China Loses Faith in the Dollar!

[opebo]

This is huge news - China considers the US dollar 'no longer a stable currency' (talk about stating the obvious), and plans to revalue the yuan against other benchmarks:
http://biz.yahoo.com/ap/050126/world_forum_china_5.html

This is the beginning of the end folks - hegemony slipping away.

[John Dibble]

All I've ever seen you do about this is panicmonger. What exactly have you suggested to do about the problem you perceive?

[opebo]

All I've ever seen you do about this is panicmonger. What exactly have you suggested to do about the problem you perceive?

Well, I am not sure there is anything that can be done about it now.   I suppose I'm just warning people they're about to get a lot poorer - like Britons after the collapse of their Empire.  What I would do about it if I had control of my money would be to put it into Euros, Yen, Yuan, anything.  Just get the heck out of the Dollar.

[angus]

the irony here is that the US has for a long time wanted china to come off that fixed exchanged rate.  whatever their motivation, and however government of the PRC wants to sell it, it was the right thing for them to do.  and there can be no doubt that their reasons were exactly as the government officially states, because we all know that the PRC has one of the most honest, open, ethical, humanitarian governments humankind has ever known.

[David S]

All I've ever seen you do about this is panicmonger. What exactly have you suggested to do about the problem you perceive?

Well, I am not sure there is anything that can be done about it now.   I suppose I'm just warning people they're about to get a lot poorer - like Britons after the collapse of their Empire.  What I would do about it if I had control of my money would be to put it into Euros, Yen, Yuan, anything.  Just get the heck out of the Dollar.

If this results in decreasing the value the of the dollar relative to the yuan then it will make Chinese made products more expensive here and consequently make American made goods more competitive. Thats good for American workers but bad for consumers. So its a mixed bag.

If the Chinese start dumping US dollars that could cause significant inflation here.

[The Man From G.O.P.]

OH GOD HEAD FOR THE HILLS!
our commie buddies are trying to play with the capitalists!

give me a break obepo

[AuH2O]

Um, no one here actually thinks opebo knows what he's talking about, do they?



Didn't think so. In reality, the Chinese are giving in here but disguising it with rhetoric. If they really were worried about the dollar, they would stop buying our debt-- since that puts them at equal or greatest risk than us.

The Euro is projected to be fairly stable, but the EU still has a lot of problems because their economies are not growing too well... efforts at reform are being made, but slowly.

[The Duke]

Opebo is once again ignorant of his economics.

The facts are that there is a consensus among economists that the Yuan has been overvalued by 20%-40%.  The Chinese currency is pegged to the US Dollar at a ratio of 8.28 Yuan to 1 dollar.  With the US intentionally reducing the value of its currency to boost exports, the Yuan fell as well.  Problem for China was they don't want to devalue their currency.  They were perfectly happy with it.

Now they have to revalue.  With Russia considering repricing its oil in Euros, and with Russia being China's #1 oil supplier, it makes sense to make Euros part of the equation.  It aslo gives the PRC cover to revalue their currency without looking like America won at something.

[A18]

Opebo is a joke

[opebo]

Didn't think so. In reality, the Chinese are giving in here but disguising it with rhetoric. If they really were worried about the dollar, they would stop buying our debt-- since that puts them at equal or greatest risk than us.

That is precisely what this move means.  The only reason they ever bought our increasingly valueless debt was to prop up the dollar and maintain the artificial exchange rate.  Now that they will be tied to the Euro or some basket of stronger currencies, the dollar will sink like a stone - especially with oil-sellers switching to the Euro (the Japanese alone can't support us anymore).  The new 'reserve' currency will undoubtedly be the Euro, which means Americans can expect to have a much lower standard of living.

[A18]

You are such a ing idiot. The value of the dollar is based on our productivity divided by the number of dollars we print.

China dropping the dollar does not lower our productivity.

You have some imaginary, 3-year old version of economics.

Homeownership is at an all time high, we have a record low unemployment rating, and you're talking about a "much lower standard of living."

[Richard]

This is huge news

Hello, and welcome to LAST YEAR!

[opebo]

This is huge news

Hello, and welcome to LAST YEAR!

China was not abandoning the dollar last year - that much is new.  If you're implying the dollar has been in free fall since last year, yes it has.  But this story shows that it has a lot further to fall.

[angus]

Opebo is once again ignorant of his economics.

I don't think that's accurate.  while most of us wanted china to allow its rembiyuan to rise relative to the dollar (for precisely the reason you and others have pointed out), opebo may have good reason to get upset about it.  There's no right or wrong here.  The vast majority of Wal-Mart shoppers like myself would be better off, but the vast majority of those who live off interest income--and travel to places where a weak dollar means that they can buy fewer whores--may not.  There are more of us working stiffs than there leisure stiffs.  But his fear may well be founded on logic, given his situation.

  It aslo gives the PRC cover to revalue their currency without looking like America won at something.

