The yuan and the U.S. trade deficit
- Thread starter bulgogi
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RMB isn't undervalue. rather it is USD that is devaluing. it funny as hell when the US ask to european to attack China on currency issue at G20 and the european ended up talking about USD instead... i have never seen a government so unaware and ignorance over how the world actually see the issue.
the collapse of the USD value is a bigger problem than RMB since everyone use USD to some extend. and the concern everyone had is if China stop buying USD, will USD even be worth anything.
the collapse of the USD value is a bigger problem than RMB since everyone use USD to some extend. and the concern everyone had is if China stop buying USD, will USD even be worth anything.
American debt issues are extremely serious, with the American debt about to hit 15 trillion US dollars. That is why the US government is debasing or "Quantitative Easing" the US dollar. By causing inflation, long term established debts become cheaper to pay off. Also US exports become cheaper for foreign consumption, increasing net money flow into the US, and exporting to the US becomes more expensive for export nations. An example would be building a car plant in America proper, using American workers, American steel, etc, rather than exporting to the US as the US GDP investment would generate higher profits for the foreign company.
The Chinese currency is pegged to the US dollar. PRC officials decided to peg their currency to the dollar some time ago so that Chinese companies could continue to export to the US at a competitive rate, regardless of US inflation. The downside for China is that by being pegged to the US dollar, inflation pressures are transferred from the US economy into the Chinese economy. With China being one of America's top trading partners, most the heat from Quantitative Easing is being absorbed into the Chinese economy, not the American economy. Thus, at the moment, the US is stuck in economic limbo until the Chinese economy finally overheats from US currency debasement.
The great question is, how many more trillions of US currency debasement can China hope to absorb before the Chinese economy "over-heats"? In engineering terms, the US is using the all of China as kind of heat-sink, hoping that China will be forced to decouple their currency from the dollar as the US currency is determined to achieve a nuclear core meltdown. But if China does that, the price of Chinese exports to the US will go up, resulting in Chinese products being less competitive on the world market.
The US has been playing this capitalist economic game of chicken for decades. First German companies were forced to build plants in the US like Volkswagen and Siemens. Later on, Japan was forced to start building factories in the US to maintain their GNP at the expense of their GDP. And now we are witnessing China being subjected to the same pressure. American politicians are about to raise the US debt ceiling to well surpass the 15 trillion dollar mark. It is far easier for the US Fed to create money out of thin air than it would be for any nation to ever hope to absorb it.
The Chinese currency is pegged to the US dollar. PRC officials decided to peg their currency to the dollar some time ago so that Chinese companies could continue to export to the US at a competitive rate, regardless of US inflation. The downside for China is that by being pegged to the US dollar, inflation pressures are transferred from the US economy into the Chinese economy. With China being one of America's top trading partners, most the heat from Quantitative Easing is being absorbed into the Chinese economy, not the American economy. Thus, at the moment, the US is stuck in economic limbo until the Chinese economy finally overheats from US currency debasement.
The great question is, how many more trillions of US currency debasement can China hope to absorb before the Chinese economy "over-heats"? In engineering terms, the US is using the all of China as kind of heat-sink, hoping that China will be forced to decouple their currency from the dollar as the US currency is determined to achieve a nuclear core meltdown. But if China does that, the price of Chinese exports to the US will go up, resulting in Chinese products being less competitive on the world market.
The US has been playing this capitalist economic game of chicken for decades. First German companies were forced to build plants in the US like Volkswagen and Siemens. Later on, Japan was forced to start building factories in the US to maintain their GNP at the expense of their GDP. And now we are witnessing China being subjected to the same pressure. American politicians are about to raise the US debt ceiling to well surpass the 15 trillion dollar mark. It is far easier for the US Fed to create money out of thin air than it would be for any nation to ever hope to absorb it.
btw, this is not true at all. China did not peg its currency to US to help its export. It pegged its currency to US for currency stability. Back in the 90s when USD was really strong, it actually hurt its competitiveness against other Asian currencies that devalued their currencies by 50% against USD during the Asian crisis of the late 90s. Unfortunately, USD right now has serious structural issues, so it has worked out that USD weakness leads to greater Chinese export. But the original idea was that China wanted for its currency to be tied to a currency it viewed as stable.
