Obama up 8 points

[KrazyHorse]

can only maintain their current growth levels via a massive amount of exports to the U.S.

There is no problem exporting things to the US. The Chinese have a lot of people who are willing to make widgets for very little money, and Americans are tired of making their own widgets. The difference between the two is what provides the basis for the rapid growth in trade and the rapid growth of the Chinese manufacturing sector. This is wonderful both for the Chinese (who get to stop starving on the farm) and for the Americans (who can now do more productive things than produce widgets).

American consumers don't save enough to purchase the necessary amount of exports with domestic capital

Americans don't produce enough to purchase what they consume because the Chinese don't consume enough to get through what they produce. These are the exact same statements. If the Chinese were to stop accumulating little pieces of paper and force the US to produce the same amount that it consumes what would happen (assuming this happened slowly enough not to create adverse shocks)?

Americans would work a little harder and consume a little less. What happens on the flip side? Chinese would work a little less hard and consume a little more. GDP would be lower, but investment in Chinese capital projects and domestic consumption would both be higher.

What part of that is bad for China again (nation as a whole, not a government which is desperately afraid of losing control of its citizenry)?

[KrazyHorse]

Originally posted by Kidicious


Umm... No that's wrong. What will go up is interest rates. That will kill demand. We'd be looking at deflation.

What retarded nonsense. If the Chinese exchange their debt obligations for actual green pieces of paper, then yes, interest rates would begin to rise...until the Fed started printing more green pieces of paper to maintain their interest rate target.

If they decided to exchange the debt obligations for actual goods and services then this is equivalent to exchanging for little green pieces of paper and then exchanging these for goods and services (in fact, this is the actaul mechanism that would be used...doesn't matter, though). In order to keep interest rate target Fed would again print more pieces of paper (coincidentally pulling the Treasuries China dumped back off the market). The green pieces of paper would enter the US marketplace as China exchanged them for goods and services, driving up the cost of US labour and other production inputs.

Or did you forget that the Fed exists?

[KrazyHorse]

Originally posted by Darius871


Even supposing that's true (which I don't buy given that the large supply of unemployed, underemployed, and immigration would likely cover that demand, but just supposing that's true), the fact remains that a [widget] now being made by a Chinese unskilled laborer for $1.4/hour would start being made by a U.S. unskilled laborer for $7-30/hour (depending on whether unionized, which larger factories are more likely to be), which would drastically increase the price of consumer goods, unless I'm missing some part of the equation. No shortage of people are barely able to scrape by as it is, without having to see daily expenses multiply by an order of magnitude. It would be disastrous.

The price of widgets would rise, of course. The price of everything else would rise too. This is called inflation, and it happens because the Chinese are pouring more of those green pieces of paper into the US (and these are what prices are denominated in). In fact, the price of widgets would even rise relative to the prices of other things because the Chinese are making less of them (they are relaxing a bit more and taking home a bit more). Note also, however, that the price of US labour will also go up as more money enters the system and the US produces more. This wage increase would flow disproportionately to the bottom of the income distribution, as these are the people who are the closest substitutes for the damn lazy Chinese slackers...

So yeah, if you're a high-skill American that has gotten used to cheap credit and living like a king on cheap Wal-Mart goods then your lifestyle will suffer. If you're a low-skill American whose job was stolen by the damn Chinese then you might even be helped by this. It will be a net negative for the US of course (since the Chinese would have come to their senses and stopped fetishizing those pieces of paper....apparently they want more than a case of whisky and beads for Shanghai now). But this is the counterpart to it being a net positive before. And note that the Chinese are so big that they buy into an up market and sell into a down...so they take a huge hit on the exchange...

[Kidlicious]

Originally posted by KrazyHorse
What retarded nonsense. If the Chinese exchange their debt obligations for actual green pieces of paper, then yes, interest rates would begin to rise...until the Fed started printing more green pieces of paper to maintain their interest rate target.

It's not just printing money. They have to buy more bonds to do that. But injecting cash into the system doesn't work in a deflationary spiral. Just ask the Japanese.

If they decided to exchange the debt obligations for actual goods and services

There's no chance of that happening.

[KrazyHorse]

Originally posted by Seedle


Wait, what, how does this work? I'm not arguing with you, I'm just ignorant. And unsure your language is clear. Did you skip a step?

