China to crash U.S. dollar?

[Lefty Scaevola]

PRC holds $900,000,000,000 in dollar denominated bonds. It addition to whatever other cost the incur dumping actula dollars, the hit on their trade, they lose $9,000,000,000 in bond value for every 1% the dollar sinks.

[DaShi]

Buy American!

[Colon™]

FYI China's definition of recession would be situated on a whole other level than US' definition. Since trend productivity growth is far higher in China than it is in the US, you'd be getting increasing unemployment once China's GDP growth drops below 5% per annum or so.

[Dracon II]

I'm sure the US would be able to negotiate a reverse-Plaza accord with its allies (particularly Japan... whose dollar reserves still outnumber China's I believe) were something like this to happen.

[Dracon II]

.... and the inflation resulting from a dropping dollar would no doubt spur the Fed to increase its rates as well.

All in all... I don't think any Chinese run on the dollar will ever put the US in too dire a position. Isn't it the case that petrol is generally sold for dollars anyway? Doesn't this mean that the oil price will remain the same for the US, and will be cheaper generally... at least in the short term? And even if America's ability to afford oil drops... in the long term this can only be a good thing, both for America and the world in general.

Also, America's export position will improve. As it did following the Plaza Accord, the automobile industry could be rescued from its current, dire position.

But that's not to say that there won't be short to medium term suffering.

[Dracon II]

I mean, if you want to reduce your dependence on Chinese exports... a run on the dollar would achieve this better than any tarriff.

In fact, I find it preposterous that the Chinese would react to any US policy making chinese goods less affordable (e.g. tarriffs) by taking measures themselves which would make them even more unaffordable (a dollar sell-off).

[Dracon II]

The fact that they're making such severe threats would suggest that they're worried about their market share in US consumption and would thus not carry out what they're threatening to do. Sounds like a big bluff to me.

[Saras]

US itself is best positioned to crash the US dollar.

[DaShi]

Stop scaring Tingkai, Dracon!

[Tingkai]

Originally posted by lord of the mark
Hong Kong followed its own model, more free market than the US. I dont think they were looking to the US as a guide.

Hong Kong was very much influenced by U.S. economic theory, particularly Friedman and libertarism. The U.S. was seen as the economic model to follow rather than the British system

Originally posted by lord of the mark
To the extent that happened, I think it was because of their own internal stresses, esp in South Korea. It wasnt because they suddenly decided to copy the US.

Of course the initiator was the internal stress, but that doesn't change the fact that they saw the U.S. as the solution, rather than, say, a socialist model.

Originally posted by lord of the mark
Im not sure what you mean at the corporate level. Different US corporations pursue different operating philosophies, and afaik asian corporations dont march quite in lockstep either. A "US model" if there even is one, is necessarily US public policy.

Corporations in Asia tend to follow homogeneous national characteristics. Hong Kong corporations tend to be family-controlled and excel at M&A and sourcing, while doing poorly in brand marketing. The Japanese corporate model typically has manufacturers having part-ownership of supply subsidiaries, which optimizes quality, but at a cost of profit.

During the 90s, there was a move to emulate the American
mix of corporate styles, whether a Silicon Valley start-up or corporate management styles proposed by MBA schools.

Now a days, Asian corporations tend to follow their own styles while incorporating selective concepts of Western management theory rather than a compete adoption of a t theory.

Originally posted by lord of the mark
I rarely here about a "US model" except from people trying to make the case its declining.

But that's only because it is in decline.

15 years, you would have heard people in Asia talking about why Asia needed to emulate the U.S. model. This led to the end of several dictatorships and the rise of democratic governments. Restrictions on press freedoms declined. The rule of law generally increased.

In the past five years, we've seen a reversal in Asia. Elected governments have been overthrown in Thailand and the Philippines. Censorship has increased. Opposition members and journalists have been jailed or murdered. All is not loss, but Asia as a whole has stopped moving forward.

Originally posted by lord of the mark
We have particular fiscal problems. We seemed to have at least as serious ones in 1992. The Clinton admin showed how fast the US economy was capable of overcoming such problems, with a modicum of fiscal discipline.

