Yuan could sink, not soar, economist says - Surprise For U.S.?

The Financial Post ^ | January 29, 2009 | Alia McMullen

[frithguild]

China's yuan could depreciate sharply if the government were to remove capital controls and the managed exchange rate, resulting in quite the opposite effect to what U. S. lawmakers have advocated, an economist said yesterday.

Charles Dumas, a director at Lombard Street Research in London said China's capital flows have turned negative as a result of a collapse in its foreign trade in autumn and a removal of capital controls amid current economic conditions would exacerbate the situation by encouraging a large outflow of money from the country. He said this would devalue the Chinese yuan, which is also known as the renminbi.

***

Daniel Ikenson, associate director at the Cato Institute's Center for Trade Policy Studies, said many economists have long considered the Chinese yuan to be undervalued, but there was a lack of consensus on just how much, given that the yuan has appreciated by 20% against the U. S. dollar since July, 2005. However, not all agree.

"China's manipulation is not just a matter of stabilizing the yuan against the dollar," Mr. Dumas said. "China also has comprehensive capital controls that confine its huge savings within its domestic financial markets. Full abandonment of manipulation would mean scrapping these controls, at which point the cumulative savings of 1.3 billion excess savers would become potential capital exports."

***

"Capital is rightly fleeing China. With a free-floating yuan and freedom of capital movements, the outflow would probably become a flood, and U. S. industry would face reinforced competition from a much devalued yuan," Mr. Dumas said.

***

[frithguild]

Strange new world indeed.

[Bon mots]

When all currencies are fiat currencies they will all sink together.

[frithguild]

ping

[2banana]

I dunno, I would place my bets on an economy (China) that actually makes things, has weak unions, that has its citizens save money (and not in debt), has a positive balance of trade and does not chase away business at every government decision...

[farlander]

Ok that makes ABSOLUTELY ZERO SENSE.

Exchange rates are rates of comparable value.

[Bon mots]

That was a bit quick... in essence, there are no safe-haven currencies in the current world economy. All of the major currencies are fiat currencies and they are all facing the same issues that the dollar is facing. I was not implying that they would move in lock-step, as we are actually seeing the dollar exhibit strength against some foreign currencies at the moment. If Obama hyperinflates more than the Germans do, than there will be a corresponding difference, but in the short run - there has still not been a crash in the dollar. There are no currencies in circulation in major countries backed by gold. The only thing holding those currencies up is their governments' restraint on the printing of money. None of them are in much better shape than the US, so I am expecting a lot of these countries to try similar 'stimulus' pork programs.

[Leisler]

My paper is prettier than your paper.

On the other hand, your paper burns better.

On the other hand, mine makes better toilet paper.

(I suppose we shouldn’t talk about pieces of paper like that, on account of how strong the superstitious hold certain paper have on our ‘modern’ minds.)

[Leisler]

My paper is prettier than your paper.

On the other hand, your paper burns better.

On the other hand, mine makes better toilet paper.

(I suppose we shouldn’t talk about pieces of paper like that, on account of how strong the superstitious hold certain paper have on our ‘modern’ minds.)

[Bon mots]

Sorry, with paragraphs. :)

That was a bit quick...

In essence, there are no safe-haven currencies in the current world economy. All of the major currencies are fiat currencies and they are all facing the same issues that the dollar is facing.

I was not implying that they would move in lock-step, as we are actually seeing the dollar exhibit strength against some foreign currencies at the moment.

If Obama hyperinflates more than the Germans do, than there will be a corresponding difference, but in the short run - there has still not been a crash in the dollar.

There are no currencies in circulation in major countries backed by gold. The only thing holding those currencies up is their governments' restraint on the printing of money.

None of them are in much better shape than the US, so I am expecting a lot of these countries to try similar 'stimulus' pork programs.

[UCFRoadWarrior]

God...the Free Trader America-Hater Globalists have absolutely gone mad.

Your post was nothing more than a lovefest for Communism. I am sure Chairman Mao would have let you live.

Communist China makes things...has weak unions, and they save money....so did the USSR...and also Cuba.

