Funny thing, I just read an article in the Atlantic Monthly that was a theoretical look back at the collapse of the American economy, and this was one of the things that helped that happen.

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Originally posted by Noctone Funny thing, I just read an article in the Atlantic Monthly that was a theoretical look back at the collapse of the American economy, and this was one of the things that helped that happen.

Funny, I thought that the opposite would be the case. Theoretically, this should help the U.S. economy since the Yuan has been a drag.

now this is what amreican economist believe will help american factories because it will make american products cheaper to buy since chinese goods now are more expensive. I doubt it will work our time as an industrial power is passing. We should just give it up and try to make tech that we won't need any china to buy goods from.

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Originally posted by metalgearsolid now this is what amreican economist believe will help american factories because it will make american products cheaper to buy since chinese goods now are more expensive. I doubt it will work our time as an industrial power is passing. We should just give it up and try to make tech that we won't need any china to buy goods from.

Correct--with the corollary being that the Yuan should now hold greater purchasing power, which should boost U.S. exports to China. It will also make Chinese goods relatively more expensive to import, thus giving a reprieve to companies that have suffered going up against cheap Chinese competition. Further out, in theory, it would aid the "outsourcing" problem as well.

It is worth pointing out that at this point the move is more psychological than anything as they are talking about roughly a 2% move, which probably won't have much of an affect on anything.

It also could be a bane for apparel companies in the U.S. that depend on cheap Chinese textiles as their profit margins will feel the pinch now that the Chinese goods are relatively more expensive.

At least those are a couple of my perceptions. Leave it to Occ to come in and prove me wrong...

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Originally posted by Shakka Funny, I thought that the opposite would be the case. Theoretically, this should help the U.S. economy since the Yuan has been a drag.

Very true. The other fact that is going to help the American economy is that now we are seeing a soar in interest rates in american banks. This could be bad news for the real estate bubble, because the only reason that american families can buy a home is due to the fact that interest rate have been low in the past years, and now they are going back up. I agree with the decision to raise interest rates, because that would make the dollar a stronger currency in which it has gone down in the past agains the Euro and other currencies. One of the reasons we are having good economic relations with China is because they are basically paying off the war in Iraq for us, also we owe the housing bubble to them, because many american families are buying chinesse products for their homes. Note that in a bad economy interest rates always stay low and in a good economy interest rates are always high.
** I know i got out of topic but i just wanted to share this with you guys.

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Originally posted by Shakka Correct--with the corollary being that the Yuan should now hold greater purchasing power, which should boost U.S. exports to China. It will also make Chinese goods relatively more expensive to import, thus giving a reprieve to companies that have suffered going up against cheap Chinese competition. Further out, in theory, it would aid the "outsourcing" problem as well. It is worth pointing out that at this point the move is more psychological than anything as they are talking about roughly a 2% move, which probably won't have much of an affect on anything. It also could be a bane for apparel companies in the U.S. that depend on cheap Chinese textiles as their profit margins will feel the pinch now that the Chinese goods are relatively more expensive. At least those are a couple of my perceptions. Leave it to Occ to come in and prove me wrong...

Eh you're pretty much spot on. I would definetely agree that there's not much tangible effects that are going to happen since the yuan is still a pegged currency. Instead of only being pegged to a the dollar now it has some variability since it's pegged to a basket of currency, but it's still pegged. As for the cons, Chinese monetary policy is no longer intricately linked to the Federal Reserve's decisions. Meaning that the Chinese Central Bank no longer has to buy treasury bonds in order to maintian its peg to the dollar. Meaning that the days of China financing our twin deficits may be approaching an end sometime in the next decade or so when they actually float the Yuan. Already you can see a rise in the yields of the 10-year T-note as Chinese reliance on purchasing US treasuries decreases.

So in other words ... it's an indication of big news to come in the future, but it's not really news now, it's been a move long anticipated for a while actually.

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Note that in a bad economy interest rates always stay low and in a good economy interest rates are always high.