Exactly!  that was the point I was sardonically trying to make earlier.

[opebo]

I don't think that's accurate.  while most of us wanted china to allow its rembiyuan to rise relative to the dollar (for precisely the reason you and others have pointed out), opebo may have good reason to get upset about it.  There's no right or wrong here.  The vast majority of Wal-Mart shoppers like myself would be better off, but the vast majority of those who live off interest income--and travel to places where a weak dollar means that they can buy fewer whores--may not.  There are more of us working stiffs than there leisure stiffs.  But his fear may well be founded on logic, given his situation.

How on earth does having to pay more for Chinese products help the WalMart shopper?  You will experience an increase in your consumer price index - you will pay more for every little thing, since it is all made in China and you will now pay a dollar for every 4 or 5 rembiyuan instead of 8.3 or whatever it has been pegged at. 

True, this hurts me a lot as an expat, but it also hurts every american consumer quite badly.  Your standard of living will fall - as it has already fallen against the European standard of living.  This time it will be worse.

[angus]

a couple of points.  yeah, every cheap item I buy from any store in the USA comes from China.  so I'll see a slight increase in the prices of non-durable consumer goods.  This will last as long as it takes for some other third-world nation to pick up the slack.  (I predict short-term price increases in trinkets, diapers, pencils, lightbulbs, etc., and an eventual levelling off and eventually a slight decrease from that point, at which time you start seeing more "made in indonesia" or "made in india" or "made in iraq" stickers supplanting the "made in china" stickers.  Not that a quarter of the worlds people will simply just quit making cheap trinkets for sale in places like California and Germany, but, yes, they will experience a shift causing temporary deflation and the attendant unemployment.  In a semi-command economy like PRC, there will be pressure to affect the rising unemployment, but my guess is that they simply can't.)  But most durable items I buy comes from the first world, often the USA.  Now, those companies in which I own stock will see a greater profit since US goods will become relatively less expensive when compared to durable goods made in other first-world countries. 

As an aside, like any other redneck with a PhD and a chinese wife, I have a hefty chunk of my funds in her name in a Shanghai bank and have been hoping for this day. 

Also, don't think I'm unsympathetic to your plight.  I remember all too well those rare and precious summers of having enough money in the bank to be able to trip around south america for months at a time, bitching and bemoaning every slip of the dollar, since that meant my local cocaine-cartel connection would get more dollars out of me for an eightball than the bastard deserved.  But, for most of the time, most of us are not in that situation.  At least that's my assumption.  Most of us are blue-collar workers chomping at the bit for a chance to compete.  From everything I've read, the divorce of the rembiyuan from the dollar is not only something Bush has been requesting, but also a boon to the lower-tech manufacturing sector.  Get in early.  Like now.  If you haven't already.  Or just bitch and moan, if you think that'll help.

[opebo]

The point is I think this strategy of Bush's - increased competitiveness through lowering real wages and the standard of living - is a very stupid one.   Who cares if you have a job if it pays half what a job used to pay relative to the standard of living in Europe, Japan, or China?   Taken to its logical conclusion, government policy should be to reduce wages to the lowest level possible - oh wait a minute, that is a Republican goal, nevermind.

[angus]

they're not all republicans.  and it's not difficult to simply print fewer dollars, if that's the concern.  presumably you're not the only one who thinks the disadvantages outweigh advantages.  If it begins to look like you're on to something, corrective measures are simple.  But that's a different issue.  That's the dollar's decline.  But it certainly isn't unrelated to China's decision.  Specifically, with respect to allowing the chinese currency to find a fair market price vis-a-vis the US dollar, the advantage is one to the US, in the form of easing the trade imbalance, and not to china, which is exactly why the chinese were unwilling to do it for so long.  This should help to counteract the trade problem, and that, I believe, is the most salient point.  As for your own portfolio, yesterday, last week one dollar bought 103 YEN, or 0.53 Pounds, today it buys 103 YEN, or 0.53 Pounds, so it's not clear that this announcement has any one except you and Henny Penny running around flapping feathers and crying about the sky falling.

[jaichind]

You are such a g idiot. The value of the dollar is based on our productivity divided by the number of dollars we print.

China dropping the dollar does not lower our productivity.

You have some imaginary, 3-year old version of economics.

Homeownership is at an all time high, we have a record low unemployment rating, and you're talking about a "much lower standard of living."

Actually it does make a difference.  If the likes of PRC, Japan and others switches away from the $ as a reserve currency they will buy a lot less US Treasuries.  This would in turn mean that long term interest rates in the USA will surge and put an end to the real estate bubble.  This in turn will hit USA consumption patterns and bring on a recession.  If the 2001-2002 recession should not be called the Bush Recession like the GOP claims, the recession that comes a result of what I describe above certainly should be.

[J. J.]

We are not seeing a devaluation against gold or silver; they are both well off their six month high.