The Economist: Let the Dollar Fall

[Whoha]

Originally posted by Tingkai


Yes, if you import goods you have to pay for them so in that sense imports cost dollars. And if Chinese company can sell a widget for US$1 while an American company sells it for US$10 then the American company will close and jobs will be lost.

But there is more to the story then that.

The widget buyer now saves $9 by buying the Chinese widget. The buyer could decide to spend the money on consumption, for example a meal at a restaurant. That creates new jobs.

Or the buyer invests the savings. Again that creates new jobs.

Also, the American widget maker, knowing that it can't make competitively priced widgets, might start producing high-tech gadgets that China cannot produce. In this case, no jobs are lost, more or less.

The simple fact is that cheap Chinese imports greatly benefit the American economy.

why do you make the false assumption that high paid American workers, and high spending American consumers are two completely independent entities? You also go on to assume that the Widget Maker will drop everything and retrain all his workers, and jump through 8 or 9 hoops to shift over to high tech work that the Chinese can't do,unfortunately this is another false assumption. Go to any tech store and count how much of everything in there says "Made In China", High tech imports from China are going up alot.

[Drake Tungsten]

There are Japnese woman in their late 30 and early 40's who donot want childern or be marry, if marry they either have thenself serlize or have aroblation.

Why can't I find a Japanese girl who doesn't want to get married and have kids after the first date, then?

[Agathon]

If you want a good laugh and have a mac, install this Konfabulator widget

http://www.widgetgallery.com/view.php?widget=35890

It constantly updates the US national debt.

[Ben Kenobi]

Drake:

Might have to do with the fact that you are a Gaijin, eh?

[Drake Tungsten]

Might have to do with the fact that you are a Gaijin, eh?

Probably. I really don't know.

[Tingkai]

Originally posted by Whoha
why do you make the false assumption that high paid American workers, and high spending American consumers are two completely independent entities?

I never said that the two are completely independent.

However, you seem to assume that all US manufacturing jobs pay a high wage. That is a false. While some people in the manufacturing sector, such as autoworkers or people working for Boeing, make high wages, many factory workers make minimum wage, particularly at companies that make low-tech items.

Also, US manufacturing wages have declined since the 1970s, well before foreign companies began operating in China.

Originally posted by Whoha
You also go on to assume that the Widget Maker will drop everything and retrain all his workers, and jump through 8 or 9 hoops to shift over to high tech work that the Chinese can't do, unfortunately this is another false assumption.

No, I said the company might switch to a high tech product.

Yes, changing production lines is not easy, but in the overall picture, it happens all the time.

Originally posted by Whoha
Go to any tech store and count how much of everything in there says "Made In China", High tech imports from China are going up alot.

The point is not whether these products are made in China, but whether American firms can compete.

With low-tech items, American companies have an extreme disadvantage. Chinese workers are earning a dollar a day. Trying to compete directly with these low wages is pointless.

But there are many areas where American companies can gain an advantage through higher productivity and quality.

For example, golf clubs are often made in China, but assembled and fine-tuned in the US because of the skill required for these processes. Or for a real-life example, I can buy high-quality, made-in-Canada hockey goalie pads for US$1,000 or low quality, made-in-China pads for $500.

[Giancarlo]

Tingkai, I finally agree with you on this:

"For example, golf clubs are often made in China, but assembled and fine-tuned in the US because of the skill required for these processes. Or for a real-life example, I can buy high-quality, made-in-Canada hockey goalie pads for US$1,000 or low quality, made-in-China pads for $500."

Exactly.

[Kidlicious]

Originally posted by Tingkai


Relative to other currencies, yes. This is why the Bushies reckless spending has greatly benefited China and made it economically stronger.

However, the point to remember is that the cause of this effect is the Bush administration's fiscal policies, not China's sales of RMB for the greenback.

I think that China has been strong economically in the recent past, but there are serious imbalances there. They are looking at a correction, and I think that part of the reason is the weak remnimbi.

I can't see blaming Bush for what is about to happen in China. The dollar policy has been working pretty good in the US, and if there is a problem it is because the dollar isn't weak enough, not because it isn't strong enough. On the other hand, the problem in China is the the currency is too weak and many speculators are anticipating a revaluation that should have already come.

[Kidlicious]

Re: Re: Re: Re: The Economist: Let the Dollar Fall

Originally posted by Tingkai



While that is theoretically possible in the short run, in the long run, higher interest rates and a large government deficit leads to a lower dollar.

