US about to make a big mistake over China Sanctions

Discussion in 'Politics' started by Drifterwood, Sep 26, 2010.

  1. Drifterwood

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    BBC News - US Congress committee approves China sanctions bill

    My personal feeling is that China (and other low cost manufacturing countries) have masked the West's true inflation.

    I am presuming that President Obama and his Treasury men aren't making cheap political points and consider that the ensuing inflation will be better for the the US than access to low cost products.

    I heard once that if Walmart was a country, it would be China's fifth biggest export partner. I presume that the Treasury don't care about Walmart customers, or the fact that China should increase the cost of its loans to the US.

    You would also expect your interest rates to have to go up as well.

    This could be a defining moment of the Obama Presidency.
     
  2. D_Tully Tunnelrat

    D_Tully Tunnelrat New Member

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    The US-China economic relationship is now the biggest trading partners in the world, and it can work out great, if managed more adroitly, particularly on the US side. The US has been too lax (little regulation, and too much spending), and China too shrewd (tight regulation and too much lending) so now the relationship is out of balance. It is partially based on, the Yuan being pegged to the dollar, which was set 12 years ago, when China's economy was 1/4 it's present size. I went on (and on...) about how this exports deflation from China in another forum, in response to some of your euro comments, so I won't repeat them here, tho' they are regrettably more apt here than there.

    The reason China doesn't want the Yuan to be convertible is because of what happened in Asia in '98. During that crisis, money flowed out of Asia so fast, almost all of the economies there were caught flat footed, and with no internal capital. What China does now with their dollar/euro/yen purchases is to sterilize them by purchasing bonds, rather than letting convertible monies float around the country, which can leave anytime they want, and would. The net effect of the bonds is to create a debt bubble, both externally and internally. In China, state run companies are able to run up huge debt, which the CP defers/manages anytime they become delinquent. In fact, the CP rolled over (meaning it's not being paid according to the original terms) $1T (equal to 1/4 their economy) in debt, from the '90's, just recently.

    Presently you also have Japan complaining about the exchange rate of the Yuan. China, in an effort to raise 700M out of poverty, is pursuing a beggar thy neighbor policy by using fixed exchange rates to exploit their surplus labor market. This is effecting the EU almost as much as it is the US, it is just not as reported a story; for instance German exports of technical machinery soared in the 2nd qtr. because of Chinese purchases, likewise Phillips outsources all of it's electronics manufacturing to China.

    A big issue is that elections are coming this year. Despite all the ballyhoo about China's growing economic prowess, there is still the reality of 10%+ unemployment there. If the rate rises above 12%, there will be sufficient unrest so as to potentially provoke riots, which could well throw the CP out of power, and with it their managed economy. It's a precarious balance with global ramifications.

    One thing the US could do is to set up a global call for China to re-balance the value of the Yuan. China would not immediately respond to the call, as they not want to show the effect of an outside influence, but in a few months, we would probably see a much bigger decline in the value of the Yuan against a basket of "hard" currencies. Many traders, far smarter than I, have called for the Yuan to eventually reach 2-1 against the dollar. It's presently 6.785, so you can see this drama has a long way to go.

    As to US debt, even if China were pull out from our debt market, they can't, as they own over $2T in treasuries, which are paying a very low rate of interest. To pull out of the Treasury market would cut off some of their access to capital, and create potentially huge losses on those bonds, as rates would rise. Besides, rising rates, which would be good for US savers, the US can easily generate internal savings, from now 6%, to a needed 10%, ala Japan, (which has debt to GDP ratio of 200%), to fund our ever ballooning national deficits.

    Naturally Congress would be much smarter if they pursued this in conjunction with spending less, a comprehensive jobs training bill, increasing spending on US R&D, underwriting college education for all, or rooting out corporate underwriting of their seats, but that's another matter.
     
  3. B_Marius567

    B_Marius567 New Member

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    GOOD!!!
    I work in manufacturing that ships all over the world and there is so much work that everyone is working 10 hours a day. good money with heath-care
    CNC'S HAAS AND EDM,S Cost $500.000 each so they will not save much shipping my job to china :)
     
    #3 B_Marius567, Sep 27, 2010
    Last edited: Sep 27, 2010
  4. Drifterwood

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    It seems to me in economics (and I am not an economist) that there are two sides to every coin. Inflation is good for this, but bad for that, deflation is good for this but bad for that, strong currency is good for this but bad for that etc etc, and a weak currency has many downsides despite being good for exports. It is surely about balance, and perhaps more importantly rebalancing as things change.

    You won't like it in the US if your $ devalues when the Chinese and the Russians come buying all your assets. You didn't like it when the Japanese were buying California up, if I remember correctly.

    The one constant in capitalist economics is the need for growth. But you can have growth through deflation. I once worked for a company and realised that they could double profits if they cut costs by 5%, but they were obsessed by topline growth.

    You can't always grow the topline, and this is where politicians become a particular problem because of the simplistic message they like to be able to give. Would you rather have a 5% pay increase, or have your living costs cut by 10%?

    We can achieve this is the UK by cutting the cost of housing, but then this would wobble the already wobbly banks and rely on people having to admit that they weren't all investment gurus by having a house that was overvalued. We can also reduce social spending, which even for me needs rebalancing.

    Debt though is a big problem.
     
  5. Drifterwood

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    BBC News - US House passes China currency sanctions bill

    Interesting to note that the US Chamber of Commerce believes that the sanctions will do more harm than good. If the President isn't listening to his business leaders about business, who is advising him on commerce issues and what are his motivations?
     
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