Full Version: China gives up on the Dollar
Economists have been warning that China would dump the dollar for years if we didn't do something about our high level of debt, and now it seems that has happened.
Questions for debate:
1. Will this news cause the administration to reconsider their position on the national debt?
2. What will this mean for the US economy?
QUOTE
China has resolved to shift some of its foreign exchange reserves -- now in excess of $800 billion -- away from the U.S. dollar and into other world currencies in a move likely to push down the value of the greenback, a high-level state economist who advises the nation's economic policymakers said in an interview Monday.
As China's manufacturing industries flood the world with cheap goods, the Chinese central bank has invested roughly three-fourths of its growing foreign currency reserves in U.S. Treasury bills and other dollar-denominated assets. The new policy reflects China's fears that too much of its savings is tied up in the dollar, a currency widely expected to drop in value as the U.S. trade and fiscal deficits climb.
China now boasts the world's second-largest cache of foreign exchange -- behind only Japan -- and is on pace to see its reserves climb past $1 trillion later this year. Even a slight diminishing of the dollar as a percentage of those holdings could exert significant pressure on the U.S. currency, many economists assert.
As China's manufacturing industries flood the world with cheap goods, the Chinese central bank has invested roughly three-fourths of its growing foreign currency reserves in U.S. Treasury bills and other dollar-denominated assets. The new policy reflects China's fears that too much of its savings is tied up in the dollar, a currency widely expected to drop in value as the U.S. trade and fiscal deficits climb.
China now boasts the world's second-largest cache of foreign exchange -- behind only Japan -- and is on pace to see its reserves climb past $1 trillion later this year. Even a slight diminishing of the dollar as a percentage of those holdings could exert significant pressure on the U.S. currency, many economists assert.
Questions for debate:
1. Will this news cause the administration to reconsider their position on the national debt?
2. What will this mean for the US economy?
I just wanted to add another article to this topic.
http://news.bbc.co.uk/1/hi/business/1746535.stm
QUOTE
China mulls boosting euro reserves
Just as the initial euphoria from the introduction of notes and coins wears off, the euro has received a boost from news that China could be buying more euros to reduce its reliance on the dollar.
"China has always thought the euro important," said the Chinese finance minister, Xiang Huaicheng, "and thinks that it will some day be on an equal footing with the US dollar."
Mr Xiang's comments came after a meeting with his German counterpart, Hans Eichel, on 6 January.
Just as the initial euphoria from the introduction of notes and coins wears off, the euro has received a boost from news that China could be buying more euros to reduce its reliance on the dollar.
"China has always thought the euro important," said the Chinese finance minister, Xiang Huaicheng, "and thinks that it will some day be on an equal footing with the US dollar."
Mr Xiang's comments came after a meeting with his German counterpart, Hans Eichel, on 6 January.
http://news.bbc.co.uk/1/hi/business/1746535.stm
This white house is bound and determine to do nothing, IMHO.
It seems like any manuver is going to be a bad one. Today Senator Baucus of Montana said the US may become much more protectionist if China doesn't adjust it's trade with the US to relieve the trade deficit.
This is really a bad situation that should have been averted from the get go. But now it's kind of like being in credit card debit that you can never repay. You may as well go hog wild until the dooms day.
Really, what can be done that won't hurt either China or the US?
A diving dollar would be horrible, but then again it would make our goods cheaper and maybe bring back manufacturing here and stop the outflux of American jobs to China.
I just picture Germany before WW2 when their dollar plummeted. Not a good thing at all.
Again, it was a disaster from day one.
And you can thank Bill Clinton for most of it.
It seems like any manuver is going to be a bad one. Today Senator Baucus of Montana said the US may become much more protectionist if China doesn't adjust it's trade with the US to relieve the trade deficit.
This is really a bad situation that should have been averted from the get go. But now it's kind of like being in credit card debit that you can never repay. You may as well go hog wild until the dooms day.