Higher interest rates:
- increase the cost of borrowing money to finance the deficit, thereby increasing the deficit which further weakens the dollar.

Higher interest rates actually strengthen the currency. It's the low interest rates that discourage investment in bonds.

Originally posted by Tingkai
- slows down the economy, leading to loss jobs, small profits, and lower tax revenues, all of which increases the government debt. Again, this puts downward pressure on the dollar.

The slowing economy also puts downward pressure on the dollar as does the uncertainty created by the larger deficits.

You're assuming that the economy will slow. I'm not suggesting that the Fed raise interest rates so high as to strangle growth, unless there is a real crisis with the currency. However, in that case they would be successfull in preventing a crisis in the dollar by raising rates to however high they would need to be. They were successfull at this in 1979, and I don't see why it would be different today.

Again though, I don't see any impending crisis with the dollar coming.

[Kidlicious]

Originally posted by Tingkai
Or the buyer invests the savings. Again that creates new jobs.

Again. In theory, in a ideal situation that would happen. In the real world it's not working that way. The fact is that trade between the US and China is causing wealth to be transfered to China and jobs to be lost in the US in the process. The reason is that resources are not just instantaneously used in a way that would maintain wealth and jobs. In fact the mobilization of resources is getting slower compared to the increasing rate of saturation to our markets by these cheap products. That's why the trade deficit is increasing.

[CharlesBHoff]

Originally posted by Drake Tungsten

There are Japnese woman in their late 30 and early 40's who donot want childern or be marry, if marry they either have thenself serlize or have aroblation.

Why can't I find a Japanese girl who doesn't want to get married and have kids after the first date, then?

May-be they are younger than want to repopular japon.
When government undertake measure like above useally mean they are loseing. In the middle of the 4th century the Roman Empire gold and silver coinage was bebase so badly that inflation was so out of control that
to be than major of than city you have to paid the operation cost out of own poket that people where leaveing farm and bussieness that where not make money due to super hight taxes than Roman Emporous enact than law saying that people have to stay at they job no matter what, this act also try to enact prices control to violate this act they put you to death. The law didnot solved they problen and the law was enact 3 more time with harches death pently inpose. At this peroid the roman empire was going thought than population decline. So may-be Japon might recover but may-be the woman need to be treated better also.

[Tingkai]

Originally posted by Kidicious
I think that China has been strong economically in the recent past, but there are serious imbalances there. They are looking at a correction, and I think that part of the reason is the weak remnimbi.

You mean the rmb is strong.

Originally posted by Kidicious
I can't see blaming Bush for what is about to happen in China.

What do you think is aobut to happen?

Originally posted by Kidicious
The dollar policy has been working pretty good in the US, and if there is a problem it is because the dollar isn't weak enough, not because it isn't strong enough.

Why do you think it has been beneficial?

Originally posted by Kidicious
On the other hand, the problem in China is the the currency is too weak and many speculators are anticipating a revaluation that should have already come.

Why is there a pressing need for revaluation? The Chinese economy remains healthy. The peg is solid. How will China benefit from a revaluation?

[Kidlicious]

Originally posted by Tingkai

You mean the rmb is strong.

I mean the rmb is undervalued.

Originally posted by Tingkai

What do you think is aobut to happen?

China's capacity has been growing at an alarming rate. There is already too much capacity in the world economy. Recent history has shown that the nation building the capacity the fastest gets hit the hardest when the imbalance is recognized. China is next, and it's correction will be as severe as it's rate of capacity expansion.

Originally posted by Tingkai
Why do you think it has been beneficial?

It has created jobs. Many companies have made decisions to produce more here in the US because of the weak dollar.

Originally posted by Tingkai
Why is there a pressing need for revaluation? The Chinese economy remains healthy. The peg is solid. How will China benefit from a revaluation?

Yes, the Chinese economy is growing at an amazing rate, but that doesn't mean it is healthy. You have to look at what is being produced, and how much capacity is being built. If the growth were balanced between consumer spending and investment in capacity I would agree that it would be healthy, but there is overinvestment in China.

Speculators are already anticipating a revaluation. The Chinese need to tighten up on the money supply without causing a severe downturn. Another word for that is 'soft landing.' Setting the peg at a higher rate will tighten up the money supply. If they don't the speculators may sell their rmb, and that will increase liquidity and cause more investment.