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Selling large amounts of dollars to buy gold should devalue the dollar against other currencies, right? Isn't that what Trump wants to happen anyway? (Looking

by w23j 7y ago

Selling large amounts of dollars to buy gold should devalue the dollar against other currencies, right? Isn't that what Trump wants to happen anyway? (Looking at his attacks against the fed [1], for not dropping rates or attacking the ecb for planning to do so and thus devaluing the euro: Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others. [2] [1] https://www.bloomberg.com/news/articles/2019-06-18/white-house-explored-legality-of-demoting-fed-chairman-powell?srnd=premium https://www.bloomberg.com/news/articles/2019-06-18/white-hou... [2] https://twitter.com/realDonaldTrump/status/1140935620291964928 https://twitter.com/realDonaldTrump/status/11409356202919649...) Why is this a good move in the trade war then? What am I missing?

NTDF9 7y ago
> Why is this a good move in the trade war then? What am I missing? Because then America is poorer in the world and is not the biggest customer any more. Thus it cannot bully the rest of the world. Something having cake, something eating it too will not work.
- w23j 7y ago
  > is not the biggest customer any more. Thus it cannot bully the rest of the world. That is exactly what Trump wants. Reduce trade deficits, more manufacturing in the USA instead of importing from China. Since that seems to follow I am trying to understand the move.
astazangasta 7y ago
This was my first thought, but I'm not sure this is true. Buying debt from the US government increases the numbers of dollars in circulation (since bonds are redeemed in dollars) and shores up its price. Selling this debt to someone else (i.e., not back to the US government) doesn't destroy those dollars, it just changes its owner. It's not clear this would result in devaluation.
- w23j 7y ago
  > increases the numbers of dollars in circulation (since bonds are redeemed in dollars) But following supply and demand principles, increasing the number of dollars in circulation should lead to inflation/devaluing of the dollar, right?
  - astazangasta 7y ago
    You are right, my initial assumptions are wrong - China isn't buying bonds from the US Treasury (as I would), they are buying them from a forex bond market, where we might consider the supply of dollars to be like any other commodity. This means when they buy up bonds they are decreasing supply, therefore driving up the price, and when they sell off bonds, they are increasing the supply of dollars, causing the price to fall.
w23j 7y ago
Wow. My first downvoted comment ever. I don't really understand why? Just because it mentions Trump? The comment is neither pro nor anti Trump. I just try to understand, why this is a move in the trade war by China. Judging from the top comment it's not completely wrong either. Why the downvotes?

by w23j 7y ago

NTDF9 7y ago

> Why is this a good move in the trade war then? What am I missing? Because then America is poorer in the world and is not the biggest customer any more. Thus it cannot bully the rest of the world. Something having cake, something eating it too will not work.

w23j 7y ago
> is not the biggest customer any more. Thus it cannot bully the rest of the world. That is exactly what Trump wants. Reduce trade deficits, more manufacturing in the USA instead of importing from China. Since that seems to follow I am trying to understand the move.

astazangasta 7y ago

This was my first thought, but I'm not sure this is true. Buying debt from the US government increases the numbers of dollars in circulation (since bonds are redeemed in dollars) and shores up its price. Selling this debt to someone else (i.e., not back to the US government) doesn't destroy those dollars, it just changes its owner. It's not clear this would result in devaluation.

w23j 7y ago
> increases the numbers of dollars in circulation (since bonds are redeemed in dollars) But following supply and demand principles, increasing the number of dollars in circulation should lead to inflation/devaluing of the dollar, right?
- astazangasta 7y ago
  You are right, my initial assumptions are wrong - China isn't buying bonds from the US Treasury (as I would), they are buying them from a forex bond market, where we might consider the supply of dollars to be like any other commodity. This means when they buy up bonds they are decreasing supply, therefore driving up the price, and when they sell off bonds, they are increasing the supply of dollars, causing the price to fall.

w23j 7y ago

Wow. My first downvoted comment ever. I don't really understand why? Just because it mentions Trump? The comment is neither pro nor anti Trump. I just try to understand, why this is a move in the trade war by China. Judging from the top comment it's not completely wrong either. Why the downvotes?