US is not doing QE to blow up the market. It is doing it to try to stimulate the economy and also artificially suppress interest rate to keep its long term borrowing cost down. I personally think what they are doing right now is extremely stupid and unhelpful for US economy, but they are doing what they think will help the their economy. US needs to worry about its own economy ahead of all else. If China does not want to be part of US currency meltdown, then it needs to let its currency float. If China does not like the Fed creating money out of the thin air, then it can lets own currency float and stop buying treasury bond.
As for the competitiveness of Chinese products, I think that's overstated. If US really indeed is dropping against all world currency, then China's competitors would also face appreciation against USD. And even if RMB rises against all currency, it can still achieve enough productiveness improvement to make up for that. I can spend more time talking about this, but I don't think people are aware of how some Chinese enterprises can easily become far more efficient.
What China needs to worry about is improving the quality of its product, not just its price.
Economists differ as much as politicians. As some politicians would argue that their party is the correct one, economists do likewise. We may agree to disagree on many material points. But as I have noted before, this is a game that the US has been playing far longer than China has, not that I necessarily agree with either US or PRC policy.
Many of the world's leading hedge fund managers are starting to bet upon Chinese economic bubble burst, not that I believe it as truth. Below is a fairly neutral Middle Eastern view of China's predicament.
[video=youtube;0h7V3Twb-Qk]http://www.youtube.com/watch?v=0h7V3Twb-Qk&feature=fvw[/video]
Many of the world's leading hedge fund managers are starting to bet upon Chinese economic bubble burst, not that I believe it as truth. Below is a fairly neutral Middle Eastern view of China's predicament.
[video=youtube;0h7V3Twb-Qk]http://www.youtube.com/watch?v=0h7V3Twb-Qk&feature=fvw[/video]
They are betting on the wrong bubble. Right now Chinese policies are far more aggressive and meaningful while the US is continuing its unsustainable path.
US Banks Reporting Phantom Income on $1.4 Trillion Delinquent Mortgages
Jan. 12 2011 - 8:36 am | 15,880 views | 0 recommendations | 43 comments
By ROBERT LENZNER
The giant US banks have been bailed out again from huge potential writeoffs by loosey-goosey accounting accepted by the accounting profession and the regulators.
They are allowed to accrue interest on non-performing mortgages ” until the actual foreclosure takes place, which on average takes about 16 months.
All the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a resullt, many bank financial statements actually look much better than they actually are. At foreclosure all the phantom income comes off gthe books of the banks.
This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed.
Ultimately, these banks face a potential loss of $1 trillion on nonperforming loans, suggests Madeleine Schnapp, director of macro-economic research at Trim-Tabs, an economic consulting firm 24.5% owned by Goldman Sachs.
The potential writeoffs could be even larger should home prices continue to weaken, placing more homes in the nomnperforming category on bank balance sheets.
About 6 million homes are still at risk, according to Schnapp, and at least 10% of them are 25% underwater, meaning their market value is 25% less than the mortgage– but the owners are still paying interest to their banks
US Banks Reporting Phantom Income on $1.4 Trillion Delinquent Mortgages
Jan. 12 2011 - 8:36 am | 15,880 views | 0 recommendations | 43 comments
By ROBERT LENZNER
The giant US banks have been bailed out again from huge potential writeoffs by loosey-goosey accounting accepted by the accounting profession and the regulators.
They are allowed to accrue interest on non-performing mortgages ” until the actual foreclosure takes place, which on average takes about 16 months.
All the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a resullt, many bank financial statements actually look much better than they actually are. At foreclosure all the phantom income comes off gthe books of the banks.
This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed.
