China to crash U.S. dollar?

[Barnabas]

How do they do this?

"It is also vacuuming yuan out of the economy to keep inflation under control."


edit: I see you already answered how.


Argentina has surplus, they export around 50 billion dollars per year, and import for around 35 billion dollars

[Tingkai]

Originally posted by Dauphin
I thought the Yuan had appreciated in the same period and removed the strict peg in favour of a basket of currencies.

The 8.28 peg was in place until 2005. The yuan is managed, based on a basket of currencies, or so the PBOC says, but they won't say what currencies are in the basket (it could be 99% U.S. dollars for all we know).

You're right to some degree. It depends on which currency we're talking about. The yuan has strengthened against the dollar by about 8 percent in two years about the same as the pound to the dollar I think. Canadian dollar is up 17 percent against the U.S. dollar. The Euro is up about 15 percent.

[Tingkai]

Originally posted by Barnabas
Argentina has surplus, they export around 50 billion dollars per year, and import for around 35 billion dollars

Any idea about what is causing the 10 percent inflation there?

[Barnabas]

I have heard 3 things

That there is a too big number of pesos in the market, that if the governemnt lets the peso go down from 3,15 to 2,40 (which is what happened in Brazil, 3 years ago 1 dollar was 3 reales, now 1 dollar is 2 reales) it would kill inflation.

The other is that inflation happens because the economy is growing very fast, demand is increasing very fast, and that investments to increase the offer of products is not increasing fast enough, so prices go up.

And the other is that because of the exchange rate, people earn more exporting and getting dollars than selling inside the country, so prices go up.

The government has put a 20% tax on meat exports to make it less profitable and force them to sell inside the country.

[LordShiva]

Originally posted by Tingkai
If the dollar exchange rate to free-floating currencies falls to a point where the U.S. economy goes into a major recession, Americans might end up buying less from China....

This outcome is fine for China because Beijing is trying to slow down economic growth.

I disagree. If the US economy goes into major recession, so will the Chinese economy. Acknowledging that the Chinese economy could do with a little bit of a slowdown is not equivalent to saying that it would be fine if its primary driver of growth went into recession.

[Lancer]

They have to find 20 million new jobs every 20 minutes. They can't afford a recession.

[Tingkai]

Originally posted by LordShiva
I disagree. If the US economy goes into major recession, so will the Chinese economy. Acknowledging that the Chinese economy could do with a little bit of a slowdown is not equivalent to saying that it would be fine if its primary driver of growth went into recession.

How would a recession in the United States cause a 12 percentage point drop in Chinese economic growth?

From what I see, a reduction of five percentage points in economic growth puts the U.S. into a recession. For China, a five percentage points drop would simply reduce growth to a reasonable level, but not be anywhere close to a recession.

The Chinese economy is in much better shape to handle a slowdown than the U.S.

And is the U.S. really the primary driver of Chinese economic growth?

Exports contribute about 10 percent of the Chinese GDP, and of these exports, about 20 percent go to the United States. So about 2 percent of the Chinese GDP is a result of direct exports to the U.S.

If for some reason, the Chinese economy went into a recession, there are huge cash reserves that can be used o restart the economy. All of those government bonds that were sold to vacuum excess cash out of the economy could be bought by the PBOC to re-inject cash into the economy.

[Tingkai]

Originally posted by Barnabas
The government has put a 20% tax on meat exports to make it less profitable and force them to sell inside the country.

The best steakhouse in Hong Kong is an Argentine place.

I can see how all three factors could cause the inflation.

I don't a lot about the Argentine economy, but it seems like the government there is constantly making radical economic policy changes.

Have things improved in the past 10 years?

[Dracon II]

I'd say most Latin American nations have improved from the 1990's.