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To: LowCountryJoe
I'm getting more questions than answers. But here goes; Q. Is it a role of government to make it's industries and people competitive? A. Yes, not the only nor the most important role. Those countries which are geared toward creating wealth do better in the long run. Q Was it "OK" for congress and Roosevelt to pass the New Deal. A. Depends on how you define "OK". Legal yes, smart no.

Now then as someone who with so much to say on world trade you must understand that for 20 years the Japanese government uses American dollars earned in trade to buy US Treasuries. This keeps the supply of dollars artificially low. The Chinese have learned from this, and purchase T Bills to keep their currency floating in a very narrow range. Experts in this country have been on record as stating that this amounts to a 40% subsidy on the Chinese currency.

193 posted on 09/28/2004 1:59:44 PM PDT by Last Dakotan
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To: Last Dakotan
Now then as someone who with so much to say on world trade you must understand that for 20 years the Japanese government uses American dollars earned in trade to buy US Treasuries. This keeps the supply of dollars artificially low. The Chinese have learned from this, and purchase T Bills to keep their currency floating in a very narrow range. Experts in this country have been on record as stating that this amounts to a 40% subsidy on the Chinese currency.

You are incorrect. When trade occurs between two countries, the country exporting the good wants to be paid in its home currency. The purchasing country has to find a bank willing to make the exchange. The now increased demand for the importing country's currency raises the rate of exchange in favor of the foreign currency in relation to the dollar. Therefor, the dollar's supply in this case is actually high (the not necessarily artificially). It is also important to note that these transaction take place between companies and not governments [though I do understand that some of you out there reading have a romance with thinking of the government as the actual deal makers].

It is true that the Japanese and the Chinese do buy U.S. Government debt with the US Dollars. Technically it is the bank that made the currency exchange who buys the debt. Why do they do this? It's because they really don't have a use for the U.S. Dollar in their country. [actually, in the case of the dollar, being that it is the most prominently accepted currency in the world market, some people - even some consumers - in foreign countries don't mind holding them.]

But, it's interesting to note that these foreign countries do not have to purchase our government debt; they can also purchase anything of value that is for sale in dollars here in America.

Typically they buy the debt. Our companies and consumers borrow this money and use it for investment endeavors (in the case of the businesses) or current consumption/mortgages (in the case of the consumer).

In the case of the Chinese Yuan, it is undervalued (not subsidized) by a speculated 40% because the Chinese peg their currency to ours (8.4:1, I think). I'd go into it a little more in depth - as I've done on another thread - but I think you should digest that little bit first until we move on to the next lesson.

last, but not least. You and I agree on FDR. On the government's role in keeping us competitive...I say it should be hands off since I believe the government's role is to provide us with a representative government, make and enforce laws that protect our individual rights (rights are not equal to entitlements), and provide for a common defense. Curiously absent on my list is market interference!

204 posted on 09/28/2004 6:12:47 PM PDT by LowCountryJoe ("How the Far Right Has Been Left [and] Behind" - PJB)
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