China's Economic Invasion: One Year Later

The Heritage Foundation ^ | 18. April 2006 | Tim Kane, Ph.D., Marc Miles, Ph.D., and Anthony Kim

[Paul Ross]

That's the thing about charts, there is no hidden "between the lines" info.

Oh, yes there is... when there are more than the two listed variables displayed.

Example: Chinese market intervention annually to prop up their peg: $195 billion.

A pace that is presumably still being maintained...or increased...since the peg is...for all practical purposes... still in full force.

[Paul Ross]

How would "smoothing" turn no correlation into correlation?

Because it was never "no" correlation. I believe it in fact tracks pretty closely when smoothed from 2000 to 2006. Let's first look at the Chamber of Commerce Chart where you so absurdly claim "NO" relationship:

Here is the recent range from a chart from 2003 to 2005...

When looked at the broader indices of major currencies besides the volatile EU, this is what we see:

The trend is definitely down.

It is mirrored in the simultaneous rise in commodity prices:

The above-noted Commerce chart was posted trying to disprove the relationship of the two listed factors. It failed to to do, first, because it was flawed by failing to acknowedge the multivariant nature of relationships...i.e., it is more than the two factors...albeit they are clearly not unrelated.

Policies in the countries whose baseline currencies are used for comparison are not static. There is give and take, changes of governments and administrations, or other indigenous and exogenous economic factors... Etc.

These make a real difference, as we saw with the political turbulence in the EU as that did a lot to hurt their financial credibility of the EU currency with the failed consitutional votes. There are staggered effects from these swings in valuation. One example: AirBus exploited the currency downturn to sew up a bunch of additional sales and clinched another year ahead of Boeing's commercial sales.

And if the comparison had been done against China...with its artificially-maintained peg...you would have seen a flat dollar...as the deficit mushroomed to over $200 billion annually.

I have no inclination to be a gold bug, but I saw a TraderDan quote from one Jim Sinclair which was a pretty fair assessment of the situation which you are blithely denying:

"Perhaps one of the great tragedies that will be written across the history of our nation in generations to come will be our own lack of the sense of history.

No matter how those who insist that a debt based economy is nothing to be concerned with, history and the scriptures teach “the borrower becomes the lender’s slave”.

By my last count, the US trade deficit for 2005 came in near $723 billion. This year is slated to exceed that number and perhaps push closer to $800 billion. As the following story makes clear, China has now surpassed Japan for the honors of possessing the largest foreign reserves with an astounding $853.6 billion. Much of this is due to their huge trade surplus.

One only needs to study history to see economic power and supremacy have been gradually moving further and further East.

This generation will go down in history as the generation that spent itself into the brink and in the process plundered their children’s future."

[Toddsterpatriot]

Oh, yes there is... when there are more than the two listed variables displayed.

Example: Chinese market intervention annually to prop up their peg: $195 billion.

Oh, I get it now. A $700 billion dollar trade deficit would make the dollar sink, but the Chinese purchase of $195 billion made it go up instead. Thanks for clearing that up. LOL!

[Toddsterpatriot]

Because it was never "no" correlation.

Please, spell it out. What is the correlation that you see?

I believe it in fact tracks pretty closely when smoothed from 2000 to 2006.

Please explain this smoothing you're doing and how it shows that a bigger deficit equals a weaker dollar.

[jpsb]

My dollars are buying less, alot less so I do not believe the dollar is not falling.

[Paul Ross]

LOL!

Good to see you can still laugh at yourself!

I know you aren't denying that China does do market intervention as against the U.S. Dollar...right?

You also wouldn't claim that their manipulatory actions are driven by other than their government actions? I.e., as joe has tried to claim...via their own supposedly-burgeoning private sector?

Note how that is belied just this month with the Reuters report:

REUTERS China not seeking to expand FX reserves -c.bank [FYDGTFN]

BEIJING, April 5 (Reuters) - China is not deliberately pursuing expansion of its foreign exchange reserves or any particular level of reserves, a vice head of the central bank said in comments published on Wednesday.

The official Xinhua news agency cited Wu Xiaoling, vice chief of the People's Bank of China, as saying that an excessive trade surplus, the source of much of China's reserves, was not desirable and needed to be addressed through policies.

Officials have previously disavowed any desire for larger reserves or an enormous trade surplus.

The central bank was looking to increase access for individuals and corporations to the foreign exchange trade to make it less dominated by the government, she said, offering no details on how that would be done.

Premier Wen Jiabao confirmed on Monday that China's forex reserves at the end of February totalled $853.6 billion, exceeding Japan's for the first time, which stood at $850.1 billion at the end of February. www.reuters.com

[Toddsterpatriot]

LOL!

