You still don't know how pegging is done. Its not because its way it is the way it is. The US doesn't control these currencies. How these currencies peg themselves to the dollar is much like the way a driver in the car controls his gas pedal while following the dollar car. He matches the printing volume and the interest rates of the currency he follows, but if the car goes into a territory no one dares, they may decide to get off the pedal. The pegging is an action of currency manipulation by the central bank of that country using these two mechanics.
Chinese Economics Thread
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You still don't know how pegging is done. Its not because its way it is the way it is. The US doesn't control these currencies. How these currencies peg themselves to the dollar is much like the way a driver in the car controls his gas pedal while following the dollar car. He matches the printing volume and the interest rates of the currency he follows, but if the car goes into a territory no one dares, they may decide to get off the pedal. The pegging is an action of currency manipulation by the central bank of that country using these two mechanics.
Funny things happen to currency pegs during an economic crisis.
But the currency peg is irrelevant to the original point, which is whether Saudi Arabia is accepting RMB for its oil sales to China.
Sure, OPEC requires countries to use the USD.
But OPEC countries regularly ignore the rules and the agreed production quotas anyway.
This would mean, USD has been inflated so much, and there is now a necessity to have a new stable fiat currency to which we anchor as reserve currency. The value of USd has fallen so much. 3000 to 4000 usd per oz gold i think is still manageable 10000 usd per ounce scenario will be a total chaos, the rich will hide in their bunkers with gold and hoard food. The rest of us will probably in riot mode. It will be probably the end of USD.
We just pray the covid vaccine will work, otherwise governments will print more money, without any output accelerating more the inflation.
We just pray the covid vaccine will work, otherwise governments will print more money, without any output accelerating more the inflation.
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SamuraiBlue
Captain
You do not understand what I have just stated.
The government requires to trade a certain amount of the standard commodity item in exchange for a certain amount of currency.
That means the government cannot issue total amount of currency that exceeds the amount of commodity reserve unless it devalues the currency against the commodity resulting to constant currency manipulation by the government. On the other hand, all governments wants an evergrowing economy not tied directly to their commodity reserve so they will want to issue more to expand the economy.
Other nations will at that point will evaluate the words of that government and not the currency. That in essence is fiat currency.
Also OPEC has become less OPEC. Because Russia has broken that monopoly and ironically, the US itself with its shale oil industry. Suddenly OPEC has to compete with the US, and when the US becomes the competitor, things will change. Iran and Venenzuela also spoils the OPEC party, hence the real reason why the US sanctions them.
But as oil becomes less valuable and it becomes the buyer's market, things are going to happen. The problem of Saudi Arabia, like Russia, is unequal income distribution, and without this money flowing in, political stability can be threatened without the supply of basic goods that the population needs to live on.
And here is the problem of the US shale oil industry. It costs so much to take the oil out of shale that you cannot do it without a high capital investment. This means big bank loans. The massive QE printing done during the Obama administration helped financed the US shale oil industry and made it possible. However, this means this is an industry that is high in debt. They need to sell their oil to pay the banks, while the banks cannot afford the bankruptcy of these companies, as it will rattle the entire finance industry.
That is when in April 2020, Russia and the Saudis went for the kill by dumping the prices of oil in the market to the negative. That went like a nuke in the US shale oil industry that has already been hurt because of the US-China trade war when their biggest customer, China, stopped buying from them. Now these companies can't pay the banks and started going bankrupt one after another. You don't want to be in the shoes of these banks holding their loans.
China, in the meantime, scooped up the oil that the oil producers were even paying the customers to take them. Even now, tanker after tanker stay outside of Chinese ports because of the overabundance and the lack of inland facilities to store the oil. We don't expect China to be buying a lot more oil soon and that will keep the global demand low.
The effects on inflation are more nuanced.
For necessities, prices have gone up because of the demand/supply imbalance. But there's only so much you can consume in terms of food and daily living requirements.
But for luxuries, prices have decreased because wages, confidence (and overall demand) has collapsed.
So the overall effect will likely be deflationary.
Look at the Japanese example over the past decades.
The Japanese government printed so much money. But no matter how hard the government tried to create more inflation, they failed.
You don't understand. They already did printed more than a certain amount and exceeded the total amount of currency by far in exchange for the commodity reserve in the market that has dwindled. Even the freaking meat packing plants can't process the meat because of covid so that is a good example of reduced productivity and supply that causes meat prices to go up, which is inflation.
Fiat currency only seems to work when you have a stable government at the helm. Things go to hell when you don't have a stable and rational government and when you are facing an external crisis.
Fiat currencies work when there is a proportion to the extra money being printed and to the rise of the productivity within that country. The problem is growing that productivity, and when that productivity isn't maintained, you will get higher inflation.
The US managed to do World War 2 with its economy intact and greatly growing despite being in the gold standard and that's already after coming out of the Great Depression, so I am not exactly sure why a gold standard doesn't work.
Doesn’t really matter, Taiwan’s economy does not have much value any ways. Once China can make there own tech without Taiwan (and that time is fast approaching), then should Taiwan complete decouple from China, Taiwan will end up as an unlivable hellhole. Plus in a few months, there great benefactor will go bankrupt anyway hence given Taiwan’s lack of leadership and horrible future planning will ensure that Taiwan would end up joining a sinking ship anyway with no way out.
Lol, retaliate to what? Taiwan economy is irrelevant in the context. Any country can "threat" those action, even Uganda.
There is already friction between American corporate giants & their government. Corporate are like hungry piranhas. They go where profit is. I would say china shouldn't do anything & let the friction grow even more. Those corporates will eat their elected govt if their profit margin is hurt.