|
Just how much does China have the U.S. by the balls? (pg. 2)
|
View this Thread in Original format
| Trancer-X |
| quote: | Originally posted by zig
most of those links are very old mid 2003....old in currency terms given the fall in the dollar in the last 12 months....just a point.. |
The fall of the dollar in that time period only exacerbates the matter, considering that the Chinese government has the Yuan pegged at 8.277 per USD. A cheaper dollar only means cheaper Chinese goods to Europe and elsewhere - something in which the Chinese are more than happy to oblige.
http://www.bradenton.com/mld/braden...ss/10264313.htm
http://www.cato.org/cgi-bin/scripts...s/12-26-04.html <-- 
-----------------------------------------------------------------------------
The Almighty Yuan
Beijing inspires a new Asian mercantilism
by Stephen Glain | Oct 04 '04
Old habits are hard to kick, particularly profitable ones. The Asian practice of fixing currencies to the American dollar at rates that boost exports is back, seven years after it collapsed in the currency crises of 1997. A chain of de facto currency pegs have resurfaced, most famously in China and Japan, but also in such countries as South Korea, Taiwan, and India.
Alleged currency manipulation in Asia is likely to be the 800-pound dragon at the G7 and IMF meetings in Washington this week. Rising imbalances between the Far East and the United States, say economists, is subverting the U.S. Federal Reserve's ability to manage interest rates and could destabilize the global economy. But neither the fund nor Washington have been able to do much about it. In the last two quarters, foreign central banks purchased dollars and U.S. securities at an annual rate of $402 billion, up from $248 billion last year.
Asian governments accounted for 80 percent of the foreign inflows, accelerating a trend led by Chinese-government dollar-buying that keeps the yuan cheap relative to the U.S. currency. That in turn obliges the region's other export powerhouses to do the same. "This all started as a way for Asian economies to compete and do business with China," says Laurie Cameron, head of global foreign exchange at JP Morgan Private Bank in New York. "They want to export to the U.S. but also to China, to participate in the China explosion. It's as much a peg to the yuan as it is to the dollar."
The return of fixed exchange rates to the Far East comes with a few ironic twists. Before the 1997 crisis, many Asian currencies were officially pegged to the dollar, albeit with low reserves to back them up. In the mid-1990s, speculators sensed those currencies were overvalued given the region's high debt levels and began to sell them short. That prompted Asian central banks to drain their dollar reserves in defense of their currencies, which only delayed the collapse.
Amid the wreckage, China resisted the urge to depreciate the yuan to keep pace with its neighbor's collapsing currencies and was hailed as a stabilizing agent. Today Beijing is under fire as the vanguard of a new generation of Asian mercantilism. And other Asian governments are aggressively buying dollar assets--the opposite of their tactics in 1997, but with the same strategic end: aggressive export promotion.
After the crisis, many Asian governments lifted the controls and import barriers they had used to limit domestic spending, so capital could be funneled into export companies. With many of those restrictions lifted, often by IMF fiat, Asian governments are turning to currency manipulation to revive the export-led growth that led the boom of the 1970s and 1980s. "This is not in keeping with the spirit of financial liberalization because it makes these countries less efficient," says Peter Morici, an economics professor at the University of Maryland. "At some point the U.S. can no longer absorb all these goods. Look what happened to Japan."
The IMF called on Asian central banks to end currency devaluation last year. Flexible exchange rates, it said, would ease Asia's dependence on exports, empower Asian consumers, and lessen the odds for future economic crises. Since then, Asia has ramped up dollar-buying, and the cheap yuan is now being attacked in the U.S. presidential election for inflating America's near $600 billion trade deficit. Less understood, say economists, is how Asia's appetite for dollar assets neutralizes America's ability to manage interest rates. While the Fed is raising overnight rates to forestall inflation, long-term interest rates have remained stubbornly low on Asian demand for U.S. treasuries, which drives rates down. "The Fed may decide overnight rates," says Gary Hufbauer, a fellow at the Institute for International Economics in Washington. "But when it comes to the long-term money, China is the heavy hitter."