Really, what can be done that won't hurt either China or the US?
A diving dollar would be horrible, but then again it would make our goods cheaper and maybe bring back manufacturing here and stop the outflux of American jobs to China.
I just picture Germany before WW2 when their dollar plummeted. Not a good thing at all.
Again, it was a disaster from day one.
And you can thank Bill Clinton for most of it.
1. Will this news cause the administration to reconsider their position on the national debt?
I'm not sure what this question means.
The administration wants to lower the deficit and eventually the debt. Is this to assume we should re-think that? Certainly we have been spending wildly and we should certainly curtail that spending (which the administration agrees to in principle and the defecit has been declining). I'm not sure how the Chinese action relates, unless the deficit situation is determined to be the cause. Even then, it is the real value of the dollar versus other currencies (see below) that is relevant.
2. What will this mean for the US economy?
I think many people have the wrong idea about the value of a strong dollar.
A strong dollar means that the value of US goods is relatively more expensive than their foreign counterparts. Which means that US exports are harmed.
If the Chinese take money out of the US T bond market (which is what this article is talking about) and put it in the Euro bond market then the value of the dollar is likely to fall somewhat. A falling dollar will mean that goods produced in the US will be relatively more affordable on the international market, which is a good thing.
The bad thing (if this is real) is that in order to attract more investment in T bonds (the vehicle which finances the national debt), the US may need to offer increased rates.
Here is an overview of the factors influencing currency values. The four factors are Imports/Exports, Foreign Investment, Speculators, and Central Banks (monetary policy).
The US dollar has strengthened vs. the Euro over the last year (data). The Euro is valued higher than the dollar, but the exchange rates have cycled fairly wildly since the Euro was introduced in 2000. (They started evenly, the Euro plunged to .8 dollars per Euro, hit a peak of 1.36 in Dec. '04 and is now at 1.21)
The Chinese have been threatening to reduce their holdings of US currency for a while now. Here is an article written in 2004 explaining things. The conclusion?
My view on this is that this is a gambit by the Chinese. What it does is relatively irrelevant, since a short term weakening of the US dollar will simply cause others to come in and buy it since the dollar is not overvalued vs. the Euro. A change in exchange rates of dollars versus Euros does not effect the price of sugar in New York or in London after all.
EDIT to add: By the way, this article: India, China and other countries start dumping US dollar and buy Euro says this started in 2004. The dollar has risen vs. the Euro since then...
I'm not sure what this question means.
The administration wants to lower the deficit and eventually the debt. Is this to assume we should re-think that? Certainly we have been spending wildly and we should certainly curtail that spending (which the administration agrees to in principle and the defecit has been declining). I'm not sure how the Chinese action relates, unless the deficit situation is determined to be the cause. Even then, it is the real value of the dollar versus other currencies (see below) that is relevant.
2. What will this mean for the US economy?
I think many people have the wrong idea about the value of a strong dollar.
A strong dollar means that the value of US goods is relatively more expensive than their foreign counterparts. Which means that US exports are harmed.
If the Chinese take money out of the US T bond market (which is what this article is talking about) and put it in the Euro bond market then the value of the dollar is likely to fall somewhat. A falling dollar will mean that goods produced in the US will be relatively more affordable on the international market, which is a good thing.
The bad thing (if this is real) is that in order to attract more investment in T bonds (the vehicle which finances the national debt), the US may need to offer increased rates.
Here is an overview of the factors influencing currency values. The four factors are Imports/Exports, Foreign Investment, Speculators, and Central Banks (monetary policy).
The US dollar has strengthened vs. the Euro over the last year (data). The Euro is valued higher than the dollar, but the exchange rates have cycled fairly wildly since the Euro was introduced in 2000. (They started evenly, the Euro plunged to .8 dollars per Euro, hit a peak of 1.36 in Dec. '04 and is now at 1.21)
The Chinese have been threatening to reduce their holdings of US currency for a while now. Here is an article written in 2004 explaining things. The conclusion?
