Posted on 10/27/2005 10:17:19 AM PDT by Willie Green
ping
Why should Congress be in the business of manipulating the dollar? If the Chinese want to support the dollar, why shouldn't we take advantage of it?
Hey if China changes its exchange rate, imports with be more expensive here and the deficit will get even larger. Sounds like a plan?
If China changes its exchange rate, imports will be more expensive and the deficit will shrink as American manufacturers sell more products.
According to this piece, free trade with China is not free trade. What a surprise.
And why is their "consumer market" not growing? Could it be they are putting their money into the military? We'll be at war with them some day and I hope we can count on the free trade promoters to volunteer for the armed forces, pick up a rifle, and start shooting Chinese soldiers.
Maybe that will stop us buying Chinese?
"And why is their "consumer market" not growing? Could it be they are putting their money into the military? We'll be at war with them some day and I hope we can count on the free trade promoters to volunteer for the armed forces, pick up a rifle, and start shooting Chinese soldiers."
At long last somebody nailed it.
Hit them where they will hurt – PIRATEACY! They steal from everyone.
If the front door won’t budge – smash in the back door!
>>>"If the Chinese want to support the dollar, why shouldn't we take advantage of it?"
No, because we will have an economic meltdown if they decide to cash in their worthless pieces of paper -- SUDDENLY.
The value of our currency will drop like Argentina's, our interest rates will skyrocket, bankrupticies will grow like mushrooms after a three day rain.
If they dump the dollars slowly over five years, then you're correct. But, who can control their timing. They would be causing the loss of the value of their holdings by dumping suddenly. But China might see this stupid act as an extension of their military "strategery." Just as we saw with Japan's bombing of Hawaii, the insular attitude of the Chinese may lead them to make serious blunders.
If China did decide to cash in their debt all at once, then THEY would be the ones who take the hit, not us. And that's why they won't do it.
What China is doing is precisely the same thing that Japan did during the 60's and 70's. They propped up the dollar in order to keep up the level of their exports to the US. And we're still here. It did not destroy us. But , in the end, the Japanese themselves found they could not sustain that polcy in the long term.
print money its fun ping+chicom
Mmhmm Most Favored Nation
Sounds like the idiots that pushed this now have what they wanted. Unfortunately for them they are now the same ones griping about China's currency manipulation.
"If China did decide to cash in their debt all at once, then THEY would be the ones who take the hit, not us. And that's why they won't do it. "
Oh really? $800 billion debt (about 1/10 or 1/9 of total debt) sold at once will not affect us?
By selling, you increase interest rates. Who's going to buy new treasuries when $800 billion is dumped??
First of all, they don't own $800 billion of US treasuries. They own about $250 billion.
Second, it would have a neglible impact on interest rates to liquidate those holdings over the course of a year or so. Interest rates are only marginally impacted by US borrowing, as we found during the last recession. We're running a $350 billion deficit this year alone, and the credit markets seem to be very orderly. The vastness of the world credit markets is beyond comprehension.
It would more likely impact the dollar. But that is more their problem than ours. They are the ones who are trying to pump up the dollar in the first instance. And we are the ones trying to get them to stop.
How can they "cash in" US government bonds? Only by selling them on the open market. That may run the price of bonds down and interest rates up, but it doesn't hurt the US government any. It's not like they can take their bonds back to the Treasury and demand payment for them.
>>>"That may run the price of bonds down and interest rates up, but it doesn't hurt the US government any."
The bonds are sold on the market, driving prices down and interest rates up. Housing tanks. New capital investment tanks. Would the government be hurt at this point? Recession immediately starts. Credit card interest rates go to new usurious highs. Consumer spending stops. People get laid off, expected tax revenues do not come in for the Treasury. Would the government be hurt at this point?
Then, can you imagine raising taxes to cover higher interest rates? Could the U.S. service its debt at 10 percent, 20... 30? While the idiot Carter drove the interest rates up near 20 percent, this rapid run on dollars would push interest rates even higher. At some magical interest rate, perhaps now much lower than 20 percent, a new breaking point kicks in... where more and more debt has to be issued just to roll over the maturing debt.
Some think we can just issue more paper -- it's backed by our military (instead of gold now) and we're the strongest in the world. But if the U.S. government just inflates its way out of the problem, every American's savings becomes worthless and it could take a wheelbarrow of dollars to buy a loaf a bread (ala Germany) or a Starbucks Cafe Mocha (ala U.S. consumer society today). At that point, the far left Democratic party then running the socialist government at that point would be way past the point of price controls, a chicken in every pot. We would be in a deep, deep depression. Would the government be hurt at this point?
Do you remember Krinton and how his administration moved the government to borrowing mostly short term debt? If the U.S. government had borrowed more long term debt instead of short term debt then we would be insulated from short term fluctuations in interest rates to a greater degree. But we are still dependent on short term U.S. treasury debt.
Now, lets talk about derivatives, On a fast break up in interest rates, the counterparties on one side of the transaction most likely will not be able to deliver and we will have a series of many derivative explosions, like Long Term Capital Managements, going off. It will be like what we saw in the 1970's, with financial institutions falling over -- because another bank said they'd repay them but they failed.
It's the speed of the currency drop that will drive interest rates up, create derivative problems, and cause the U.S. government to effectively default on its paper currency. Can you say "new, new, new" dollarettes? Maybe we could call them Pesos.
No, we do need fluctuating exchange rates. But those idiots that hold our debt and put the pedal to metal for export earnings (Chinese and Japanese) are, as you say, doing us a favor (misallocating capital) UP UNTIL THE POINT THAT someone screams "Fire!" THEN EVERYONE LOSES. The U.S. debt bubble could collapse at that point and bring world trade to a standstill. There will be no hiding places at that point.
The rate of change is the danger. We driving towards another car and one of the drivers is playing "chicken."
Markets can and will correct for this, but the longer this goes on, the more likely it will end in a economic crash.
They have not, and will not change this successful strategy.
Not all that successful. They spent more than 10 years in a very deep recession because they would not change their policy. Hence my point that it was not sustainable. And while they were in a recession, we were growing like gangbusters.
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