That's not always true. Nominal interest rates are merely a tool of monetary policy used by the Fed to smooth the business cycle. Generally in a booming economy the fed raises interest rates to avoid inflationary growth, while in downturns the fed lowers interest rates to provide economic stimulus. However, interest rates are hardly synonymous with a good or bad economy. Just look at the Japanese economy with has been sputtering for several years. They've been holding their interest at rock bottom levels with the hopes of stimulating their economy without much effect in the late 90's early 2000s. Or simply look at the US in the 70s when Volker took control fo the Fed. The economy was stagflating and in order to combat inflation Volker had to raise interest rates through the roof despite the fact that the economy was in the shitter. And that was just nominal interest rates ... I'm sure the real interest rate was much much higher.

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Originally posted by occrider However, interest rates are hardly synonymous with a good or bad economy.

You have to look at consumer spendings, gains in net worth, and accommodative conditions in credit markets. Also you have to see if Households have recorded a modest improvement in their financial position over this period.

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Originally posted by arnoldjch You have to look at consumer spendings, gains in net worth, and accommodative conditions in credit markets. Also you have to see if Households have recorded a modest improvement in their financial position over this period.

So when interest rates peaked in the early 80s, the economy was officially in recession, and unemployment was close to 10% the economy was doing well? You do know that nominal interest rates lag economic performance right? And you do know that the Fed sets interest rates with inflation in mind first and the state of the economy second right?

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Originally posted by occrider So when interest rates peaked in the early 80s, the economy was officially in recession, and unemployment was close to 10% the economy was doing well? You do know that nominal interest rates lag economic performance right? And you do know that the Fed sets interest rates with inflation in mind first and the state of the economy second right?

Dude the U.S economy was doing great in the 80s http://david.snu.edu/~dwilliam/f97p...abloid/80s.html please check your facts. How can nominal rate lack economic performance? a nominal interest rate is the period interest is credited, how is that bad? thats just a method that creditors and bank use when they lend money, the nominal interest rate is the money received by the lender, the profit they make.

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Originally posted by arnoldjch Dude the U.S economy was doing great in the 80s http://david.snu.edu/~dwilliam/f97p...abloid/80s.html please check your facts. How can nominal rate lack economic performance? a nominal interest rate is the period interest is credited, how is that bad? thats just a method that creditors and bank use when they lend money, the nominal interest rate is the money received by the lender, the profit they make.

Please check my facts? Are you a fucking retard or something? For fuck's sake, your reading comprehension is for shit to start with. I didn't say nominal interest rates lack economic performance, I said nominal interest rates lag economic performance. How other way would it be done genious? You think the Federal Open Market Commitee meets in the future to discuss what they should do with interest rates in the present?? What's sad is that you probably don't even understand how the FOMC adjustment to the discount rate and the federal funds rate affects interest rates set by banks. Given that you probably have no fucking education in the field of economics I can forgive your ignorance of the lack of knowledge that the US was in a RECESSION in the early 80’s, but the fact that you brazenly pretend that you know jack shit about economic history and call me out on it pisses the fuck out of me. First of all, what your pitiful excuse for a source failed to tell you was that while the US economy rebounded in the mid to late 80's (until 87 to be exact ... then it went into recession) the economy was in a deep recession in the early 80’s. Not only deep recession, but remants of the 70's staglation where inflation was high and the economy was in recession. This resulted in high interest rates, high unemployemnt, and high inflation.

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By early 1982 Reagan's economic program was beset with difficulties. The nation had entered the most severe recession since the Great Depression. In the short term, the effect of Reaganomics was a soaring budget deficit. Government borrowing, along with the tightening of the money supply, resulted in skyhigh interest rates (briefly hovering around 20 percent) and a serious recession with 10 percent unemployment in 1982. Some regions of the "Rust Belt" (the industrial Midwest and Northeast) descended into virtual depression conditions. Only inflation was immediately curbed by Reagan's fiscal programs. http://en.wikipedia.org/wiki/Histor..._United_States_(1980-1988)#The_recession_of_1982

So kindly know what the fuck you are talking about before you arrogantly try calling me out on something I do for a living. Thanks.

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Firstly, occrider is right about the US economy in the 80's..

Secondly, I'm a bit worried by the fact that China is still fixing it's exchange rate on a basket of currencies, rather than just the US. Isnt this just moving between inefficient systems, and not really improving anything? If you're going to change the system, float the yuan completely, like Australia did in 1983.

Now, is this good for countries like Australia. Well..... consumers here have to pay more for an imported good from China, but producer gain from not having to compete with such cheap products coming from overseas. Will the producer gain outweigh the consumer loss? I dunno..

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