QUOTE
China and other countries possibly shifting away from US assets toward European assets may temporarily weaken the US dollar against the Euro. It cannot, however, alter the underlying Euro/US dollar rate of exchange. What sets a rate of exchange in motion is relative increases in money supply against increases in goods and services.
Over time, relative increases in money supply set the purchasing power of US and Euro-zone monies and this in turn sets the underlying rate of exchange. On this score our analysis shows that since the formation of the Euro-zone its money printer has been working much faster than its American counterpart.
We suggest this raises the likelihood that the US dollar is not overvalued (not too expensive) against the Euro. Consequently, the Chinese factor can only have a short-lived effect on the dollar, all other things being equal. A fall in the US dollar on account of the Chinese factor against the Euro will set in motion corrective actions on behalf of buyers and sellers, which will bring the US dollar toward its underlying rate of exchange.
Over time, relative increases in money supply set the purchasing power of US and Euro-zone monies and this in turn sets the underlying rate of exchange. On this score our analysis shows that since the formation of the Euro-zone its money printer has been working much faster than its American counterpart.
We suggest this raises the likelihood that the US dollar is not overvalued (not too expensive) against the Euro. Consequently, the Chinese factor can only have a short-lived effect on the dollar, all other things being equal. A fall in the US dollar on account of the Chinese factor against the Euro will set in motion corrective actions on behalf of buyers and sellers, which will bring the US dollar toward its underlying rate of exchange.
My view on this is that this is a gambit by the Chinese. What it does is relatively irrelevant, since a short term weakening of the US dollar will simply cause others to come in and buy it since the dollar is not overvalued vs. the Euro. A change in exchange rates of dollars versus Euros does not effect the price of sugar in New York or in London after all.
EDIT to add: By the way, this article: India, China and other countries start dumping US dollar and buy Euro says this started in 2004. The dollar has risen vs. the Euro since then...
QUOTE(Amlord @ Jan 10 2006, 11:23 AM)
I'm not sure what this question means.
The administration wants to lower the deficit and eventually the debt. Is this to assume we should re-think that? Certainly we have been spending wildly and we should certainly curtail that spending (which the administration agrees to in principle and the defecit has been declining). I'm not sure how the Chinese action relates, unless the deficit situation is determined to be the cause. Even then, it is the real value of the dollar versus other currencies (see below) that is relevant.
The administration wants to lower the deficit and eventually the debt. Is this to assume we should re-think that? Certainly we have been spending wildly and we should certainly curtail that spending (which the administration agrees to in principle and the defecit has been declining). I'm not sure how the Chinese action relates, unless the deficit situation is determined to be the cause. Even then, it is the real value of the dollar versus other currencies (see below) that is relevant.
You just cited the reason for it in your answer. The administration is spending wildly with no end in sight. They have shown absolutely no desire to lower the deficit and the debt, their actions prove the exact opposite. Unless there is new legislation being planned there is also no plan on the table to address the problem.
Economists have consitently warned that the debt situation in the United States is troubling, and I believe the World Bank even said something about it last year. Add to that the article itself cites that as one of the reasons and I think you've answered your own question
QUOTE(Amlord)
If the Chinese take money out of the US T bond market (which is what this article is talking about) and put it in the Euro bond market then the value of the dollar is likely to fall somewhat. A falling dollar will mean that goods produced in the US will be relatively more affordable on the international market, which is a good thing.
That also means they are calling in their debt Amlord, and that is the more troubling part in my opinion. A good majority of our debt is financed by the Chinese and if they start calling those debts in then we are going to be in serious trouble because we have no ability to repay them.
QUOTE(Cube Jockey @ Jan 10 2006, 03:43 PM)
That also means they are calling in their debt Amlord, and that is the more troubling part in my opinion. A good majority of our debt is financed by the Chinese and if they start calling those debts in then we are going to be in serious trouble because we have no ability to repay them.