Ultimately, these banks face a potential loss of $1 trillion on nonperforming loans, suggests Madeleine Schnapp, director of macro-economic research at Trim-Tabs, an economic consulting firm 24.5% owned by Goldman Sachs.
The potential writeoffs could be even larger should home prices continue to weaken, placing more homes in the nomnperforming category on bank balance sheets.
About 6 million homes are still at risk, according to Schnapp, and at least 10% of them are 25% underwater, meaning their market value is 25% less than the mortgage– but the owners are still paying interest to their banks
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Oh, there is no question the US financial markets in respect to property will continue to pay dearly for decades for creating a property bubble in the US.
And, in all fairness, just because a number of foreign hedge funds are now betting on a PRC property bubble, does not necessarily mean it is so. It is just by looking at some key property data in regards to China that one may reasonable assume "some" individuals in the PRC are making a very common capitalist mistake that is usually repeated with almost every new generation in countries almost everywhere.
The big Chinese cities of Beijing, Shanghai, etc, account for over 80% of the value of property in all of China. Last year alone, these properties increased in value by approximately 66%. Yet the PRC does not allow these figures into the PRC's annual rate of inflation calculation. The vast majority of these properties are bought by financial speculators as a financial vehicle. By definition, this is called a property bubble.
Furthermore, and much more worrying, is that there seems to be little control of credit in China, extremely large loans are being given out to individuals that have no credit history, have poor credit, or bad credit. This is the case because a review of credit history is not required for a loan in China! Now things in China, property wise, are starting to sound a lot like the conditions leading up to the US property crisis.
I'm not saying I believe this, I'm just giving the reasons why extremely large multinational organizations are starting to bet with very large sums of capital on a PRC property melt down. Oh, the PRC will no doubt do what the US did. Pump large amounts of cash in an attempt to blunt the damage, but time will tell.
And, in all fairness, just because a number of foreign hedge funds are now betting on a PRC property bubble, does not necessarily mean it is so. It is just by looking at some key property data in regards to China that one may reasonable assume "some" individuals in the PRC are making a very common capitalist mistake that is usually repeated with almost every new generation in countries almost everywhere.
The big Chinese cities of Beijing, Shanghai, etc, account for over 80% of the value of property in all of China. Last year alone, these properties increased in value by approximately 66%. Yet the PRC does not allow these figures into the PRC's annual rate of inflation calculation. The vast majority of these properties are bought by financial speculators as a financial vehicle. By definition, this is called a property bubble.
Furthermore, and much more worrying, is that there seems to be little control of credit in China, extremely large loans are being given out to individuals that have no credit history, have poor credit, or bad credit. This is the case because a review of credit history is not required for a loan in China! Now things in China, property wise, are starting to sound a lot like the conditions leading up to the US property crisis.
I'm not saying I believe this, I'm just giving the reasons why extremely large multinational organizations are starting to bet with very large sums of capital on a PRC property melt down. Oh, the PRC will no doubt do what the US did. Pump large amounts of cash in an attempt to blunt the damage, but time will tell.
I don't really think housing prices should be put in the same categories as other inflation criteria.
What you have going in America is that everything you need like food, gas, electricity, furniture and such are going up because USD is tanking like crazy. And then, you have stuff that you store your wealth in like your home, gov't/muni bonds, saving account and land go down in value because the economy is so bad. So even though inflation numbers are low, you get the worst of both world. Everything you need on a daily basis gets more expensive and everything you hold becomes less worthy.
What you have going in America is that everything you need like food, gas, electricity, furniture and such are going up because USD is tanking like crazy. And then, you have stuff that you store your wealth in like your home, gov't/muni bonds, saving account and land go down in value because the economy is so bad. So even though inflation numbers are low, you get the worst of both world. Everything you need on a daily basis gets more expensive and everything you hold becomes less worthy.
Do you have sources for these figures because that 66% is definitely wrong from what I have read and why would anyone include property prices in annual inflation?
Again do you have valid sources for this (not some youtube video)? Because that is not the case for mortgages.
Just wondering what are these extremely large multinational organizations and their very large sums of money?