Currency News

China and Russia quit the dollar for trade with each other

Do they know something we don’t?

The Misguided Ireland Bailout

This makes a good case that Ireland doesn’t need a bailout and would do better to quit the Euro now.

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About Polymath

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13 Responses to Currency News

  1. RebelliousVanilla says:

    Not really, since anybody with two living braincells knows that the dollar is finished.

  2. So what’s propping the dollar up then?

    How long before people look down and realize that we’re past the end of the cliff?

  3. RebelliousVanilla says:

    The Asians refusing to face the reality that they basically gave away trillions to America. lol

  4. FortitudineVincimus says:

    This is true.

    Running a permanent trade deficit essentially means selling your goods cheaper than they’re really worth. I imagine the reason Chinese has experienced such massive growth the past decades is not so much strong exports as a high savings rate, which have made exports possible as these savings have been used to buy US assets.

  5. FortitudineVincimus says:

    In other words, the trade deficit is a bad for China as it is for the US.

    From a political-strategic point-of-view, however, China, with a larger manufacturing base, shipyards, and industry, and catching up technologically, they are better positioned to overwhelm the US.

  6. RebelliousVanilla says:

    FV, the Chinese would be as well off as they are now if they dumped all the goods that they make in the ocean instead of taking them to America – those that the US doesn’t pay with exports. Since it’s pointless to get a currency that you can’t spend without it collapsing.

    And real economic growth is increasing your productive capacity. China would actually be a lot richer if they consumer their own goods that others can’t pay for. They need a recession in order to retool to meet Chinese demands instead of American ones.

  7. FortitudineVincimus says:

    They need to float their currency.

    Most estimates indicate the value of their currency would rise by some 20%.

    In spite of this, Chinese goods will still be far more competitive, even more so than other, poorer Asian countries, because Chinese workers probably are more efficiency per dollar input.

    The increased prices will stimulate Chinese demand for foreign goods, but Chinese are restrictive on imports. From what I understand, the effect on the Chinese imports of US goods will be quite small.

    Another major concern is how wages in the West have been outpacing productivity. In Denmark, that is a major concern. Germany has managed to keep wage levels down, which is why they’re coming out of this crisis stronger than before.

  8. RebelliousVanilla says:

    FV, go up by 20% against what? The dollar? If they float their currency(which means stop lending money to Americans), the yuan would go up a few times against the dollar. And why would the Chinese buy American products? Americans don’t want American products themselves. lol

    And yes, they need to float their currency and let America collapse. When that will happen, things will become more affordable for everyone else.

  9. FortitudineVincimus says:

    Nahhh. Even if they floated the currency, they’d still be unable to realize their foreign currency reserves.

    Yes, I meant 20% against the dollar. It could be more, but the main thing is, if China floated their currency, commodity prices would soar. This would be good for America, Africa and other countries that export raw materials. Gas prices would also soar – that would suck for whoever’s President at the time.

    For China, it could mean that massive asset bubbles in their economy start to burst, as current asset prices (such as housing) reflect expectations of massive growth rates for years to come.

    For the US, it would mean more bitching, even as we still are the world’s most prosperous nation (after Switzerland and Luxembourg, I believe).

  10. FortitudineVincimus says:

    The US won’t collapse either. Demand/supply shocks yes, but once we’ve gotten rid of Obama, it will become more resilient as expectations towards a brighter future foster trust (and thus facilitate more “risk-taking” and productivity).

  11. FortitudineVincimus says:

    http://www.cato.org/pub_display.php?pub_id=11614

    This article describes some of the reservations one might have.

  12. RebelliousVanilla says:

    FV, the yuan would appreciate a few times fold against the dollar because that would mean that the Chinese would dump their US debt holdings on the market, which would prompt other creditors to do the same thing. So the USD would sink. Against other currencies, it wouldn’t appreciate as much though.

    And commodity prices would soar in terms of American dollars, not in terms of yuans. Actually, the yuan appreciating would make commodities CHEAPER for China. And I don’t consider living beyond your means as prosperity – anybody who does this will be forced to live beneath his means. And the means of the US are fairly modest to begin with. All the wealth Americans have is based on foreigners willing to give goods for free to Americans and lend money to America(since the domestic savings rate is negative).

    The US economy is 80% consumer driven. The Chinese not willing to give goods for nothing to Americans(since yes, USDs are worthless) will create a severe recession and massive unemployment(all the people in worthless service sector jobs would lose their jobs). The biggest bubble of all are in USD denominated debt and the USD itself. Oh, and the USD being destroyed is a certainty. Right now, a 1% interest hike would cause the payments on the national debt to go up by 100 billion an year. And most of the average maturity on the debt is around 2 years.

    Polymath, what did Gorb say about what I wrote for him? And what did you do related to the financial stuff we talked about?

  13. This video is an interesting speculation on how things might finally go down:

    The Day the Dollar Died

    RV, check your “About” page comments.

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