury bonds also fell. The usual bond buying created from stock selling was not present. The inference is there was an unknown large bond seller (probably foreign) negating normal buying pattern. If there is a precipitous drop in the dollar’s value, such foreign selling could increase. And what happens if the foreign selling increases? That is right, more and more dollars are sent into the market, thus the dollar loses more value, and that creates inflation. Which isnt pleasant for the US economy. And since the US economy is the largest in the world, the entire world would suffer with such a collapse. These dangers can be avoided, though. The US is currently "living ahead of its possibilities", you are consuming more than you have in wealth. Should you reduce such consumption (the CA deficit should naturaly re-balance, the state deficit will need some responsability of your politicians), than the dangers of a all out selling of treasury bonds, with its negative consequences can be avoided. Ence if you read finantial and economical reviews, you hear of the dangers of the US twin deficits, not that those dangers will necessarely come true.

Wow, great to have a econ guru here. thanks Decondave.

Heh, sounds like China economists are a hundred years behind America's. Communists indeed :D. Clearly sounds like they need a revamp of their governments economical policies.

If China goes down, what would happen to the world economy?
Would anyone save them? I doubt the 'Overseas Chinese' would give a damn about their homeland.
Or would IMF intervene? And US gobble them up?

The dollar has plumeted to a record low today and a record low against the Euro despite US jobs growth. Is this a reaction to the election result?

Despite job growth? Those to things are not directly related.

Look at the big picture.

If the Yuan floats, we make money in our direct investment now. Instantly. It's all pump and dump. Sure there will be individual dislocations, but not generally. Plus we get to flabble on about how "china" ripped us off. We have a huge economy, but more frightening than our GDP is our retained surpluss. The US owns about 70% of the world. We can lose china and recover. They however do not have the amount of retained surpluss to weather thier coming crisis.

No, you can't - You "lose" china, which is the fourth largest trading partner, and one of the largest recipients of US investment, and well, all those investments go to hell. Which means an heavy loss of money to the US. It is acceptable and likely that the US economy would recover faster than the Chinese economy, but such hit would mean lots of pain for the US and the rest of the world too.

And what do you think is the impact on the US economy when the dollar is low versus yen, frank, euro, etc?

How about... high oil prices?

The election result has not had a positive effect on the dollar, and there is every reason to believe that it is a factor in the continuing downward trend of the dollar. The American economy is in big trouble. The price of imports are going up, and you are importing more than you are exporting, your government is spending more than it is earning, foreign investment is virtually non-existent, and your buying power as a group is decreasing with every slip of the dollar.

Furthermore the huge deficet between government earning and spending is wholey caused by the actions and policy of the current government, who deliberately turned their backs on established bi-partisanly supported economic policy.

Basically Bush's economic policy is highly radical and apparently in effect somewhat ruinous.

I agree with you up until the term "government earning". Governments don't earn anything, they just take it. And I'm not sure what bi-partisan supported economic policy you're refering to. Bush's economic policy is extremely ruinous, but it's hardly radical. It's pretty much the status-quo of the last 90 years.

... We can lose china and recover. They however do not have the amount of retained surpluss to weather thier coming crisis.
You know I'm tempted to say "How can you lose China? It's the bloody big country just to the West of Japan!", but I digress.
As the above poster stated, losing the 4th biggest trading partner (and the 2nd largest economy in the World in terms of ppp - see below) is going to seriously affect the US.
And anyway, don't you think it's a bit arrogant to state that you can 'lose' China? I wasn't aware that the US owned the country.

FYI: Purchasing power parity is a good way to measure gdp because it shows how much a country can spend on its military. In PPP terms, the rankings go as follows (from the CIA World Factbook 2004) - U.S - 10 trillion, China - 6 trillion, Japan 3.5 trillion, Germany - 2.5 trillion, and India - 2.2 trillion.

World's Biggest Exporters:
United States: $683bn
Germany: $540bn
Japan: $388bn
France: $307bn
UK: $273bn
Italy: $241bn
Canada: $214bn
Netherlands: $198bn
China: $183bn
Hong Kong: $174bn

Taking China, Taiwan, and Hong Kong together, they are now the world's third largest export bloc.

So 'losing' China would seriously screw up the World (and the US) economy

Rather than simply trust your word, I'd rather trust your data and your interpretation of it. Care to share why you think this will happen?

