Paul Krugman, Dean Baker on currency manipulation.

[GoFlyKiteNow]

Paul Krugman and Dean Baker call China's bluff on currency manipulation

Paul Krugman

In debates over what to do about China’s currency manipulation, one constantly hears the refrain that we don’t dare alienate the Chinese, because they own so much of our debt. What would happen if they took their dollar holdings, equal to around 10% of US GDP, and switched them into other currencies?

Well, we don’t have to speculate. Consider the case of Israel, which in the face of the economic crisis engaged in massive foreign currency intervention to weaken the shekel. What happens in a foreign currency intervention is that the central bank buys foreign securities while selling domestic securities — that is, the Bank of Israel was doing, as a deliberate policy, exactly what we’re supposed to fear the Chinese doing.

Right now, China’s dollar holdings don’t give it any leverage over the United States. On the contrary, by dumping dollars China would be doing us a favor.

Dean Baker

While Washington is chock full of deficit hawks running around insisting that we have to cut Social Security and Medicare or China will stop investing in the U.S., they actually have the story completely backward. (It is necessary to talk slowly when speaking with deficit hawks. Remember, these people could not see an $8 trillion housing bubble.) The United States has absolutely nothing to fear from China's decision to reduce its investments in the United States and allow the dollar to fall and the yuan to rise.

This decision would mean that the United States could finally get its trade deficit down to a manageable level. The trade deficit has been the leading imbalance in the U.S. economy over the last decade. The large trade deficit required very low private savings and/or large budget deficits. This is an accounting identity.
If the country is a net borrower from abroad (this is what a trade deficit means), then it must have low national savings. There is no way around this story.

 

[manokie]

US can borrow so much money because of its superiority in all areas.. nothing about saving money and being a stingy country

They can afford to borrow and keep printing money. So why not?

China is only producing rubbish for US and should be happy that US is buying them!

 

[FlipSide]

It seems savings money is as good or bad as spending it, in a capitalist consumerist economy.

 

[longbow]

Deflecting from main issue - if Chinese stop buying US debt, US is in trouble.

Issue is not about Chinese selling Treasury but if Chinese stop buying debt! Japanese can no longer to rely on its citizens to buy its debt and soon it will be a net seller. So seems like only few players out there with the ability to finance US are the Chinese.

EU is up to eyeballs in debt. US is has high debt levels. even India cannot afford to subsidize fuel prices (too much debt) hence the riots breaking out over there.

 

[manokie]

Deflecting from main issue - if Chinese stop buying US debt, US is in trouble.

you think US will allow China to export so freely to US if China refuses to buy US debt? don't be so naive, this is not like buying vegetables from hawkers in the market

 

[GoFlyKiteNow]

you think US will allow China to export so freely to US if China refuses to buy US debt? don't be so naive

China has no choice but to buy.
China can buy euro. But what use is that ?
Then the Europeans will sell their euro and then back their euro by buying into USD !

 

[Sperminator]

...

They can afford to borrow and keep printing money. So why not?

China is only producing rubbish for US and should be happy that US is buying them!

Well said, anyways, the biggest mafia is truly USA. They do print money to cover debts, and the more the merrier, because this will inflate the debts away.

Pointing fingers at China is just a convenient excuse for USA, when you look at USA's debt situation, they are the ones that created it themselves, since the enactment of FEDs in the 1920s...

So, in my view, I believe China may not want their Foreign Reserves (USD) to be inflated away by USA, and so, buying other countries debt, like Japan's debt is in motion.

http://www.ft.com/cms/s/0/8c861c30-8a5d-11df-bd2e-00144feab49a.html?hpt=Sbin

And by the way, China is no longer selling Junk to USA, but higher quality grade of products globally... China is moving to the Quality Era, like what Japan did in the late 70s and 80s when they adopt the Kaizen Philosophy.

More and more quality branding are emerging in China...

And technically speaking, their domestic market is large enough for them to create a growth, and with the CAFTA enacted, this is going to be a big boost for China to the ASEAN Markets.

Just in the next 5 years, China will become a economic super power, like it or not... and USA is fearful of this.

 

[Received_by_Kings]

US can borrow so much money because of its superiority in all areas.. nothing about saving money and being a stingy country

They can afford to borrow and keep printing money. So why not?

China is only producing rubbish for US and should be happy that US is buying them!

And the US thrives on cheap Dell computers that are Made in China? US should be thankful they have this opportunity!

 

[FlipSide]

And the US thrives on cheap Dell computers that are Made in China? US should be thankful they have this opportunity!

The main costly item inside the computer is the Intel or AMD processor. This comes form the USA. The rest of the items are available from Mexico or Eastern Europe at the same price, including assembly costs. There is hardly any reason to think that if not for China, the Americans will suffer high costs. They have enough sourcing alternatives IMO.