I think you misunderstand how the debt is financed.
You can't "call in" a T bond. You can sell it or wait for it to mature. Owning currency is not equivalent to financing the debt.
In the future, they can refuse to buy more.
As far as actually owning currency, as I have cited, US currency is not over-valued which means if it is sold, then there will be a buyer. The cost of sugar in the US is the same regardless of the exchange rate.
From the article I linked earlier:
QUOTE
If a given basket of goods is exchanged in the US for one dollar and the same basket of goods is exchanged for two euros in Europe, the rate of exchange between the US dollar and the euro will be set as one dollar for two euros. Any deviation of the exchange rate from the level dictated by the purchasing power of currencies will set corrective actions in motion on behalf of buyers and sellers.
Suppose that the rate of exchange, as a result of various transitory factors, was set in the market at one dollar for three euros. This means that in relation to its purchasing power the dollar is now overvalued, i.e. too expensive. This gives rise to speculative corrective actions. It will pay now to sell the basket of goods for dollars then exchange dollars for euros and then buy more goods with euros—thus making a clear arbitrage gain.
For simplicity's sake, assume that one kg of potatoes is exchanged for one dollar in the US and two euros in Europe. In this case it will pay to sell one kg of potatoes for one dollar, exchange the one dollar for three euros, and then exchange three euros for 1.5 kg of potatoes, gaining 0.5 kg of potatoes. The fact that holders of dollars will increase their demand for euros in order to profit from the arbitrage will make euros more expensive in terms of dollars and this in turn will push the exchange rate in the direction of one dollar to two euros.
Observe that the underlying rate of exchange, as set by the relative purchasing power of monies, as such has nothing to do with the state of the balance of payments. The fact that the baker has exported eight loaves of bread for the import of one pair of shoes doesn't alter the respective purchasing power of the dollar and the euro.
As we have seen, the purchasing power of money is set by the relative scarcity of money in relation to real goods and services. The fact that the American baker has entered an exchange with the European shoemaker didn't alter the given stock of money and the given stock of bread and shoes. It follows then that if the currency rate of exchange in the foreign exchange market will be set in response to trade balances and in disregard to the relative purchasing power of monies such a rate of exchange can't be sustained.
Suppose that the rate of exchange, as a result of various transitory factors, was set in the market at one dollar for three euros. This means that in relation to its purchasing power the dollar is now overvalued, i.e. too expensive. This gives rise to speculative corrective actions. It will pay now to sell the basket of goods for dollars then exchange dollars for euros and then buy more goods with euros—thus making a clear arbitrage gain.
For simplicity's sake, assume that one kg of potatoes is exchanged for one dollar in the US and two euros in Europe. In this case it will pay to sell one kg of potatoes for one dollar, exchange the one dollar for three euros, and then exchange three euros for 1.5 kg of potatoes, gaining 0.5 kg of potatoes. The fact that holders of dollars will increase their demand for euros in order to profit from the arbitrage will make euros more expensive in terms of dollars and this in turn will push the exchange rate in the direction of one dollar to two euros.
Observe that the underlying rate of exchange, as set by the relative purchasing power of monies, as such has nothing to do with the state of the balance of payments. The fact that the baker has exported eight loaves of bread for the import of one pair of shoes doesn't alter the respective purchasing power of the dollar and the euro.
As we have seen, the purchasing power of money is set by the relative scarcity of money in relation to real goods and services. The fact that the American baker has entered an exchange with the European shoemaker didn't alter the given stock of money and the given stock of bread and shoes. It follows then that if the currency rate of exchange in the foreign exchange market will be set in response to trade balances and in disregard to the relative purchasing power of monies such a rate of exchange can't be sustained.
The problem with China is that they have fixed their currency to ours. This fouls up the natural reaction to their trade surplus: rising currency value. If their currency value rose in a free market fashion, the value of their exports would drop and a new balance would be struck.
