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The main problem is a devalued currency stokes inflation, so consumer costs go up (so do producer costs, but that's offset by better export earnings). China is

The main problem is a devalued currency stokes inflation, so consumer costs go up (so do producer costs, but that's offset by better export earnings). China is in the middle of a shift from an export-driven economy to a consumption-driven economy, part of the normal development arc of major economies. But increasing export profits at the expense of households pushes that balance in the wrong direction. For more (much more!) detail on this, I highly suggest the blog 'China Financial Times' by Peking University professor Michael Pettis: mpettis.com. But generally, yes: the world has a savings glut, and devaluing your currency helps export your domestic weakness (some economists call devaluation 'exporting your unemployment'). China is in a rather unique situation though.

tosseraccount 11y ago
Devaluation causes inflation? Not necessarily: http://www.economicshelp.org/macroeconomics/macroessays/does-devaluation-cause-inflation/ http://www.economicshelp.org/macroeconomics/macroessays/does...
- rdlecler1 11y ago
  If China starts to devalue their currency, so will their Asian neighbors. They know that a race to the bottom isn't going to be the answer.
bcg1 11y ago
$57 trillion in world debt is something quite unlike a savings glut. And that is just public debt, and it is growing quickly. http://www.economist.com/content/global_debt_clock http://www.economist.com/content/global_debt_clock But in general I agree with your overall statement... everyone talks about China's "ghost cities" as if they are some sort of quixotic or keynesian tomfoolery... but a simpler explanation is simply that China wants to urbanize and grow a middle class as part of the development cycle you mentioned. They probably need a "hard landing" in order to cool off their real estate market and clear out the dead wood of their malinvestment in order to realize that goal.
- Eliezer 11y ago
  If you save another dollar in the bank, that's another dollar of global debt that the bank owes you - it's how the accounting works.
  - bcg1 11y ago
    Right, of course. But ultimately debts are paid back through energy creation, natural resource extraction, tangible assets, and human labor. The accounting details of fractional reserve banking in a debt based monetary system aside, that is a huge sum of human labor that governments have promised... and if that money ever gets paid off it will require the global workforce to work for decades to do it... I would hardly call that a "savings glut".
    - selectodude 11y ago
      World GDP is $75 trillion. So governments worldwide have promised less than one year of labor.
    - pjc50 11y ago
      if that money ever gets paid off it will require the global workforce to work for decades to do it How much of that is pensions? People work for decades, in the expectation of a pension, creating the pension liability; and are then going to require possibly decades of other people's work while they themselves are too old to work. Discussion of "paying it off" is meaningless when it can only be sensibly rolled over forever.
      - bcg1 11y ago
        Look that's why I said "if that money ever get paid off" not "when it gets paid off". And of course the only "not extremely bad" alternative is to continually roll over public debts forever. Financing tricks though don't change the value of the underlying assets, which is really the point that I'm making. I don't disagree at all with what you're saying. The problem is that eventually the debts can grow so large that the people who are expected to service the ever increasing principal and interest payments view the debts and overwhelming and/or odious, and choose to default. Then you get a deflationary spiral (i.e., Greece, Cyprus, etc), or alternatively currencies can hyperinflate to service the debt, which is essentially another form of default (i.e., Japan). We haven't really seen the current situation before, so don't know how this plays out... but we'll find out soon enough I think.

tosseraccount 11y ago

Devaluation causes inflation? Not necessarily: http://www.economicshelp.org/macroeconomics/macroessays/does-devaluation-cause-inflation/ http://www.economicshelp.org/macroeconomics/macroessays/does...

rdlecler1 11y ago
If China starts to devalue their currency, so will their Asian neighbors. They know that a race to the bottom isn't going to be the answer.

bcg1 11y ago

$57 trillion in world debt is something quite unlike a savings glut. And that is just public debt, and it is growing quickly. http://www.economist.com/content/global_debt_clock http://www.economist.com/content/global_debt_clock But in general I agree with your overall statement... everyone talks about China's "ghost cities" as if they are some sort of quixotic or keynesian tomfoolery... but a simpler explanation is simply that China wants to urbanize and grow a middle class as part of the development cycle you mentioned. They probably need a "hard landing" in order to cool off their real estate market and clear out the dead wood of their malinvestment in order to realize that goal.

Eliezer 11y ago
If you save another dollar in the bank, that's another dollar of global debt that the bank owes you - it's how the accounting works.
- bcg1 11y ago
  Right, of course. But ultimately debts are paid back through energy creation, natural resource extraction, tangible assets, and human labor. The accounting details of fractional reserve banking in a debt based monetary system aside, that is a huge sum of human labor that governments have promised... and if that money ever gets paid off it will require the global workforce to work for decades to do it... I would hardly call that a "savings glut".
  - selectodude 11y ago
    World GDP is $75 trillion. So governments worldwide have promised less than one year of labor.
  - pjc50 11y ago
    if that money ever gets paid off it will require the global workforce to work for decades to do it How much of that is pensions? People work for decades, in the expectation of a pension, creating the pension liability; and are then going to require possibly decades of other people's work while they themselves are too old to work. Discussion of "paying it off" is meaningless when it can only be sensibly rolled over forever.
    - bcg1 11y ago
      Look that's why I said "if that money ever get paid off" not "when it gets paid off". And of course the only "not extremely bad" alternative is to continually roll over public debts forever. Financing tricks though don't change the value of the underlying assets, which is really the point that I'm making. I don't disagree at all with what you're saying. The problem is that eventually the debts can grow so large that the people who are expected to service the ever increasing principal and interest payments view the debts and overwhelming and/or odious, and choose to default. Then you get a deflationary spiral (i.e., Greece, Cyprus, etc), or alternatively currencies can hyperinflate to service the debt, which is essentially another form of default (i.e., Japan). We haven't really seen the current situation before, so don't know how this plays out... but we'll find out soon enough I think.