The central banks of Japan, China, South Korea, Taiwan, and other Asian countries account for $1.5 trillion in official foreign-exchange reserves out of a global total of $2.5 trillion, according to the IMF, a ratio that is far beyond that of Asia's share of global trade and global gross domestic product. Even India, which until recently was so starved for liquidity that it borrowed from Indian residents living abroad, has been supporting the dollar against the appreciating rupee.
It's not always clear where legitimate dollar-buying ends and exchange-rate manipulation or "spoofing" begins. Asian central banks routinely deny they devalue their currencies to gain a competitive advantage and both the IMF and the U.S. Treasury Department have effectively absolved them of spoofing charges. The White House has in general turned aside demands from lawmakers, unions, and the steel and textile industries to retaliate, particularly against China.
Washington holds a weak hand so long as it relies on foreign funds to finance deficit spending. China has met every entreaty on the value of the yuan--from White House envoys, IMF delegations, and U.S. manufacturers--with the same response: studied equivocation. "The Chinese have got the U.S. by the throat," says William Barron, managing director of Deutsche Asset Management in London. "When China stops buying dollars, the age of cheap capital is over." But China plans to move to a floating currency at its own pace, with an eye to stabilizing its own economy. So don't expect the gorilla at the IMF table to make any sudden moves.
Newsweek International
http://www.keepmedia.com/pubs/Newsw...04/10/04/590088 |
|
|
| Trancer-X |
| quote: | Originally posted by Yoepus
I'm not, the analogy applies.
If the Chinese prefer to invest in the USA economy than their own, I'm not one to tell them no.;) |
I don't think you're getting the picture. |
|
|
| Yoepus |
| quote: | Originally posted by Trancer-X
I don't think you're getting the picture. |
What don't I get? That instead of buying their own national debt, they prefer to buy a foreign governments?
All the power to them.
Since they are dealing with fiat money its silly to put trust in currencies other than your own - but hey if the whole world wants to buy USA dollars go for it. I thought you were all complaining about a weak dollar anyway?
The USA can always simply produce more to deflate the currency or produce less to inflate it (or raise/lower interest rates as they do these days). Or most likely, since China is artificially devaluating its currency, the USA can buy yuan at a greater capacity then the Chinese can buy the dollar and solve the problem that way too (of course unlike China the USA prefers to use its dollars to pay for things domestically that will directly help their country in the future).
Regardless, as Alan Greenspan said - there is a cutt off point where the Chinese and other nations will simply not own too much of one thing from diversificaiton perspective.
Obviously if this was a real problem meassures would already be taken. From a USA economic perspective I can't see any hard losses to the USA from China buying some debt from the USA. |
|
|
| wolverine16 |
| Massive foreign debt is a problem, even if it's diversified amongst a number of countries, because we're paying interest on it and unlike debt to domestic creditors, this interest does not stay in the U.S. economy, nor do we have the ability to adjust interest rates like we do within the country. Considering the trade deficit, this money does not get reinvested in trade with these countries either. In the short term, you may be able to get further goods & services than China or other countries, but long term they will end up getting back multiple times what they gave us whenever we get fiscally responsible leadership again, which will have to happen at some point in the near future, considering the debt ceiling keeps getting reached. People like to talk about problems with social security, medicare and welfare programs, but at least there's some return from those, even if they're losing money. Paying large amounts in interest to foreign countries while not making any effort to balance the budget or pay back loans is essentially throwing our money away. |
|
|
| Shakka |
| quote: | Originally posted by wolverine16
Massive foreign debt is a problem, even if it's diversified amongst a number of countries, because we're paying interest on it and unlike debt to domestic creditors, this interest does not stay in the U.S. economy... |
Maybe it would be less of a problem if we started calling it "Foreign Aid". :clown: |
|
|
| MisterOpus1 |
| quote: | Originally posted by Shakka
Maybe it would be less of a problem if we started calling it "Foreign Aid". :clown: |
You might be on to somethin'. I mean, they're doin' this with Bush's Social Security reform - first the Rove memo in '02 tellin' the Repubs. to shy away from calling it "privatization". Now 3 weeks ago they're telling Repubs. to shy away from calling it "private accounts", and instead call it "personal accounts".