The Chinese know that their purchases of US capital (bonds and currency) will be devalued as soon as the natural market forces are allowed to operate. In other words, they will take the loss that they should have taken all along once their currency adjusts to the fair market value.
The Chinese are ecstatic that their currency is currently undervalued. It keeps their exports high.
Its about time China did this. As noted, they've been keeping their currency deliberately undervalued in order to boost exports, and their central bank has been making up the difference by buying a lot of American notes.
Frankly, I think this is more a move on the part of China to "spread the risk" and link into the Euro more in the face of their (China's) looming potential financial collapse.
For your reading pleasure:
The Chinese banking sector's dire straits constitute the gravest threat to global stability in the coming years
Frankly, I think this is more a move on the part of China to "spread the risk" and link into the Euro more in the face of their (China's) looming potential financial collapse.
For your reading pleasure:
The Chinese banking sector's dire straits constitute the gravest threat to global stability in the coming years
QUOTE(Amlord @ Jan 10 2006, 01:19 PM)
I think you misunderstand how the debt is financed.
You can't "call in" a T bond. You can sell it or wait for it to mature. Owning currency is not equivalent to financing the debt.
In the future, they can refuse to buy more.
As far as actually owning currency, as I have cited, US currency is not over-valued which means if it is sold, then there will be a buyer. The cost of sugar in the US is the same regardless of the exchange rate.
You can't "call in" a T bond. You can sell it or wait for it to mature. Owning currency is not equivalent to financing the debt.
In the future, they can refuse to buy more.
As far as actually owning currency, as I have cited, US currency is not over-valued which means if it is sold, then there will be a buyer. The cost of sugar in the US is the same regardless of the exchange rate.
The Chinese will likely employ both tactics Amlord because no government in the rest of the world is going to invest $800 billion in US currency. So they'll sell off what they can and put it into Euros. This may or may not change the value of the dollar.
The rest of their currency they'll begin to let mature and then convert a portion of it, which means we have to pay off that debt with money we currently don't have and don't have any plan to obtain.
Most importantly it means that we can no longer count on using the world as our ATM machine and continue with irresponsible fiscal practices such as the Bush administration has employed. Right now we count on China buying t-bills to fund the cost of our government - they are one of the biggest investors in the world in that regard. Even if all they did was stop buying them that is going to exert significant economic pressure upon us. Other countries might potentially pick up the slack but the pressure will be felt.
This is what pretty much every reputable economist has been warning us about for years in regards to debt and lo and behold it may now come true.
What will this mean for the US economy?
Assuming it happens...it forces the US citizen to engage in productive behaviors. China sells it's US debt and as Amlord points out, takes a hit financially. To get buyers to take on more US debt, a higher interest rate must be paid. People borrow less money to fund business ventures as well as borrow less to fund their new porche or beach house as it's too expensive. Home prices take a hit. The US economy slows down.
On the other hand, the price of foreign goods in the US increases. The price of US goods in foreign countries decrease. Businesses and others with capital spend it where? The US, since people work cheap now. US citizens spend more time actually producing services and products to sell abroad. Trade deficit disappears. Economy improves.
That will take some time though. And now we have to actually pay for what we consume. Quality of life suffers some, but wastefulness drops significantly. The key is to make the transition slowly. This is what makes the Chinese currency manipulation so dangerous. If the US allows all manufacturing to leave to China, it will take some time to bring it back once the market inevitably corrects itself.
Assuming it happens...it forces the US citizen to engage in productive behaviors. China sells it's US debt and as Amlord points out, takes a hit financially. To get buyers to take on more US debt, a higher interest rate must be paid. People borrow less money to fund business ventures as well as borrow less to fund their new porche or beach house as it's too expensive. Home prices take a hit. The US economy slows down.
On the other hand, the price of foreign goods in the US increases. The price of US goods in foreign countries decrease. Businesses and others with capital spend it where? The US, since people work cheap now. US citizens spend more time actually producing services and products to sell abroad. Trade deficit disappears. Economy improves.
