Posted on 08/07/2007 10:52:02 AM PDT by blam
If you are already a few trillion in debt....You lose.
NFP
You forgot the other side of the coin to devaluation: inflation.
Ping.
“Uh no... If the yuan floats and appreciates by 50%, then China’s GDP just doubled.”
No, it means they have a tailspin of inflation.
Leave me out of this!
In the 1930's, the Germans best trading partner was ... France
I think China won't do what it's threatening. Because it will lead to massive trade sanctions against China, and the inception of a military and economic Cold War against it.
It's historical GDP just doubled (in dollar terms), but its future GDP would collapse. Americans buy Chinese goods not because they're high quality or because they like the Chinese - they buy them because they're cheap. That reason goes away if the dollar collapses. In fact, a dollar collapse means US goods become more competitive against goods from all its major trading partners. The point being that Chinese dollar sales would simply be soaked up by the central banks of countries trying to maintain their currencies' competitiveness. The Chinese think they're the 800 lb gorilla of the world. Actually, they're still in the bottom half - prosperity-wise - of the nations of the world. They're just drunk on the high growth rates you get when you're a poor country. Kind of a like a panhandler getting his first minimum wage job.
Could someone please explain where I am wrong on this but does not devaluation normally follow inflation. Most recessions I believe have a short period of minor deflation, and most prosperity bubbles are accompanied by inflation (hyperinflation is just a symptom of otherwise very poorly functioning economies).
Thus a Chinese dumping of dollar holdings would just eliminate much of the Chinese liquid asset holdings, cause dislocations in the rest of the worlds economies and a depression in China.
China’s vast reserves of dollars are not concentrated in the hands of the central goverment.
Gettting all the “10,000 princes” of the Chinese communist party — who hold those dollars — to act in unison on anything would require an act of God.
Is that the answer to my #22 ??
Most of the FReeper finance types will giggle at the following but it's a start - the Chinese have bought certificates from the U.S. government that we will have to redeem at some point. We use the money they give us for other purposes. When the time comes we have to repay (or refinance).
The trick is that the exchange rate of the dollar against other currencies with which we will have to deal depends on the strength of these certificates. Should the Chinese sell them to someone else at less than their current value, we still have to redeem the face amount when the time comes, but in the meantime the dollar changes with respect to the other currencies as a result of the sale.
But the Chinese also deal in U.S. dollars in other ways, notably in selling us manufactured goods. Should the dollar fall those goods will will cost us "more" dollars and we will purchase fewer goods, or the Chinese will have to lower their prices in dollars and take the loss with respect to the other currencies.
Basically a strong dollar means we can afford to do more business with their manufacturers and a weak dollar means we can afford to do less. They can only afford to force the dollar down if they are willing to face reduced sales to the U.S., perhaps making them up with other customers, more likely simply taking the loss, or rather their manufacturers do, which at the moment is a class of folks intimately tied to the Chinese government. It wouldn't be a popular decision and might start at least a recession in their country.
Of course that would hurt our economy as well. More than theirs? Well, that's the sticky point.
Now, would somebody PLEASE come along and say "BtD, yer fulla crap, here's how it really works..." I'm obviously not an economist. ;-)
But what happens when you know what hits He Fan?
...or, we (if our elected officials had any ba!!s), could just declare to the Chinese that we are officially repudiating all of the debt they hold in the form of US T-Bills.
Then, the Chinese have one of two options: (a) they can shred all of those T-bill notes into confetti for use during the Olympic Games, or, (b) use them to make paper machete boats to float their army across the Straight of Taiwan.
Of course, have the US Government repudiate a massive portion of the Federal debt might unfortunately collapse the world economy, but hey, it’s going to come crashing down sooner or later anyway.
If you owe the bank $100 they own you
If you owe the bank $1.33 trillion (£658bn) you own them.
I owe my mortgage company the equivalent of $100, therefore they own me. If I had managed to wheedle 1.33 TRILLION out of them I think they’d treat me just a bit better...
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