China Currency
Larry Kudlow links to and includes an unsigned Editorial from the New York Sun talking about the current debate in the US regarding the value of the Chinese Yuan.
Larry agrees with the Article and so do I, the key Paragraph being.
"So why would we wish to inflict this kind of damage on a relatively healthy Chinese economy, with its growing benefits for America and the rest of the world? A small appreciation of the yuan would make no difference for cost differentials between America and China. It would take 40% or 50% appreciation, which might level out cost and wage differentials but would in the process create a massive deflation of the Chinese economy and threaten not only its prosperity but that of its neighbors and of our country."
All this really raises the question of the stability of Floating currencies for Emerging nations, as evidenced by the crash in Asia in the late 1990's. To Quote.
"There's a lesson here. It's a simple one. Emerging currencies don't float. They sink. Why is this? Because they have a history of instability. They do not have a history of monetary value that is reliable. That is why the dollar link was correct in those days and that is why the consequences of this currency meddling by the IMF nearly threw the world economy into a deflationary spiral."
Not only this at the moment China amoungst other primarily Asian Countries is pumping up the US economy up to the order of 7% a year, by funding the Deficit via Bond purchases.
So forcing the Chinese to revalue the Yuan will most potentially kill off the growth of China and push up the value of US Bonds.
This in turn pushes up interest rates affecting the House Market negatively and adding yet another problem to an Market that is already fragile enough that Bill Goss from PIMCO's wrote an article titled The Strange Tale of the Bare-Bottomed King discussing it.
Will sanity prevail & China be allowed to grow, as I see it there are some reasons the US might well try & force a Currency rebalance.
It looks a major win for the US Economy mid-term if China is allowed to continue to grow.
Larry agrees with the Article and so do I, the key Paragraph being.
"So why would we wish to inflict this kind of damage on a relatively healthy Chinese economy, with its growing benefits for America and the rest of the world? A small appreciation of the yuan would make no difference for cost differentials between America and China. It would take 40% or 50% appreciation, which might level out cost and wage differentials but would in the process create a massive deflation of the Chinese economy and threaten not only its prosperity but that of its neighbors and of our country."
All this really raises the question of the stability of Floating currencies for Emerging nations, as evidenced by the crash in Asia in the late 1990's. To Quote.
"There's a lesson here. It's a simple one. Emerging currencies don't float. They sink. Why is this? Because they have a history of instability. They do not have a history of monetary value that is reliable. That is why the dollar link was correct in those days and that is why the consequences of this currency meddling by the IMF nearly threw the world economy into a deflationary spiral."
Not only this at the moment China amoungst other primarily Asian Countries is pumping up the US economy up to the order of 7% a year, by funding the Deficit via Bond purchases.
So forcing the Chinese to revalue the Yuan will most potentially kill off the growth of China and push up the value of US Bonds.
This in turn pushes up interest rates affecting the House Market negatively and adding yet another problem to an Market that is already fragile enough that Bill Goss from PIMCO's wrote an article titled The Strange Tale of the Bare-Bottomed King discussing it.
Will sanity prevail & China be allowed to grow, as I see it there are some reasons the US might well try & force a Currency rebalance.
- Trade Politics
As was noted in the NY Sun article the Currency advantage enjoyed by China is hurting US Manufacturers, I would prefer that the Manufacturers became more efficient, expoliting local knowledge and Managment/Technical skill that is in the US.
One hopes the recent restrictions on Textiles are not the beginning, though I suspect Indian Manufacturers are smiling having suffered at the hands of Chinese Textile Manufacturing. - Defense Politics
The US Defence force is increasingly worried about China, it is hard to know how much is trying to invent an Enemy to acquire funds/focus minds vs real risk is hard to know. Certainly the Chinese Navy is moving very fast as witnessed by the recent Yuan Class Nuclear Submarine which suprised publicly anyway Western Analysts. There is also the 140mm Tank Weapon , definitely a serious buildup in strength. But is it defensive or offensive, unless you are Taiwan, I'd suspect Defensive, but then will that matter.
It looks a major win for the US Economy mid-term if China is allowed to continue to grow.
posted by Nigel at 7:58 PM
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