That will take some time though. And now we have to actually pay for what we consume. Quality of life suffers some, but wastefulness drops significantly. The key is to make the transition slowly. This is what makes the Chinese currency manipulation so dangerous. If the US allows all manufacturing to leave to China, it will take some time to bring it back once the market inevitably corrects itself.
Amlord,
Let me ask a question. If Japan and China are hording US dollars, then dump them, isn't this an inflationary action? Won't the dollar spiral down in value?
You say the dollar is not overvalued. But who else is buying our debt? And who would take up the dollars that China no longer wants?
I guess that's what I'm missing. I'm assuming the dollar is indeed overvalued per the actions of China. It's like a stock that's overvalued, you want to dump it or at least spread the risk with another currency.
From what I read, aside from the Euro there isn't another currency more stable than the dollar. Which bodes well for us.
But to say there would be little effect to China dumping their US holdings is a bit confusing to me. It seems like it could be cataclysmic. High inflation in the US, high rates on our national debt, high costs for all manufactured products from abroad (just about everything).
It really amazes me how this country seems to be spiraling into an abyss while everyone sits and watches.
Let me ask a question. If Japan and China are hording US dollars, then dump them, isn't this an inflationary action? Won't the dollar spiral down in value?
You say the dollar is not overvalued. But who else is buying our debt? And who would take up the dollars that China no longer wants?
I guess that's what I'm missing. I'm assuming the dollar is indeed overvalued per the actions of China. It's like a stock that's overvalued, you want to dump it or at least spread the risk with another currency.
From what I read, aside from the Euro there isn't another currency more stable than the dollar. Which bodes well for us.
But to say there would be little effect to China dumping their US holdings is a bit confusing to me. It seems like it could be cataclysmic. High inflation in the US, high rates on our national debt, high costs for all manufactured products from abroad (just about everything).
It really amazes me how this country seems to be spiraling into an abyss while everyone sits and watches.
QUOTE
!. Will this news cause the administration to reconsider their position on the national debt?
huh?
Isn't this in line with the current admin's policy? A depressed dollar? Doesn't that help with the deficit? And hasn't the Bush admin consistently been badgering China about her frequent frenzied purchases of US dollars in order to create a unnatural rate of currency exchange?
QUOTE
2. What will this mean for the US economy?
Well I think in regards to this debate that all depends on your political agenda. One could claim doom and gloom and devalued dollar or a lack of willingness to invest in the US or one (that would be me ) could look at it and say well maybe China will use her "surplus" assets and invest them in something other than paper..maybe oil? Or imports! The savings glut has been a big issue in regards to a full recover of many economies. I can't imagine if China is going to be this big growing evolving economy that she is going to do it with 800 billion sitting around..some of that cash has got to be moved about. $hare the wealth China
What will this mean for the US economy?
I basically agree with your read of this, JLMA. Long term this is a mostly a good thing; short term (around 5-10 years) we're in for a bumpy ride. A significant portion of the US manufacturing economy has been lost to China (and East Asia in general). If increasing demand for cheap US goods does occur, then, of course, the US economy will retool for manufacturing (becoming an export economy once again), however this will take time. It is during this interval when there will be alot of turmoil. Similarly, it will take a while for the US consumer to reverse her debt profile.
The US economy is a powerful engine, however it has alot of inertia. We're talking about reversing course -- going from import to export. It will take a while to "turn the ship". But, let's be honest here. There are many, many factors associated with the world economy and the US economy's place in it that are hard to predict and hard to manage. World events and poor choices during this economic transition could make this interval worse than it otherwise would need to be.
QUOTE(Just Leave me Alone! @ Jan 10 2006, 08:02 PM)
On the other hand, the price of foreign goods in the US increases. The price of US goods in foreign countries decrease. Businesses and others with capital spend it where? The US, since people work cheap now. US citizens spend more time actually producing services and products to sell abroad. Trade deficit disappears. Economy improves.