 

[manokie]

And the US thrives on cheap Dell computers that are Made in China? US should be thankful they have this opportunity!

A better example will be those useless junk like cups, plastic items, tools, shoes

MNCs like Dell, Apple make $$$ from outsourcing their assembly manufacturing to China because assembly of parts require manpower and its cheap in China. The rest of the stuff are either designed in Silicon Valley or made by Korean (lcd,ram)

 

[GoFlyKiteNow]

Well said, anyways, the biggest mafia is truly USA. They do print money to cover debts, and the more the merrier, because this will inflate the debts away.

Pointing fingers at China is just a convenient excuse for USA, when you look at USA's debt situation, they are the ones that created it themselves, since the enactment of FEDs in the 1920s...

So, in my view, I believe China may not want their Foreign Reserves (USD) to be inflated away by USA, and so, buying other countries debt, like Japan's debt is in motion.

http://www.ft.com/cms/s/0/8c861c30-8a5d-11df-bd2e-00144feab49a.html?hpt=Sbin

And by the way, China is no longer selling Junk to USA, but higher quality grade of products globally... China is moving to the Quality Era, like what Japan did in the late 70s and 80s when they adopt the Kaizen Philosophy.

More and more quality branding are emerging in China...

And technically speaking, their domestic market is large enough for them to create a growth, and with the CAFTA enacted, this is going to be a big boost for China to the ASEAN Markets.

Just in the next 5 years, China will become a economic super power, like it or not... and USA is fearful of this.

Lets not forget the fact that the entire world rode on the open markets of USA by exporting to it, while they kept a tight lid on their imports. The US capitalism and free marker economics delivered prosperity globally for decades, which to my knowledge has not been matched by any other economic model.

The fact that the USA topped the global lists for years as the country with the most productive, innovative and substantial economy is proof that they must have been doing something right...regardless of these frequent accusations that they are just printing money. Printing money is easy, but does not make economic sense. so why should anyone do it ?

The USA is still the global growth engine. If it was some other nation that was, it will be hollering wtih nationalistic fervor, from the roof tops how important and great the nation was. And on top of it would be least willing to share knowledge and expertise with others as the USA does.

When the facts are there and visible, no amount of claims and counter claims will alter these facts.

 

[longbow]

Yes I think US will allow china to export freely. You fail to understand situation. Both countries are so tightly entwined that any trade war will have disasterous effects. US can no longer allow or disallow. Some US mfg might lobby for action but boeing and Caterpillar and GM will lobby and say no protectionism same for Walmart and the likes. GE is making billions selling high tech medical equipment to the Chinese. Agriculture - (many senators from agriculture states) - make good $ selling to the Chinese.

A huge % of US economy is consumption. China's cheap goods has meant that there is little inflation even as US continues to print money. Just look at your LCD TV/computer/aircon at home and compare to prices 7 to 8 years ago. Most are half the price.

Then there is the HUGE Chinese market. As mentioned, GM sells more cars in China than in US. DO you think GM wants to abandon Chinese market and give it to Japs?

Look at Google - after all that talk about principle and free speech - they backed down - why - Chinese market lah.

Reason for Chinese purchase of US debt has got to do with huge Chinese surplus. They have no choice but to part trillions in US $. Unfortuantely that lead to cheap US loans and the housing bubble.

Anyway better to look at see. 5 years ago some were saying that Chinese banks were insolvent (it was Western banks that went insolvent), then many say that China's GDP growth is fake (just look at export side to see how much China is exporting and you can have an idea - also look at huge rise in reserves

March 2010 - China's reserves - $2.4 Trillion, India $277B, HK (part of China but counted separately) $240B. Where do you think all that reserves come from. Lots of inflows lah.

you think US will allow China to export so freely to US if China refuses to buy US debt? don't be so naive, this is not like buying vegetables from hawkers in the market

 

[longbow]

You are correct but that was 20 years ago. I suspect that in 5 years, the chinese will consume more than the US in terms of cars, planes, construction equipment, luxury goods, commodities, diamonds, gold - whatever. It is not because the country is so rich it is just that the population is so big.

It is entirely likely for 5 to 10% of Chinese population to have per capita income approaching US standards. of course the bottom 20 percent still really poor. But 10% or 140M is more than japan so you have consumption greater than Japan or germany. These 10% want mercedes, fine dining, business class travel, they are buying property in singapore, HK, US, London. They want to send their kids to best schools.

I can already see beijing inproving their revenue collection. In pure capitalist society it is sink or swim. So you need taxes to level playing field. So look out for more taxes, property taxes (already happening). These taxes will be used to lift the bottom 20% of country. In a country with a failed tax system, Gov does not have $$ to do anything.

