The best economic news of the last thirty years...

[Maury Beniowski]

China unpegs the yuan a.k.a. remenbi or RMB.

CBC Article

Finally there is an opportunity to level the playing field. I imagine Hong Kong will follow suit.

The illusion we have been under as consumers, that China's manufacturing prowess has brought us phenomenal prices in electronics, housewares, appliances, furniture, and just about any product we have outsourced over the last decade will now be revealed for what it is: a great job vacuum for North Americans, going the wrong way unfortunately.

What we save in department stores we pay back tenfold at the pump. The increasing shortage of fossil fuels came as a direct result of propping up China's economy. And that's not all we gave away. China is now on the brink of becoming a world power that would make the old USSR's pale in comparison. They will soon have the capability of annihilating any nations on this globe, and have even had the gall to threaten to go nuclear if the US intervenes in the Taiwan question.

Old Mao must be rolling in his mausoleum...

 

[luckydog71]

In my humble opinion, we are seeing the early stages of a rising empire and the final stages of an old empire. No one can deny the 20th century belonged to the US. We were the dominate country and the dominate culture. We had economic might and military might. Above all our citizens were self reliant and took responsibility for themselves and their actions. We promoted survival of the fittest in our business world. The crash of 29 knocked out the weak and we were better for it.

The US now supports bad corporations through protectionist laws, through subsides, and through insane tax advantages. We have a government that wants to be the provider of all. More than just the seriously disadvantaged. If any ancestor any time in the last 200 years ever had anything unfair happen to them, we want to make it up to you.

When something as tragic as 9/11 happen, what did we do? Give millions of dollars to each family. Why? If I am killed in a car accident and I did not buy life insurance for my family, my family suffers.

But now we see China and India on the horizon. They do not have the social safety net we have here. Their economy will roar to life over the next couple of decades. Their military strength will increase and rival or surpass the US in that same period.

I believe they will be the next super power and the US will have roll in the world equal to about what Britain has today.

Although few would agree with me, the US as an empire has been a very easy going super power in comparison to Britain during its glory days, or Germany, or the Romans.

I wonder if China or India will be as easy. I doubt it. I think they will be more domineering, more dictatorial, and more militaristic. They will not be going to the UN and passing a resolution for the return of Taiwan. They will send their army in and dare the US or any other country to try and do something about it.

I also predict you will see the US start to pull back. We will want to at least protect our homeland and try to build our economy so we can be more self reliant and less dependent on imports.

I think we have learned a lesson from Iraq. The rest of the world does not want us to be the savior. In fact they don’t even see us as the savior, even though that is the way we see ourselves. We are still a ways off from the tipping point, but I do believe it is on the horizon.

 

[Maury Beniowski]

One significant proviso is how China, and India for that matter, will handle the balance of numbers between the urban and the rural populace. The last time someone tweaked with that phenomenon, he became the modern Emperor of China, albeit with the less hostile name of Chairman. He was able to harness the power of the rural to overpower the urban, but eventually sold out to the latter, and fell into decadence - as most Emperors eventually do.

With a balance of 80/20, the current administration has to figure out how to satisfy both, or else another Mao will exploit this weak underbelly.

 

[luv-em-n-lv-em]

We have a government that wants to be the provider of all.

Government as a provider? That would be gross! There aren't many young, attractive women in the civil service.

 

[georgebushmoron]

Look at defense programs in the US, instead of buying the best equipment for the money, procurement is turned into porkbarrelling. The B2 Spirit fiasco is a good example. The whole program was wildly over budget and behind schedule, but no congressman wanted to cancel it because the prime contractors had shrewdly divided up the subcontracts. Almost every congressional district had a company that was doing some work for the program, and no congressman wants to cut jobs in his own district.

Damn I haven't heard anything that poignant in a long time, poignant and true. Thanks.

I believe they will be the next super power and the US will have roll in the world equal to about what Britain has today.

Although few would agree with me, the US as an empire has been a very easy going super power in comparison to Britain during its glory days, or Germany, or the Romans.

I wonder if China or India will be as easy. I doubt it. I think they will be more domineering, more dictatorial, and more militaristic. They will not be going to the UN and passing a resolution for the return of Taiwan. They will send their army in and dare the US or any other country to try and do something about it.

I would have to disagree with you LD that the next superpower will be China (or India). I think the US will remain the sole superpower for another 20 years, and that China, India, EU will remain regional powers only. The extent of the power of the US is not known to most Americans. The US is much much more powerful and is in a strategic position such as no power in history has been for world domination. Also, in comparison to barbaric times of yore, the US looks like an easy going empire.... but then again, most Americans don't know just how barbaric the US has been in modern times.

As for Taiwan, it may be true that China muscles in and just takes over, with the US' hands tied unable to do much. But what is Taiwan to China? It is the same virtually to China as it is to the US: a leverage by the US against China. The best that the US can hope for is to make that leverage last as long as possible, but that would take a completely protectionist US trade policy. That's not going to happen. All the US will lose is that leverage. If the Korean peninsula were to resolve without US intervention, then I would say there is trouble for the US and that lost Taiwan leverage is going to matter more. But so far, this is not seen to be happening.


Now back to the original post: China decides it will let its currency float to within 3% of a "group of currencies". This is just a ploy. China pegged its RMB to the USD precisely because it knew that the USD was over inflated, and that it was over inflated was because Americans needed to buy resources cheaply or otherwise be faced with the real equilibrium for the American economy right now: deep recession. So because the US is unwilling to face that economic equilibrium, which would be a recession, it must keep its dollar artificially high and consequently be unable to stop the currency manipulation that China uses. Not wanting to seem like the bad guy, the Chinese have finally decided that they will move away from pegging against the US currency, but instead peg against a group of other currencies, and only within 3%. But the truth is, is that other currencies are pegged against the USD. Take the Canadian dollar for example. It is also manipulated and pegged against the USD, keeping it artificially around 1.25.

No currency is truly free floating anymore.... there is only a tacit "agreement" between nations when exchange rates become uncomfortable, one nation pipes up and makes all kinds of threats. That is the case with the US vis-a-vis China, and the reason for the slight shift in international monetary policy by the Chinese. Effectively, this shift still means the RMB is going to be comparatively valued lower than the USD but now the US will have less room to make "legitimate" complaints.

The American economic equilibrium has been recession (for years) and will remain recession for some time to come. The only way the US can pull itself out of it is to alter the supply side of the equation, because the demand side is not going to change any time soon. The only way to alter the supply side of the equation is to alter external factors because internal factors can no longer change. Once the oil in Iraq and Central Asia makes it through the Caspian and Turkish pipelines, that equation will change. The only hope for America to get out of its predicament is to make more foreign oil fields available to itself, as directly as possible.

 

[Herb_The_Perb]

It sounds like the Yuan has now moved 2% vs. the dollar, from 8.27 to 8.11.
BFD!
This is hardly a significant adjustment or correction.

 

[Sunset]

It sounds like the Yuan has now moved 2% vs. the dollar, from 8.27 to 8.11.
BFD!
This is hardly a significant adjustment or correction.

Herb, this is one of the few times we seem to agree.

LD, China is far from being a military or economic equal to the US. You've accurately pointed out the US's prowess regarding its hard power. What about the US leading the world in soft power?

By the US becoming the leader of soft power will at least increase its chances of prolonging one element of hard power, i.e., economic power. Adam Smith first wrote "The Theory of Moral Sentiments" before he wrote the "The Wealth of a Nation."