That will take some time though. And now we have to actually pay for what we consume. Quality of life suffers some, but wastefulness drops significantly. The key is to make the transition slowly. This is what makes the Chinese currency manipulation so dangerous. If the US allows all manufacturing to leave to China, it will take some time to bring it back once the market inevitably corrects itself.
That will take some time though. And now we have to actually pay for what we consume. Quality of life suffers some, but wastefulness drops significantly. The key is to make the transition slowly. This is what makes the Chinese currency manipulation so dangerous. If the US allows all manufacturing to leave to China, it will take some time to bring it back once the market inevitably corrects itself.
I basically agree with your read of this, JLMA. Long term this is a mostly a good thing; short term (around 5-10 years) we're in for a bumpy ride. A significant portion of the US manufacturing economy has been lost to China (and East Asia in general). If increasing demand for cheap US goods does occur, then, of course, the US economy will retool for manufacturing (becoming an export economy once again), however this will take time. It is during this interval when there will be alot of turmoil. Similarly, it will take a while for the US consumer to reverse her debt profile.
The US economy is a powerful engine, however it has alot of inertia. We're talking about reversing course -- going from import to export. It will take a while to "turn the ship". But, let's be honest here. There are many, many factors associated with the world economy and the US economy's place in it that are hard to predict and hard to manage. World events and poor choices during this economic transition could make this interval worse than it otherwise would need to be.
QUOTE(logophage @ Jan 11 2006, 08:38 AM)
I basically agree with your read of this, JLMA. Long term this is a mostly a good thing; short term (around 5-10 years) we're in for a bumpy ride. A significant portion of the US manufacturing economy has been lost to China (and East Asia in general). If increasing demand for cheap US goods does occur, then, of course, the US economy will retool for manufacturing (becoming an export economy once again), however this will take time. It is during this interval when there will be alot of turmoil. Similarly, it will take a while for the US consumer to reverse her debt profile.
I can't say I really agree with this. The globalization bell has been rung and it can't be unrung. The manufacturing that has left the United States is gone and it won't be coming back. No one should labor under illusions that it will.
If it isn't China supplying cheap labor and cheap goods it will be another country because there were several countries that were popular before China was. Furthermore it would take a number of years for manufacturing in China to become more expensive than it is in the United States.
QUOTE(Cube Jockey @ Jan 11 2006, 09:37 AM)
The globalization bell has been rung and it can't be unrung. The manufacturing that has left the United States is gone and it won't be coming back. No one should labor under illusions that it will.
If it isn't China supplying cheap labor and cheap goods it will be another country because there were several countries that were popular before China was. Furthermore it would take a number of years for manufacturing in China to become more expensive than it is in the United States.
If it isn't China supplying cheap labor and cheap goods it will be another country because there were several countries that were popular before China was. Furthermore it would take a number of years for manufacturing in China to become more expensive than it is in the United States.
Not all goods produced (or would be produced in the US) are/will be the same as what was produced in the past. The US still has a lock on much of the technology market. This sector will continue to grow. As the US dollar weakens, the motivation to manufacture equipment abroad weakens. Also, while I agree that labor will always be cheaper in, say, China than the US for the foreseeable future, you're only looking at part of the equation. You need to evaluate the total cost of producing goods in the China: infrastructure costs, shipping costs, tariffs and so on. Finally, cheap labor is fine, however in some industries educated labor is more important (actually, this is why Canada is starting to "steal" some manufacturing jobs away from the US).
