is this right? - Political Forum

Deja Entendu · 03-22-2007, 08:07 PM

I've been reading a few experts on modern stock markets, and I've come up with a very basic outline of what they seem to be saying. I've left out Iran and Venezuela, but let's assume they are on China's side:

China is keeping a control on inflation by making sure it's currency stays within a certain rate to the dollar, and to do this it has to buy dollars. The US wants to put an end to this, but in doing so it will weaken the dollar. The result will be a fall in the value of the Yuan and the dollar. So in effect they're both going down, but only one of them is getting back up. they are both prepared to run the risk because the rewards of wiping out the other one are so great

any thoughts? I realise it might not be this dramatic btw.

Brother Oz · 03-22-2007, 09:45 PM

They can't both go down, at least not against each other. Dollars can't be worth less Yuan and Yuan less Dollars.

Deja Entendu · 03-23-2007, 06:25 AM

Quote:

Originally Posted by neorealist234

If China is buying a lot of USD and sitting on them, that decreases the amount of USD in circulation..which lessens the supply and increases the demand for the rest of the world, which increases the value.

yes but supposedly they are starting to sell them, and I've heard that anti-US countries are starting to form trading blocks to use alternative currencies for commodities which are normally only bought in dollars. However my understanding is that at the moment the effects of this are being offset by China buying dollars to keep the Yuan within a certain rate of the dollar (ie if it's known that for every say 10 Yuan it prints the Chinese Central Bank has 1 USD, this increases the value of the Yuan, it's a kind of "peg"), but the US is applying pressure to make the peg unviable and hurt the Yuan. But it could have the reverse effect of giving the Chinese no incentive to hold onto their dollars. Obviously the short term effects would be as bad for the Chinese as for the Americans, as their own dollar reserves would have to be sold at a loss and their exports would suffer, but like I said, perhaps they feel the long term benefits would outwiegh this. The Americans also seem to think it's worthwhile from their POV. Well this is what I've heard, and if it's true there could be hard times ahead for the man on the street...

Slartibartfas · 03-23-2007, 02:01 PM

I dont think the Americans can risk to change this system. The US is too dependable on the Chinese USD purchases. On the other side, its also a great deal for China by holding the Yuan low to help its export economy.

Why should anyone of them ruin that? The costs and risks would just be too high. Its not worth it.

Deja Entendu · 03-23-2007, 02:19 PM

Quote:

Originally Posted by Slartibartfas

I dont think the Americans can risk to change this system. The US is too dependable on the Chinese USD purchases. On the other side, its also a great deal for China by holding the Yuan low to help its export economy.

Why should anyone of them ruin that? The costs and risks would just be too high. Its not worth it.

I'm talking to this guy who's been trading since 1989. I'm learning all the time so don't have all the answers, but what I've understood is that this is the work of the fed and the Chinese Central Bank, both manipulating the market for political purposes, because the potential benefits are so high if they can encroach on the power of the other. The Americans are paranoid that China is gradually weakening the dollar (they could be right, as china might think that the short term effects would be worth it provided they can retain cheap access to Iran and Venezuela's oil and have enough investment in their infrastructure to survive the shock), and so want to put an end to this peg which gives China a trade advantage - but it could backfire. Because these guys are technocrats, it's not their money they are playing with, and so they are more willing to take these risks than they should be. It doesn't make sense if you view it from a free market perspective but I guess what people are saying is that this is not a free market.

Slartibartfas · 03-23-2007, 02:39 PM

So is it about irrational politics? Where both sides underestimate their own dependency on the other one?

Deja Entendu · 03-23-2007, 03:16 PM

Quote:

Originally Posted by Slartibartfas

So is it about irrational politics? Where both sides underestimate their own dependency on the other one?

could be...I wouldn't call it irrational though, because if this scenario is true, both sides have clear reasons to do what they are doing. It's just risky, that's all.

Clay Hamilton · 05-05-2007, 12:51 AM

Okay, let's put it this way plain and simple.

China is stashing dollars to inflate the value of the dollar and consequentially the yuan. Seems good?

No, this gives them huge leverage over us economically, a leverage we cannot afford to let them have. Think, China could use this diplomatically, economically, militarily... The possibilities are endless. And Chinese leadership would have no qualms in striking us down while we are weak. They could well be waiting for a significant dip in our economy to unleash their flood of dollars to put us down for decades, even a century. That, of course, would catapult them right into first place.

How do we stop it? We have to accept the consequences of our fathers' actions and take the damage while we can still bear it. Sure, our import economy will be hurt for a while, but their export economy will too. It will be mutually bad for the countries and both would suffer when compared to Europe.

But at the same time, China would never have the power to cripple our economy. If you ask me, let some air out before the balloon pops.