rosey99

Where Are U.S. Dollar and Yuan Really Heading?

Albertarocks:

You are not naive. I had to come back and read this post again, as some of the implications are only now beginning to sink in. So. . .I saw your comment and proceeded over to:

www.census.gov/foreign...

Where one can see the effects already in '08 vs. '09 US/Canadian trade balances by month. Interestingly, the 2008 deficit was only USD 10 billion worse than 2007, in spite of 2008's much higher oil price. The figures for 2009 would be downright depressing, if I were working in the Canadian tradeable goods sector. Also interesting to note that the article to which you link discusses Canadian fiscal policy as a likely tool to devalue the loonie. Needless to say, this post and what it implies are becoming even more interesting as I contemplate some of the potential implications. Not just for the EU, USA, and Japan, but now for Canada too. And once again I am forced to conclude that there is no easy way out of this for any of us, including China. For example, why not simply move Canadian manufacturing to China? Has this already happened? Is it politically viable? The US has certainly gone a long way down that road.

I know that the bulk of US/Canada trade is in energy, and I think a large portion of the remainder is agricultural and other natural resources, i.e., timber, and building products. While working for a US building products manufacturer, I have seen first hand - and heard much wailing from managers about - what the loonie's strength has done to the profitability of Canadian operations. Simply put, the profitability is gone. Thanks for your comment, I will endeavor to learn more about the constituents of US/Canada trade as a result.

And yet I still have no better understanding of where this will eventually lead. A "concerted effort by all," seems to me to be a long-shot. After all, we are talking about trade relations here, the time required will likely be greater than the time we have before the problems become acute. It's premature, but I am now willing to say that Chinese currency policies, in the context of the current global trade structure, amounts to a zero-sum game for certain important players. This will surely feed some interesting social and political ideas, as if we did not have enough going on in these departments already. The recent EU parliamentary elections and the more recent Japanese elections spring to mind.

Thanks for your comment, and again thanks to Herr Mahe for this provocative post. It has been staring me in the face every day for months, and I completely missed it.

Where Are U.S. Dollar and Yuan Really Heading?

This is some really interesting perspective, thanks very much. It makes me wonder just what the Japanese government will do if dollar devaluation continues (or even stabilizes near current levels) and China maintains its dollar "peg." Given recent Japanese political developments and the rhetoric of closer ties to Asia (esp. China) I wonder what the new Japanese government will be actually do when confronted by potential economic asphyxiation.

Thanks for your insights. I'm wondering if the dollar can/will be supported by the "rentier" nations, possibly giving new life to that wonderful trans-pacific conveyor (goods West, money East), or instead will the system prove unsustainable? As we (or at least I) say here in the US, "everyone wants to go to heaven, but no one wants to die." This Gordion Knot just keeps getting larger, and suggests to me that international relations will be at least as entertaining, and illuminating, a spectator sport as market-watching for the foreseeable future.

Thanks again.

China's Helicopter Wen: World Champion of Money Printing

Nice post. If I had to give a name to what I think I see in China today, I would have to call it "panic." How else can one describe ratcheting up the lending machinery to these levels in the face of the slow motion train wreck that is the global economy?

Or maybe it's just the ballsy move that The Chinese Supermen should and would do. They are, after all, widely credited to be omniscient, infallible, and ultimately invincible. Q3 and Q4 could get really interesting, as we test the theories of Chinese immunity from the laws of physics.

Geithner on Yuan: Misstep or Warning Shot?

Agreed. In the context of the current economic situation, and the recent political shift in the US, "manipulation" is indeed a carefully chosen word. A quick look at the recent (and often contradictory) posturing from North Korea is also interesting in this context:
www.google.com/hostedn...
www.upi.com/Top_News/2.../

I differ with many on the subject of China's ability to significantly affect demand for US Treasuries, and demand for the US dollar in that I believe the pain would be relatively short lived. Too many other wealthy participants (i.e., Japan and the Saudis) would be more than happy to help mitigate the longer term effects as they depend on the US not just as a market for exports but for their defense as well. I could be wrong, and we really won't know unless it happens, but it seems to me that the economic threats of China's withdrawal as a US creditor are likely to be hollow, at least over the longer term (say, two years or so). In any event, it seems inevitable that China will not be in a position to finance the US at recent levels for much longer anyway.
The last 10 years or so have been an anomaly in terms of US/China relations, based more on short term expediency than any long term agreement as to a vision for the economic, political, and military future of Asia, or the role the US thinks is appropriate for China globally. At their best US/China relations were never as good as the US relationships with Japan or Taiwan have been at their worst in the post-war period. We're probably about to return to a more normative arrangement, which is to say a more hostile one, and attempt to decouple our respective economies. I for one believe that internal political changes are lurking in the near future for China. I wish I knew what form they might take. I also agree that the possibility of military confrontation is rising somewhat, and that the potential for mistakes and misunderstandings leading to such a confrontation is apparent. I am looking for the rhetoric to heat up, and for the perception that "constructive engagement" with China (remember the 90s?) as a means of promoting human rights and democratic reform to steadily lose traction in US public opinion, and therefore in US politics. It has, after all, effectively been a failure. Though I doubt that it was ever a real US goal in the first place, because if it had worked it would have been the first time in history that a geopolitical rivalry were resolved through economic ties and trade.
War is typically the way in which such disputes are resolved, though I by no means think it is at all likely, it does seem that the likelihood is rising. For practical reasons that have not changed since the 1950's the Korean peninsula remains a more reliable flash point than say, Taiwan.

I hope it does not go that way. . .It just seems that in volatile times like these, the misjudgments of those in power on both sides have a tendency to devolve into a spiral of events that can get out of control. Especially when at least one of the main players, North Korea, is not quite under the total control of their Chinese allies.

In short, I don't see that China really has a viable or effective economic card to play in the current situation, which leaves only the military card. It seems to me that this increases the risk of a mistake by either or both participants leading to a confrontation. Not exactly inevitable, but certainly worth watching if the current economic trends do not reverse, and the malaise instead deepens.

These are certainly strange and interesting days. I'll keep my fingers crossed that things do not fall apart so completely, but I am appalled at the rapid pace with which the global economic miracle continues to unravel. Rapid economic degeneration is usually not a recipe for political stability, especially where the prevailing political apparatus is inflexible or has difficulty adapting.

On Jan 23 10:18 AM bearfund wrote:

> Of course it's a warning shot. At that level nothing is accidental;
> it may be a mistake, but it's not an accident. The charge of "manipulation"
> is ludicrous; OF COURSE the yuan's value is manipulated: it's well-known
> to be loosely pegged to the US dollar! That's not news to anyone,
> so this word choice is clearly deliberate and intended to provoke.
> A much softer way of saying the same thing is "inflexible" or even
> just "undervalued".
>
> They are looking for a fight over trade with their biggest creditor.
> It would not shock me to see the PBOC sit out a few Treasury auctions.
> Word will get back to Mr. Geithner pretty quickly as to why he had
> to pay 30bp more. With any luck he'll press the issue; the relationship
> between the US and China isn't healthy and it wouldn't hurt the US
> to be forced to borrow and spend less. A greater worry is that this
> sort of thing, under these conditions (don't forget that China has
> over 1 billion citizens, 10% more men than women, and rising unemployment),
> can easily lead to war. It's a game of chicken on the world's biggest
> stage and both sides might eventually decide they're simply not going
> to blink at all.