QUOTE(logophage @ Jan 11 2006, 10:07 AM)
Not all goods produced (or would be produced in the US) are/will be the same as what was produced in the past. The US still has a lock on much of the technology market. This sector will continue to grow. As the US dollar weakens, the motivation to manufacture equipment abroad weakens. Also, while I agree that labor will always be cheaper in, say, China than the US for the foreseeable future, you're only looking at part of the equation. You need to evaluate the total cost of producing goods in the China: infrastructure costs, shipping costs, tariffs and so on. Finally, cheap labor is fine, however in some industries educated labor is more important (actually, this is why Canada is starting to "steal" some manufacturing jobs away from the US).
That's a good point as well, but even then the US is still not a lock. I guess what I'm saying is that it just isn't that simple anymore. For the last 5 years or so we have really been living in a pretty flat world, the technology is there and we now have to compete with billions of people that we didn't really have to compete with before. Over the past decade or so India has placed an incredible emphasis on education and they've taken on the menial jobs like outsourced call centers, Y2k work, etc. But now they are starting their own firms and developing original products.
The same thing is happening in China right now. The Chinese government is putting a large focus on education and within 10 years you'll see the same thing happening there. There is already an area in China (I can't recall the name) that is the Japanese version of Bangalore, India.
The US will continue to excel through innovation and new technologies. I was rejecting the notion that somehow we'd see a return of things like clothing manufacturing, etc. That is what I thought you and JLMA were suggesting in your posts.
Just thought I would add this article to the debate...it is obviously no where near as "official" of a rejection as CJ claims.
China not to sell dollars but may buy oil with reserves - central bank
We want China to stop saving and start spending. We want her to diversify and look to better means of return investments and most importantly we want those investments to exist, we want diversity.
Not sure why anyone would wish to argue that a savings glut, especially one the size of China's, is good for the economy or for any of us an advantage.
China not to sell dollars but may buy oil with reserves - central bank
We want China to stop saving and start spending. We want her to diversify and look to better means of return investments and most importantly we want those investments to exist, we want diversity.
Not sure why anyone would wish to argue that a savings glut, especially one the size of China's, is good for the economy or for any of us an advantage.
QUOTE(bucket @ Jan 11 2006, 12:18 PM)
Just thought I would add this article to the debate...it is obviously no where near as "official" of a rejection as CJ claims.
There is absolutely no need for that bucket, the opening article cited quotes from people inside the Chinese government. If you want to present counter evidence that is fine but this type of thing is highly uncalled for. It is also of course possible that China's position on this issue will change over time (imagine that), that doesn't make the questions for debate invalid. If you'd spend more time answering them and less time one-upping me this might be more productive.
QUOTE(Cube Jockey)
There is absolutely no need for that bucket, the opening article cited quotes from people inside the Chinese government. If you want to present counter evidence that is fine but this type of thing is highly uncalled for. It is also of course possible that China's position on this issue will change over time (imagine that), that doesn't make the questions for debate invalid. If you'd spend more time answering them and less time one-upping me this might be more productive.
No need for what...disagreeing with you? I think you are taking this far too personal.
The article I posted and there are gobs others just like it on the web today says that this is not the "official" stance on the US dollar by China. The WaPo article cited an unnamed source and some statements made last week by an official for SAFE. What I read today is that the Chinese gov made an official response to this interpretation and in fact it says this is "market speculation" and that they had no plans to sell their dollar reserves.
You could argue this is an unofficial official policy like the US' weak dollar policy, but I have not seen much evidence to support the idea that China wans to "officially" start "dumping" the dollar.
I think the manner in which you introduced this debate is dishonest. The word dumping is not mentioned or referenced to in the WaPo article or any other I have read. Where have you gained this insight?
You also haven't really explained how this goes against the current admin's own policy or objectives regarding China and her currency reserves.
Anyone who is truly interested in currency exchange rates and China's inevitable transition to a more fair and honest currency evaluation would know that China announced months ago that she would no longer peg her currency to only the USD (which she has done for over a decade) and instead use a "basket of currencies". Anyone who is hand picking headlines in order to support or justify any grievences they may have would have seen this article as more alarming then it really is.
China is still a long ways away from removing her American dependence and in more ways than just currency.
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