That is why as a Singaporean, I am scared of this juggernaut. beijing is not interested in being just a low cost producer. They want low, middle, high tech industries. They are looking at US as a model.

Lets not forget the fact that the entire world rode on the open markets of USA by exporting to it, while they kept a tight lid on their imports. The US capitalism and free marker economics delivered prosperity globally for decades, which to my knowledge has not been matched by any other economic model.

The fact that the USA topped the global lists for years as the country with the most productive, innovative and substantial economy is proof that they must have been doing something right...regardless of these frequent accusations that they are just printing money. Printing money is easy, but does not make economic sense. so why should anyone do it ?

The USA is still the global growth engine. If it was some other nation that was, it will be hollering wtih nationalistic fervor, from the roof tops how important and great the nation was. And on top of it would be least willing to share knowledge and expertise with others as the USA does.

When the facts are there and visible, no amount of claims and counter claims will alter these facts.

 

[GoFlyKiteNow]

You are correct but that was 20 years ago. I suspect that in 5 years, the chinese will consume more than the US in terms of cars, planes, construction equipment, luxury goods, commodities, diamonds, gold - whatever. It is not because the country is so rich it is just that the population is so big.

It is entirely likely for 5 to 10% of Chinese population to have per capita income approaching US standards. of course the bottom 20 percent still really poor. But 10% or 140M is more than japan so you have consumption greater than Japan or germany. These 10% want mercedes, fine dining, business class travel, they are buying property in singapore, HK, US, London. They want to send their kids to best schools.

I can already see beijing inproving their revenue collection. In pure capitalist society it is sink or swim. So you need taxes to level playing field. So look out for more taxes, property taxes (already happening). These taxes will be used to lift the bottom 20% of country. In a country with a failed tax system, Gov does not have $$ to do anything.

That is why as a Singaporean, I am scared of this juggernaut. beijing is not interested in being just a low cost producer. They want low, middle, high tech industries. They are looking at US as a model.

You are woefully mistaken.
The era of consumerism is ending and being replaced by conservationism.
For several reasons. The primary one being environmental. And also the planet earth simply does not have that much resilience to absorb the pollution caused by consumerism expansion and also the raw materials.
As it is oil demand is falling due to several energy conservation measures and the use of alternate energy such as solar and wind etc. The green jobs, the green economy is here.

The new economic model will put power and control in the countries with a green economy while these countries that continue to absorb raw materials and create pollution will be at the back of the pack.

The entire global economy is being reshaped. From consumerist to conservationist. Nobody in the future, is going to bet much on the potential of a country based on its consuming power. Instead there are chances such countries will be shunned as the global awareness towards pollution grows rapidly, as is happening now.

The age of big is the way to go is being replaced by Clean is the way to go.

 

[Received_by_Kings]

The main costly item inside the computer is the Intel or AMD processor. This comes form the USA. The rest of the items are available from Mexico or Eastern Europe at the same price, including assembly costs. There is hardly any reason to think that if not for China, the Americans will suffer high costs. They have enough sourcing alternatives IMO.

AMD processor is Made in USA? If you say so. And we thought only the manual is printed there lol. But anyway you cannot deny the rest of the parts are Made in China.

If it is not profitable to do so in China they would have already set up manufacturing and assembly plants in Mexico and Eastern European instead, and so there is hardly any reason to go against sound business logic as the costs to be borne by Dell and other suchlike American companies are even lower to make and assemble so as to increase their bottom line, idiot. It's not about American businessmen or even American consumers suffering (who cares), it's more about the former making even more money. COMMON SENSE STUPID.

 

[GoFlyKiteNow]

AMD processor is Made in USA? If you say so. And we thought only the manual is printed there lol. But anyway you cannot deny the rest of the parts are Made in China.

If it is not profitable to do so in China they would have already set up manufacturing and assembly plants in Mexico and Eastern European instead, and so there is hardly any reason to go against sound business logic as the costs to be borne by Dell and other suchlike American companies are even lower to make and assemble so as to increase their bottom line, idiot. It's not about American businessmen or even American consumers suffering (who cares), it's more about the former making even more money. COMMON SENSE STUPID.

Yes, the times have changed. China is no longer the preferred destination compared to say 5 years ago.

The processors Intel and AMD..some qty is made in China and other places. But the technology of production and the pant itself is owned and controlled, produced and marketed 100% by Intel and AMD with no outside limitations. It is the American companies sole ball game. China only provide labor input. Which can be done by other nations as well if Intel and AMD chose to relocate there. There is no exclusivity at all to speak of.

This so called American business and consumers suffering if not for China's ow cost products...well..other than hype,,what facts are there to substantiate this claim about this suffering ?. What is there to suffer about ?. After all China is not producing something like a critical item like Oxygen for the Americans and Europeans !!