Lonestar1

Geithner on Yuan: Misstep or Warning Shot?

Your comment touched on many geopolitical issues, which indeed provide the larger background.

The US superpower status was stronger during the cold war times because Europe, Japan as well as many other nations stood firmly behind US, in the form of the large trade deficits despite the $ depeg from Gold.

The end of the cold war encouraged the US unilateralism, which was the origin of all the problems. The US interest is now challenged by all other major players, EU, Russia, China, and to a less extent by Japan and India, as well as adversaries such as Iran etc.

I don't think US can afford to lock in a bitter fight with any one of the top three, especially with China. There is a calculation that a bitter struggle with China, espcially militarily, will force both countries down to a less status, while other powers rise. Even Iraq proves to be too much.

Financially, if China dumps all the Treasuries, one can not expect Japan and Saudi to pick them up.





On Jan 24 08:49 PM rosey99 wrote:

> 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:<br/>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:

Geithner on Yuan: Misstep or Warning Shot?

Clearly yuan revaluation has no benefits at all to US. It actually hurts US.

The question is why the administration continues to ask for it? Here is my conclusion.

Yuan revaluation certainly has forced many factories in China to close and unemployment to rise sharply. But it won't increase employment rate in US. The politicians continue to talk about this to create an impression that they are making a huge effort to increase jobs here. Unfortunately this is only a mirage. Nevertheless, people loves mirage for its wonderfulness.

The danger is we may get what we are asking for. Does everybody notice that the Treasury yields rose continuosly this week due to Geithner, despite the bad news from banks and stock markets. Gold has rallied strongly and ready to breakout.



On Jan 23 05:52 PM greenspam wrote:

> First, the message is targeted to China's recent attempts at bringing
> back tax subsidies and talking about devaluing the yuan. This message
> says don't go there. Its not about whether strengthening the Yuan
> will benefit the US.
> Second, even if China continued to "manage" their currency upwards,
> they would fall into "manipulator" category simply based on evidence
> that most surplus countries have had their currencies appreciate
> (the Japanese, Norwegian, Swiss). As a surplus country, Chinese currency
> should be moving upwards as well in par with the Norwegian at least
> if not the next most "manage currency" the Japanese Yen. Otherwise
> interest rates will not be useful in accurately assign cost to money
> so it goes where it needs to to solve problems.
> Third, the Fed has already indicated they will step in to purchase
> Treasuries to keep the stated and real (Libor) rates spread where
> they want it. China's ability to purchase tens of billions of debt
> per month pale to Fed's ability to step in at 10x that level. <br/>

Geithner on Yuan: Misstep or Warning Shot?

Capitalists around the world push for globalization to optimize their cost structure. They want free flow of capital without free flow of labor. It dooms to fail eventually.

US had made a great attempt to become the BANKER for the world, and direct an ever increasing proportion of the labor force to service the bankers. Unfortunately, the bankers are not only incompetent, they hide the loss and then ask tax payers to bail them out.

Geithner on Yuan: Misstep or Warning Shot?

Can anybody explain to me how Chinese currency appreciation would benefit US economically in any particular area? A thorough analysis would show NONE. 40% appreciation WILL NOT help US to rebuild manufacturing sector, while $ may spiral down.

The currency fight is an issue both sides will lose badly on eocnomic terms. You have to wonder why politicians keep pedalling this.

Geithner on Yuan: Misstep or Warning Shot?

Strong words signify a weak cause.

Gethner's comment is to please certain faction of the Congress. If China indeed let yuan appreciate 40% as some hawks demand,what would happen to the $? THE REALITY IS, $ is reversely pegged to Yuan & Yen, whcih is why it has rallied so much in the crisis and smashed all other currencies around the world.

The crisis would have a softer implication as long as China and US gets along with each other, and act together. Otherwise, we are heading to unknown unknowns.