One thing I hand to Republicans - they are masters of rhetoric and pursuasive language. It took nearly 3 decades for them to really hone this skill, and they've got it down pat.
So no, I really won't be surprised if new language is brought forth by this Administration in dealing with the debt. Like the media catches onto this anyway..... |
|
|
| wolverine16 |
| quote: | Originally posted by Shakka
Maybe it would be less of a problem if we started calling it "Foreign Aid". :clown: |
You could call it whatever you want, but I don't think Japan is a country that really needs our money.:clown: |
|
|
| zig |
@ Trancer-X.........
Ok first things first....China only accounts for 10% of Americas total trade so a 10% revaluation of the Yuan would only reduce the Dollars trade weighted value by only 1%.....and likewise a 40% revaluation of the Yuan would only have a 4% effect....so in other words hardly any effect at all.....a drop in the ocean given the deficit America is carrying..
The G7 meet on the 2nd and 3rd of febuary (i think..first week in feb anyway) and China has been invited....there is pressure being put on China to revalue the Yuan...and the most you can expect is a 10% revaluation if anything at all (which is also a likely outcome)
So how will this dramatically help the situation...? |
|
|
| Yoepus |
| quote: | Originally posted by wolverine16
Paying large amounts in interest to foreign countries while not making any effort to balance the budget or pay back loans is essentially throwing our money away. |
Not exactly, USA GDP growth outstrips the interest rate the USA pays on its debt. In essence the USA is really 'investing' in its economy by taking a loan. |
|
|
| Trancer-X |
| quote: | Originally posted by zig
@ Trancer-X.........
Ok first things first....China only accounts for 10% of Americas total trade so a 10% revaluation of the Yuan would only reduce the Dollars trade weighted value by only 1%.....and likewise a 40% revaluation of the Yuan would only have a 4% effect....so in other words hardly any effect at all.....a drop in the ocean given the deficit America is carrying..
The G7 meet on the 2nd and 3rd of febuary (i think..first week in feb anyway) and China has been invited....there is pressure being put on China to revalue the Yuan...and the most you can expect is a 10% revaluation if anything at all (which is also a likely outcome)
So how will this dramatically help the situation...? |
The only thing is, the trade deficit isn't the issue.
China's ownership of our debt gives them a considerable amount of leverage. They could sell it off if they wanted to, which could easily create a monetary crisis in the States. |
|
|
| Trancer-X |
| quote: | Originally posted by Yoepus
Not exactly, USA GDP growth outstrips the interest rate the USA pays on its debt. In essence the USA is really 'investing' in its economy by taking a loan. |
Well, you sure know how to put a spin on things. I'll give you that much.
| quote: | | Over 47% of the personal income taxes (but not of total tax revenue) collected in 2003 will be spent on paying interest on the debt. |
|
|
|
| Yoepus |
| quote: | Originally posted by Trancer-X
Over 47% of the personal income taxes (but not of total tax revenue) collected in 2003 will be spent on paying interest on the debt. |
You really do have a problem with believing everything on the internet don't you?! :p
Anyway your quoted stat is grossly inaccurate
Interest paid on the national debt:
$322 billion source: http://www.publicdebt.treas.gov/opd/opdint.htm
Federal Budget: Above $2 trillion (estimates range from 2.1 - 2.5)
sources: 1) http://www.newsbatch.com/budtax.htm
2) http://www.cbsnews.com/stories/2004...ain605544.shtml
Individual Income tax accounts for roughly 45% of revenue for the US Federal Budget: http://taxpolicycenter.org/TaxFacts...e.cfm?Docid=204
I'll make this simple and round off the numbers:
50% (income tax) of 2 trillion = 1 trillion.
333 billion of 1 trillion dollars is 33%.
So no, we aren't paying 50% of our Federal income tax to pay down the debt, were paying closer to 30-25%. Its a big difference. |
|
|
|
|