Chinese hold T-bills. Lots of them. They decide they have too many of the useless things and should get some things of actual value.

They go to the US bond markets and start to sell their T-bills. Since they're selling, the price of T-bills goes down. This means that their yield (the interest rate) goes up.

Ben Bernanke wakes up the next day and finds out that interest rates are rising. He won't take this. He goes to the US Mint and orders it to start printing sheets of hundred dollar bills.

With these in tow he goes to the FOMC (federal open market committee) and tells them to buy T-bills. Lots of them. Since he's their boss, they do what he says.

The T-Bills that the Chinese have been selling have been swallowed up by the FOMC. In their place the Chinese have crisp new benjamins to play with. Note that this is equivalent to them simply having gone straight to Big Ben and trading directly...but that's not how Ben rolls.

Now the Chinese are ready to get down to business. They go into the labour trading pit at the NYSE...wait, that doesn't exist, does it...OK, so they go on a shopping spree. Alex, I'll take the lamp, the new car, the trip to Tahiti,...

US companies are happy. The Chinese are buying all their ****. The price of said **** is going up. They hire more employees to keep up with demand for ****. Since there's only a finite amount of labour the price of labour starts to rise too. They pay overtime, they hire people who weren't that interested in getting jobs when the wage was only 8$ an hour but are now interested when it's 10$ an hour.

Americans are working their asses off to keep up with demand of Chinese for their ****. Exports to China rise. Imports from China fall. Americans consume less. They are getting their green pieces of paper back from the Chinese in exchange for their frugalness. Everything unwinds smoothly and things go back to normal.

In actuality Bernanke does not force interest rates back to initial level. He compromises and lets them rise a little bit in order to fight the inflation being caused by the entry of all those green pieces of paper. Also, if things go too quickly there are problems as dislocations occur. People need time to adjust to changing terms of trade, interest rates, inflation rates etc.

[KrazyHorse]

Originally posted by Kidicious

It's not just printing money. They have to sell more bonds to do that.

Oh, my God. That is the exact opposite of what they have to do. When they print money they BUY bonds with the money, drive the price up and drive the yields down.

You obviously have no idea how this works.

http://en.wikipedia.org/wiki/Open_market_operations

[KrazyHorse]

Originally posted by Kidicious

There's no chance of that happening.

So the Chinese are going to hold debt obligations forever?

****, that's a great deal for the US. They never have to pay the Chinese back. They just have to keep printing money for them to hold.

[Kidlicious]

Originally posted by KrazyHorse


Oh, my God. That is the exact opposite of what they have to do. When they print money they BUY bonds with the money, drive the price up and drive the yields down.

You obviously have no idea how this works.

http://en.wikipedia.org/wiki/Open_market_operations

My **** up. The money ends up in banks though. It's not going to go towards goods and services. You aren't considering the effects on the market that will result when the Chinese start selling their US securities.

[Kidlicious]

Originally posted by KrazyHorse


So the Chinese are going to hold debt obligations forever?

****, that's a great deal for the US. They never have to pay the Chinese back. They just have to keep printing money for them to hold.

No, as I've already said. If Chinese exports to the US fall so far that China's economic growth slows significantly they will have to take drastic measures to stimulate their domestic economy. They would sell their US securities to fund that.

[KrazyHorse]

What would they do with the money from selling US securities? Burn it to keep warm?

[KrazyHorse]

I heard it makes great pig feed...

[KrazyHorse]

This is like the first day of Macro 101. Kid's the guy in the class who thinks the teacher's lying to him about everything...

[Kidlicious]

Originally posted by KrazyHorse
What would they do with the money from selling US securities? Burn it to keep warm?

Pump it into their economy. Duh.

[Kuciwalker]

Originally posted by Naked Gents Rut
I never said it was the main issue. I was just pointing out that selling U.S. Treasuries to Japan and China isn't functionally the same as "giving them little green pieces of paper." Even at extremely low interest rates, the interest on over a trillion dollars adds up.

It's all proportional though.

[KrazyHorse]

Originally posted by Kidicious


Pump it into their economy. Duh.

By doing what? What specifically will they do with wagonloads of paper money?