China manipulating currency

[Shagman]

The more I think about this, the more frightened I get.

Economic Populist

And follow the link in this story to an earlier one: "Tails I Win, Heads You Lose."

[mother earth]

1. War is evolving. Everything has & will be about money, until we protect and nurture what really

matters.

[OllieLotte]

2. I don't understand what the US gains from this.

Unless it was a response to a threat from China and meant to appease them?

[hay rick]

3. Low interest rates.

Our chronic trade deficit has turned into a vicious cycle. Chinese businesses sell more goods to the U. S. than they buy. Eventually, they need to change the excess dollars into their own currency (renminbi) so they can reinvest or spend their earnings. The excess dollars are exchanged through the Chinese Central Bank which then uses them to buy U. S. Treasury securities.

If the excess dollars were not returned to the U. S., the excess demand for the local currency would drive down the price of the dollar relative to the yuan (renminbi). If that was allowed to happen, Chinese products would become more expensive, U. S. products would become less expensive, and the trade deficit would narrow or disappear. So China, through its Central Bank, recycles the excess dollars to the U. S. to maintain an artificially cheap currency and a trade surplus.

The Chinese reinvestment of their trade profits increases the demand for Treasury securities. Treasury bonds establish the baseline for virtually all interest rates in the economy and the increased demand resulting from the Chinese bond purchases means lower interest rates throughout the U. S. economy.

So we export jobs, businesses (and our standard of living) and get cheaper goods and cheap credit in return. China appears to control this dynamic because they can choose to invest in Treasuries- or not. Of course, if they stopped reinvesting their dollars, their currency would appreciate, their exports would plunge, and their hoard of bonds would rapidly depreciate as interest rates went up...

[mbperrin]

4. Very nicely explained. The dynamics are such that each country is the hostage of the other.

Disruption now would create different problems in each, as you've pointed out.

Mostly, Wall Street is mad because they don't get the commission, and they can't use the information gleaned from their client to their own advantage.

[Egalitarian Thug]

5. The US gains nothing from this parasitic relationship. US corporations OTOH, get

enormous taxpayer subsidies, both direct and otherwise, to hollow out and sell off our assets. and now they're reaping unprecedented profits from the proceeds from that looting.

Remember the annual MFN fights? Remember Ross Perot pointing out the gaping holes in NAFTA? Remember who it was that followed Nixon into China? This scheme goes back a long time.

[upi402]

6. We're selling the rope

to hang ourselves.

MNCs know no national loyalty. And this nation state has no opposition party to put it's finger in the dike.