You see, I'm no stranger to bullshit claims of expertise, I make them occasionally myself ;). China's economy IS in danger of collapse, but the weaknesses are known to the Chinese and are being provided for (whether or not if they are successful remains to be seen).

I've studied extensive reports on their economy and its future, and it seems things will likely be okay. Their cooldown might be rough, but not a full-fledged collapse as far as I can tell. What do you see differently?

...Or was that simple bs?
He's partly right. China will not completely collapse, as there is far too many investors willing to help China. But it will slow down in the next few years, possibly as early as next year. To give you an idea of the resources China needs, 60 new power plants a month must be built, and most will be from coal or oil. They cannot build the port facilities and ships fast enough for fossil fuels, or any resources, and thus causing inflation there. China's state banks are also technically insolvent, but lend to virtually anyone who asks. China can engineer a soft landing, but they've done too little too late. The GDP growth may go as low as 3%, hurting the growth-based Chinese economy severly. In addition, the state banks will probably go bankrupt. They won't be able to defend that peg anymore, and will have to float the yuan. It may cause more inflation abroad, as China can afford more imports, but it'll be a boon to the US export sector.

China's economy is about to collapse.

Take my word for it.
Yeah, there are actually a number of economists that have warned about the overheating of Chinese economy. It's receiving just too much money that doesn't necessarily translate into production and consumption, and the bubble can only hold so much.

However, China is a heavily controlled economy and they can put the brakes any time they want. Economists suggest a careful revaluation of the Yuan to slow down the economy in a controlled way instead of just crashing badly like it happened in Argentina after doggedly insisting on pegging the peso to the dollar.

The problem with China is that if it crashes it's going to take half the world's economy with it.

Yeah, there are actually a number of economists that have warned about the overheating of Chinese economy. It's receiving just too much money that doesn't necessarily translate into production and consumption, and the bubble can only hold so much.

However, China is a heavily controlled economy and they can put the brakes any time they want. Economists suggest a careful revaluation of the Yuan to slow down the economy in a controlled way instead of just crashing badly like it happened in Argentina after doggedly insisting on pegging the peso to the dollar.

The problem with China is that if it crashes it's going to take half the world's economy with it.

This is what I've heard as well. I seriously hesitate to believe the doom and gloom of DeaconDave's predictions; but you bet either on the bull or the bear, and you don't lose money betting on the bear.

I guess it comes down to how much faith you have in China's ability to manage a rapidly overheating economy. If they can do it, no one loses, if they can't, everyone does. I do dispute one thing though; while the Yuan probably will be floated "eventually"; I think the Chinese government will continue to revalue it incrimentally as they please for a long time to come. They gain little from allowing it to float, considering the fact that they already distort their markets to such a high degree, and currency speculation still has a bad rep in Asia.

Oh, and thanks a bunch DeaconDave, for the info. I'll mull what you've said over in coming days.

DeaconDave,

Do you think China can manage a hedging strategy to allow them to rollover some of their holdings into Euros and Pounds without much of a loss?

or

If they allowed the Yuan to float, and it fell, like I figure it would:
a) do you think they could begin issueing large amounts of bonds to slow the inflation.
b) if they managed to stop the devaluation and began to apply a crawling peg to slowly raise it over time, do you think this would be possible and if so would it make China more stable?

Also, if what you said is true, and Asia plummets, what effects does it have on us?

Okay yes, the US is absolutley going to default on its debt. (Technically)

The comercial paper that china now holds is only worth what someone else will pay for it. The US is not about to buy it back electively, so they have to sell it to someone else if they want to convert it. But who? The euro is well up against the dollar, so already they have lost money.


1. Commerical paper and US treasuries are two different things

2. When the maturity date comes around, the US is obligated to pay.

DeaconDave,

Do you think China can manage a hedging strategy to allow them to rollover some of their holdings into Euros and Pounds without much of a loss?

or

If they allowed the Yuan to float, and it fell, like I figure it would...

Interest rates are higher for US securities. China isn't investing in them because they are losing money.

The yuan is undervalued, not over...

Dollar is being undermined by craftily undervalued Chinese Yuan.


BTW:
http://www.oanda.com/products/bigmac/bigmac.shtml
United States $2.65
China Yuan $1.2007

Even the Big Macs in China cost less!!