Yes, the U.S. could overcome its problems, and the sooner the better. (My wealth is in effectively U.S. dollars so I want a strong greenback)

But for now, the U.S. economic illness is infecting the global economy. What's more disturbing is that American politicians seem to be ignoring the symptoms.

Originally posted by lord of the mark

As they havent had a recession, theres no way to know that for sure.

Hong Kong went through recessions and economic downturns with relatively high unemployment. People were willing to protest, but not to push things to much because they knew the CCP had no qualms about using force. People on the mainland also know that power comes from the barrel of the gun.

If there was a recession, the CCP would blame it on Japan or the U.S.

[Tingkai]

Originally posted by Dracon II
I mean, if you want to reduce your dependence on Chinese exports... a run on the dollar would achieve this better than any tarriff.

In fact, I find it preposterous that the Chinese would react to any US policy making chinese goods less affordable (e.g. tarriffs) by taking measures themselves which would make them even more unaffordable (a dollar sell-off).

The basic flaw in your theory is that you forget that the Yuan is not a free floating currency.

If U.S. dollar weakens relative to free-floating currencies, it would not affect the dollar-yuan rate which is fixed by the Chinese government within a narrow trading band.

The results would be quite opposite to what you suggest. As the U.S. dollar weakens, imports from free-market countries would become more expensive, making Chinese goods more competitive, not less.

Originally posted by Dracon II
I'm sure the US would be able to negotiate a reverse-Plaza accord with its allies (particularly Japan... whose dollar reserves still outnumber China's I believe) were something like this to happen.

You do realize that the only way to stop the dollar from weakening is to buy more dollars so the size of the Japanese foreign reserves has nothing to do with their ability to buy more U.S. dollars.

Also, if there was a run on the dollar, it would come not just from China, but also currency traders. While Japan might respond by printing more yen they would not be able to stop the run by themselves.

Originally posted by Dracon II
Isn't it the case that petrol is generally sold for dollars anyway? Doesn't this mean that the oil price will remain the same for the US, and will be cheaper generally... at least in the short term?

The price of oil is not set by the U.S., it is only listed in U.S. dollars. The weakness of the U.S. dollar is reflected in the price. If the U.S. dollar gets weaker, the U.S.-listed price of oil increases.

[Dracon II]

The basic flaw in your theory is that you forget that the Yuan is not a free floating currency.

If U.S. dollar weakens relative to free-floating currencies, it would not affect the dollar-yuan rate which is fixed by the Chinese government within a narrow trading band.

The results would be quite opposite to what you suggest. As the U.S. dollar weakens, imports from free-market countries would become more expensive, making Chinese goods more competitive, not less.

Yes... I completely forgot about that. The US would actually become more dependent on Chinese imports because of their more unfavourable position relative to floating currencies.

Anyway... what you said. I'm not an economist... which means I definitely can't do economics on the run. But I will say that Japan and South Korea could do their bit to at least contain the contagion by not selling their own dollars. And I would predict that the slide would not go into freefall... as traders would eventually buy back dollars in the expectation of drastic rate rises from the fed should a freefall threaten... and I'm sure that the US could use what clout it has left by getting its allies, and the IMF perhaps if things get really bad, to buy a few Benjamins for old time's sake. I'm not saying that a Chinese sell-off would be a bad thing... I'm just saying that it won't necessarily be the disaster people are predicting it to be.

[Dauphin]

Originally posted by Tingkai


The basic flaw in your theory is that you forget that the Yuan is not a free floating currency.

If U.S. dollar weakens relative to free-floating currencies, it would not affect the dollar-yuan rate which is fixed by the Chinese government within a narrow trading band.

Please remind us how China does that.

[Dracon II]

Yes... I completely forgot about that. The US would actually become more dependent on Chinese imports because of their more unfavourable position relative to floating currencies.

Not to mention the fact that as the Yuan goes down in proportion to the US dollar Chinese imports will become more competitive everywhere. My girlfriend used to hate it when the AUD strengthened against the Dollar because when she went home she'd have to convert her currency to Yuan via the US dollar.

On a pure currency to currency model... this nuclear option is looking too good for the Chinese right now. In fact, its not really much of a modern nuclear option because their is no mutually assured destruction. This like Hiroshima and Nagasaki.

[Tingkai]

Originally posted by Dauphin


Please remind us how China does that.

What part of it do you not understand?