Good to see you can still laugh at yourself!

Good to see you still can't read. I'm laughing at you.

I know you aren't denying that China does do market intervention as against the U.S. Dollar...right?

I've never denied that the Chinese trade currencies to keep their exports cheap.

[1rudeboy]

My dollars are buying less, alot less so I do not believe the dollar is not falling.

Without a reference point, your comment is meaningless.

[Paul Ross]

Good to see you still can't read. I'm laughing at you.

I gave you the benefit of the doubt, silly. I imputed to you the virtue of some humility. Silly me!

If you want to bray like a hyena claiming I'm wrong... well you just go and knock yourself out.

[Toddsterpatriot]

If you want to bray like a hyena claiming I'm wrong... well you just go and knock yourself out.

I have no need to bray. You point to this:

Additionally, two papers published last spring pointed out the lack of a historical relationship between currency values and trade deficits.[2] Indeed, despite the widening trade gap, the dollar gained value against other currencies.

and you say, "Note that if smoothed out it does show an interesting historical tracking of the two..." LOL (Me laughing at you)!!

[Paul Ross]

pointed out

You mean "Claimed".

And the conclusion of the dollar improving was against precisely which "other currencies"?

So the charts which I showed, corrected for volatile EU prices. And the CRB Charts of commodities prices confirmed the decline in real value of the dollar. So, are you still denying the reality?

[jpsb]

Reference point, hmmm, electric bill, gas bill, food bill, property tax bill, insurance bill, phone bill, etc, etc, etc all going up up up (fast) ergo dollar going down down down.

[Toddsterpatriot]

You mean "Claimed".

I don't mean anything, that was from the article.

And the conclusion of the dollar improving was against precisely which "other currencies"?

That would be a trade weighted exchange rate provided by the U.S. Department of Commerce

So the charts which I showed, corrected for volatile EU prices.

So your charts show that if you correct for the Euro (how exactly would one correct for the Euro?) that a higher trade deficit really does lead to a weaker dollar? And I almost hate to break it to you, but that US Dollar Index chart you posted, looks like the same chart in the article. You know, the one that showed a lack of a relationship?

And the CRB Charts of commodities prices confirmed the decline in real value of the dollar.

The rising price of commodities does not prove that the dollar is getting weaker versus other currencies.

So, are you still denying the reality?

Still waiting for you to find reality.

[Toddsterpatriot]

phone bill

My phone bill went down down down. Does that mean my dollar went up while your dollar went down? My dollars are American, where do yours come from?

[Paul Ross]

And I almost hate to break it to you, but that US Dollar Index chart you posted, looks like the same chart in the article. You know, the one that showed a lack of a relationship?

Hate to break it to you, but you're going down, down, down, Todd. You torpedo yourself. It confirms the dollar decline.

The rising price of commodities does not prove that the dollar is getting weaker versus other currencies

Just against real-world prices of things.

[Toddsterpatriot]

It confirms the dollar decline.

Paul, the trade deficit hit a record level and your chart shows the dollar got stronger last year. Is that the correlation you were talking about?

Just against real-world prices of things.

Yes Paul, rising prices means prices are rising. Rising prices does not mean our currency is weakening.

[Paul Ross]

Paul, the trade deficit hit a record level and your chart shows the dollar got stronger last year. Is that the correlation you were talking about?

No, it didn't "get stronger." Look where it started from. T'sk. T'sk. An uptick is NOT 'getting stronger.' Its a puny little blip...caused by any number of things as alluded to. But the overall trend is down, down, down.

Yes Paul, rising prices means prices are rising. Rising prices does not mean our currency is weakening.

Or then again, maybe it does.

[Toddsterpatriot]

No, it didn't "get stronger." Look where it started from.

Right, when a currency goes up that's not getting stronger. LOL!

An uptick is NOT 'getting stronger.'

How can the dollar have an uptick? You said that a bigger trade deficit would make the dollar go down.

[Paul Ross]

How can the dollar have an uptick?

ever heard of statistics?

It's called variance:

And Standard Deviation:

Or...

[Toddsterpatriot]

ever heard of statistics?

Ever hear of subtraction?

BAC closed yesterday at $46.05 per share. It closed today at $46.28. Now if I subtract yesterdays close from todays close, it looks like BAC went up 23 cents per share. I'm going to go out on a limb and say that BAC is stronger today than it was yesterday.

Feel free to use statistics to prove that BAC is really weaker today than it was yesterday. Don't forget to show all your work. Thanks.