Posted on 03/15/2009 7:39:49 PM PDT by 4rcane
http://www.marketskeptics.com/2009/01/hyperinflation-will-begin-in-china-and.html
The conventional wisdom on China is dead wrong. Specifically, there is a widespread belief, as expressed by Goldman Sachs, that "China will keep the yuan trading within a narrow range in 2009 due concerns about exporters." Worse still, others are even predicting that China will devalue its currency! The sheer wishful thinking is astounding! The idea that "China will keep the dollar peg to help its exporters" ranks all the way up there with "Housing prices always go up" and "You can spend your way to prosperity".
Cheers!
Having said all of that - could you explain please the inflation in China (yuan dropping in its purchase power) as the cause of dollar collapse. I don't think the there is any link here, to say the least...
Walmart will be the barometer of things to come.
If prices start to rise there, look out.
Their argument is that inflation would force the Chinese government to stop printing yuan, which would kill the dollar peg and allow the yuan to rise dramatically against the dollar.
I’m not convinced this would be disasterous for us. It would mean cheap goods from China weren’t so cheap, but it would significantly reduce our trade deficit. Right now we’re enjoying artificially cheap imports from China, but in the end these things tend to balance out.
I loved this line:
“5) Dropping the dollar peg will make the yuan a major reserve currency. That means lower interests rates in China as foreign central banks build up yuan reserves.”
I mean who wouldn’t want to hold the notes backed by full faith and credit of a repressive fascist regime.
In the meantime banks printed their own bank notes.
Doesn't China own a boatload of our debt, in dollars? Hyperinflation of the dollar would make those bonds worthless, wouldn't it?
Interesting take, but I don’t buy it. For his scenario to affect the US, as the price of Chinese goods increased, US demand for them would have to remain the same.
It wouldn’t.
The Chinese are not going to revalue the yuan upward when their exports are dropping at 25% annual rates, also needless to say. It is a deflation and not an inflation. Naive quantity theorists can't grok, because more of any currency in existence, to them, always means each piece of currency "just is" worth less. What the demand for that currency is, what assets back it, what claims or ownership it can be traded for - they just pretend all those things are some absolute constant. Which, needless to say, they aren't.
At bottom, a naive quantity theorist is someone who believes the amount of money in the world simple "should" remain completely constant, and also think that if they did then their "real" value would also remain constant. Since total wealth, of mankind as a whole and of individual countries or other economic groups, does not remain constant, nor does the portion of that wealth held as money or near money remain constant, nor does demand for money as against other forms of wealth, this isn't remotely correct. But that is all too complicated, to them. If the denominator increases, the numerator must decrease, because they systematically ignore every other factor affecting said numerator.
I’m not sure it would end up even, but there some negative feedback factors which is why I’m not particularly worried.
It would be nice to have a manufacturing revival in the US.
Hyperinflation wouldn’t mean we would default on our debt, but the dollars we pay to service the bonds just wouldn’t be worth as much.
NM, I missed the word “effectively.” I think we’ll see much higher inflation than we’ve seen in the past couple decades, but I don’t really forsee hyperinflation here. Obviously it will still hurt the Chinese though.
The decline of the dollar would raise the prices on our imports, including oil, which in turn would raise the costs of goods and services to the consumer and more than likely decrease our standard of living.
For low margin items, we would probably turn to Mexico, Korea, or Japan before that manufacturing would return here.
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