Article

2008-12-04 China-Japan-Koreas

US, China headed for possible currency clash

Archived material is restricted to Rantburg regulars and members. If you need access email fred.pruitt=at=gmail.com with your nick to be added to the members list. There is no charge to join Rantburg as a member.

Posted by Steve White 2008-12-04 00:00|| || Front Page|| [3 views ] Top

#1 This is a tough one.
A rise in the yuan would make things quite expensive in China and things are already rocky there.

If China sells of it's US bonds, the Yuan would plummet as that is the only thing holding their currency up.

The Chinese want assurance that their US investments will be safe.

There is no way they can maintain a lower yuan without things spirialing out of control.

Rock and hard place.

Posted by newc">newc 2008-12-04 12:39|| 2008-12-04 12:39|| Front Page Top

#2 newc, I would have thought the opposite, but not being an economist, maybe I've got it a*se about.

A rise in the yuan would make things quite expensive in China and things are already rocky there.

A free floating yuan would skyrocket against the dollar pushing down the value of the dollar, making imports more expensive in the US and less expensive in China,
This is an area that Keynes spent his whole life trying to solve, summarized by his dictum "Paradox of Thrift"

If China sells of it's US bonds, the Yuan would plummet as that is the only thing holding their currency up.

They are not likely to, as they need a strong US dollar to buy the outputs of their factories. This paradoxically, makes things more expensive in China.

The Chinese want assurance that their US investments will be safe.

This is an interesting situation as along with the oil ticks and Germany they are holding up the dollar. They have an unacknowledged seat at the table in treasury, therefore influencing the US economy and political landscape. Were the US to go down the protectionist path, they would exercise the nuclear option i.e withdrawing all their support for the dollar, which would lead to massive inflation in the US. Think the Wiemar Republic scenario.

There is no way they can maintain a lower yuan without things spirialing out of control.

Posted by tipper 2008-12-04 14:59|| 2008-12-04 14:59|| Front Page Top

#3 This crisis is not possible, it is inevitable. The only question is when and at what cost. It will be pretty funny if the commies are thrown out due to their desire to hoard dollars.

Posted by Nimble Spemble 2008-12-04 15:31|| 2008-12-04 15:31|| Front Page Top

23:54 JosephMendiola
23:44 JosephMendiola
23:30 Spike Uniter
23:21 JosephMendiola
23:08 Duh!
23:08 GK
22:32 Jusoque Dark Lord of the Jutes3360
21:22 trailing wife
21:15 Frank G
21:11 Frank G
21:10 OldSpook
20:27 bruce
20:12 Frank G
20:11 Frank G
20:11 Frank G
20:09 The Left
20:08 Rednek Jim
20:05 DMFD
20:02 DMFD
19:51 MarkZ
19:46 Frank G
19:41 DarthVader
19:38 Rednek Jim
19:36 A_Rovian_Desciple