The sad part is that Free Trader-America Haters love redsitributing our wealth to Communist China thru Free Trade...we have trillions in trade deficits with them.

As for the ChiComs....their economy is collapsing. America cannot buy their crap anymore...and their domestic consumption is non-existent for a nation of 1.3 billion.

China will have a major problem in about 10 years or so....their population control program (how Christian of them) is going to find them with fewer workers...and their inflation rate and employee pay will rise....if the latter doesnt rise their will be a lot of dead ChiComs

[rabscuttle385]

*Ping*!

[rabscuttle385]

The Money, Banking, and Financial Markets Ping List. "Money, not morality, is the principle commerce of civilized nations." —Thomas Jefferson FR Keywords: moneylist, bankinglist, financelist Please tag all relevant threads with the aforementioned keywords. This can be a very high-volume ping list at times. Ping list jointly pinged by rabscuttle385 and TigerLikesRooster. To join the ping list: FReepmail rabscuttle385 with the subject line add  moneylist. (Stop getting pings by sending the subject line drop moneylist.)

[arthurus]

Right. Fiat currencies cannot all go one direction measured against each other. They can, however, all sink when measured against the only true measure of economic value, gold, when they are all being inflated by their governments.

[familyop]

Years before fall, 2007: Freight fuel (oil) prices rise, consumer base enlarges in China, demand there causing prices for Chinese products to rise. US administrations of manufacturing plants in China begin to worry.

Fall, 2007: Sponsored media in USA issues flood of opinions thinly disguised as news and harping that oil would fall immediately and steeply. [See those who need cheap overseas and domestic freight fuel.]

December 1, 2007: Apparent agreements to stop taking any new hires in USA and begin layoffs in order to bring freight fuel prices down.

2008: US unemployment starts getting out of hand, nearly destroying US demand for foreign products. Oil prices plunge. Sponsored exaggerated reports of Chinese economy crashing are disseminated. Scheme to build and sell large houses in USA to support enormous trade deficits is stretched by way of nearly $600 trillion in derivatives without assets worldwide.

2009: US unemployment high, US consumer base essentially destroyed. Oil can't go below $35 without angering Saudis to join jihad. False reports of Chinese economic crash continue, while China plans for supply-demand paradigm with consumer base continue. US "stimulus" package (next Ponzi/debt scheme) built to enormous proportions, with Republicans adding monstrous tax credits for new house buyers. Sponsored reports about yuan falling if floated are disseminated in anticipation of free trader feeding frenzy fantasy.

Club of Rome, Club for Growth and other CFR constituents cheer about possibility of getting rid of American neighbors perceived to be inferior.

US conservatives make last preparations for big surprise: their survival beyond expectations.

[farlander]

Really. And why is gold a true measure of economic value ? Why not dirt ? Or wood ? Or paper made from wood with some ink printed on it ? See my point ?

[BooBoo1000]

Because (1) there is a limited amount of Gold in Circulation, (2) Gold is almost indestructible, ( 3) easy to transport. as compared to paper money. Money printed on cellulose has no value, except what the current band of politicians say it is worth. The terms they use “ The Dollar is backed by the full faith and credit of the United States” for what that is worth.

[familyop]

UCFRoadWarrior: I took 2banana’s comment #4 to mean that China is doing the wise things (saving, producing) that we should be doing, and I agree. The commie “lovefest” is in the free traitor piece posted above this thread, IMO.

Eventually, the US dollar will fall, and oil will go up again.

[adorno]

iWhen all currencies are fiat currencies they will all sink together.

Were that to be the case, then all would be proportionately equal. If all currencies devalue by 50%, then there would be no real danger to any one currency.

So, where is the sense in what you're saying?

[familyop]

"Were that to be the case, then all would be proportionately equal. If all currencies devalue by 50%, then there would be no real danger to any one currency."

Each of the currencies might be equal to the others in that scenario (all falling), but first, domestic deflation, then domestic inflation, would eventually happen in each of those countries.

...see?

[familyop]

Oh...and with the inflation resulting from the various monstrous debt schemes for reversing the deflation and continuing the insane and failed hyper-globalism.