

What a stronger Chinese yuan means for the U.S. - llambda
http://www.reuters.com/article/2011/10/05/us-china-yuan-idUSTRE79411620111005

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analyst74
There is always somewhere else to move to, unless US labour becomes cheap
compared to ALL other countries. The solution is not to make all other
countries expensive, or make US labour cheap (through currency depreciation or
what not).

I believe the best way out is through technological innovation, increase
export in high-end products to reduce trade deficit. Although that would
require patience and long-term thinking, which is going to be very difficult
in current political climate.

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Shengster
I agree that forcing Beijing to raise the value of the Yuan is not going to
end all our financial woes (as suggested by some politicians) and turn America
back into a manufacturing powerhouse. Many companies (recently Nokia) have
been moving their factories to Vietnam as wages there are lower than even
China.

In a recent interview between Marc Benioff (salesforce.com's CEO) and Eric
Schmidt (former CEO of Google), Eric said that oftentimes outsourcing is not
just because of cheap labor, but rather because America doesn't have the
infrastructure or skills necessary to perform the kind of manufacturing
necessary in high tech industries (think printed circuit boards, which are
done exclusively in Asia nowadays).

Given America's emphasis on education (or lack thereof), I don't see this
changing anytime in the near future. Troubling news indeed.

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Volpe
U.S just love meddeling don't they?

If China raise the value of their currency too quickly they plunge hundreds of
millions of people into dire poverty. (We are talking more people than in the
entire US). Just so the U.S can reduce its deficit, and generate local jobs
growth...

"I want globalism... but only as long as it benefits me, and you play by my
rules"

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alperakgun
inflation?

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lsc
My understanding is that the relative value of different currencies (what
we're talking about here) is a different (but somewhat related) thing to
inflation within a currency. But yeah, in this case, a stronger yuan would
cause prices of Chinese manufactured goods sold in the US to rise. So yeah,
that'd contribute to inflation, but my understanding is that significant long-
term inflation is... difficult without wage inflation, so it'd probably be
more like the commodity inflation we've experienced, where prices went way up
then stayed flat or came back down; they didn't keep going up.

Of course, /if/ policymakers get their way and more manufacturing jobs are
moved back to the US, in the best case that could cause demand for unskilled
workers to rise, and maybe we'd see some wage inflation; but that sounds
ridiculously over optimistic to me. We have a lot of 'discouraged workers' on
the sidelines who will come back if they think they have a chance at a job.

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tatsuke95
I think you nailed the effect, just have to combine the two: both forms of
inflation could occur. First through prices as consumer goods become more
expensive, then later through increased wages to compensate as well as capture
some of the excess returns capital earns. In the textbook version, we'd end up
in the same spot.

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cq
First of all, isn't pinning the Chinese currency to the US dollar against WTO
rules?

It is important to note that in order to pin the Chinese currency to the US
dollar, China must regularly print more and more money, and then they buy US
debt with it.

Considering that 10-year US bonds are at staggeringly low interest rates
(1.91% as I write this), they're basically giving us free money every time
they do this. Why aren't we spending more federally on job programs to get
people employed (and/or trained for employment)? Oh yeah, because >socialism<.

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tatsuke95
China doesn't have to print money to buy US debt; it has massive amounts of
foreign currency reserves from the trade imbalance between the countries with
which it purchases treasuries. Something to the tune of $1 trillion USD.

So, in essence, the US is printing money to provide China with treasury
assets.

EDIT:

Also, I guess you could qualify it as getting free money, but in fact it's
money that has already been spent, which is the federal deficit. So what
happens when China decides to stop buying that debt? Then we no longer have
the money to cover our over-spending. That's the issue. The economic argument
lies on whether China will ever consider the US a "bad bet" and stop buying
debt (it has, in fact, slowed) or if the two countries are so intertwined as
creditor-debtor that both have to continue playing the game in perpetuity.

