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So, really, is there any doubt that this is true? China's currency exchange rate has been abnormally stable for a long time, and the Obama, Bush, Clinton, Bush

So, really, is there any doubt that this is true? China's currency exchange rate has been abnormally stable for a long time, and the Obama, Bush, Clinton, Bush, and Reagan administrations all knew it was the result of currency manipuliation. They just found it politically unpalatable to admit it out loud. The real question would be, why is the U.S. finally admitting this out loud? 1) amping up a trade war 2) decoupling U.S. economy from China 3) trying to leverage China into doing something differently, perhaps regarding North Korea Some of these, of course, would interfere with others, for example you can't use it as leverage in #3 if China thinks you'll keep pursuing it anyway no matter what, due to #1 or #2.

havetocharge 7y ago
US decoupling itself from China would have an avalanche of effects, including huge inflation on most consumer goods, and outright product shortages. China is also a huge foreign debt holder, and if presumably no longer a buyer due to decoupling, will send US interest rates skyrocketing.
- internet_user 7y ago
  The fed has unlimited control over the rates. They could literally just buy out every bond in existence.
  - tunesmith 7y ago
    I don't see how that works. If the US Government has to sell bonds to borrow money to finance the deficit, and buyers start disappearing, they have to raise interest rates to make the bonds more attractive to the remaining buyers, don't they?
    - opportune 7y ago
      Nope because the Federal Reserve can issue new Federal Reserve notes (aka money) to the US Government to buy their bonds at any price point. As the other commenter pointed out this would cause inflation (as it increases the money supply)
      - tunesmith 7y ago
        I see. Printing money to buy new financial assets would also cause greater wealth inequality and populism, although maybe those are seen as benefits to the current administration.
        deleted 7y ago
        [deleted]
        opportune 7y ago
        I could be wrong but I don't think buying US treasuries would directly increase wealth inequality, since the money is being used to fund the US government. If the Fed bought other more private assets off the market (which I believe it does) then yes it could increase wealth inequality
        tunesmith 7y ago
        Possibly, I may be confused between simply buying treasuries, and quantitative easing. Still learning!
        ethbro 7y ago
        To broadly simplify: Buying treasuries = the Fed giving money to the US government Quantitative easing = the Fed giving money to banks In the case of the US, the entire game is also complicated by the fact that the US dollar has insinuated itself into the global economy. Most critically in oil markets. Because of this, there are some things the Fed can do (mostly) without the consequences other countries would face.
        gumbo 7y ago
        This would increase wealth inequality because it’s mostly well-off Americans that own financial assets. Look at the wealth inequality increase since 2008. It can mostly be attributed to federal reserve QE policy.
  - wrong_variable 7y ago
    Products don't grow on trees. If the fed buys every USD bond in existence ( aka monetize the debt ) - it would lead to a good amount of inflation.
    - imtringued 7y ago
      Inflation isn't global, it can easily happen in economic sectors that exclude the vast majority of the population.
    - drtillberg 7y ago
      Yes, but the pressure to pay off those bonds would be deflationary, so in order to sustain the inflation next the Fed would have to do something even more extraordinary! AFAIK this policy pathway leads ultimately to bond forgivenesses (or funky bankruptcies) that eliminate deflationary pressure but may well have the unpleasant side effect of radically adjusting the fiat currency system.
      - im3w1l 7y ago
        > Pay off those bonds I don't think that would happen. They will just borrow ever more. Which if debt increases slowly enough, is sustainable but causes inflation.
      - AnthonyMouse 7y ago
        How do you mean? If the Fed creates new money and buys bonds with it, the Fed can continue to hold them forever (really just until they mature) if it wants to. Then the Fed is more or less part of the government, so when the bond matures the Fed takes the bond to the treasury which gives it cash, then it gives the cash back to the treasury. It's like the bond evaporates into nothing when it matures while the Fed is holding it. If the Fed theoretically bought all the bonds then it could obviously no longer increase the money supply by buying bonds, but we're a long way from that, and even then the Fed could still create new money and give it directly to the treasury to spend in lieu of collecting taxes. Or in the utopia where buying all outstanding government debt and funding the entire federal budget out of new money still hasn't caused the desired amount of inflation, to use to enact a negative income tax.
- tenpies 7y ago
  > China is also a huge foreign debt holder, and if presumably no longer a buyer due to decoupling, will send US interest rates skyrocketing. Before that happens, the capital exodus demanding to liquidate their Yuan for USD would have burned through the country's USD reserves and they would be insolvent. This is quite similar to what happened in South Korea in 1997 and it took IMF intervention to stabilize the country. The PBOC could limit how much a person can sell, but this would crash their currency (e.g. Venezuela) almost instantly. As much as people want to hate on Trump and/or the US, China is in a weaker position here. Don't get me wrong, both countries suffer, but only one of them would see its financial system collapse.
  - chiefalchemist 7y ago
    > "...but only one of them would see its financial system collapse." Unless that is an absolute certainty then and this is a game of high stakes chicken, then I would say the USA has more to lose. While China has certainly developed in the last couple decades they are still relatively used to living with less. On the other hand, Ameicans lose their minds when Facebook goes down for an hour. That is, there would be bedlam in the USA. China much less so.
    - LegitShady 7y ago
      >Unless that is an absolute certainty then and this is a game of high stakes chicken, then I would say the USA has more to lose. Nothing is ever certain and that's not how people make decisions. What are you waiting for Chinese to use manipulated currency to buy local factories all over the world? It's already nearly too late.
      - chiefalchemist 7y ago
        > Nothing is ever certain. That's exactly my point. I was pointing out that unless the previous comment was absolutely true (i.e., China would be wrecked and the USA would not be) then even if both fare badly the USA would __relatively__ be hurt more.
- empath75 7y ago
  The us decoupling itself from China would be an unmitigated disaster for the us as China would align itself with Russia.
  - assblaster 7y ago
    Russia is an irrelevant economic factor in the 21st century. Their export is fossil fuels, and that's about it.
    - deleted 7y ago
      [deleted]
    - fosco 7y ago
      Ice/water will be a major export very soon. Countries will go to war over it.
      - mobilefriendly 7y ago
        Nope. Drought is usually local and water shortages are often from the breakdown of regional infrastructure. There are recently discovered truly massive water lakes in the earth's mantle. https://www.livescience.com/46292-hidden-ocean-locked-in-earth-mantle.html https://www.livescience.com/46292-hidden-ocean-locked-in-ear...
    - dragonelite 7y ago
      Northeast passage in a couple of decades might be a big boom for Russia and China.
  - thrwayxyz 7y ago
    Russia has the population of Nigeria and the GDP of Italy. The cold war ended a while ago. Worrying about them today makes about as much sense as worrying about Autria in 1930 because Austrohungaria used to be a world power.
    - chrischen 7y ago
- nradov 7y ago
  China holds only 5% of US federal government debt, down from a peak of 11%. If they stop buying it won't cause interest rates to skyrocket. The impact would be a few basis points at most.
  - AstralStorm 7y ago
    That is presuming private ownership effects won't be big. And they will be. China owns more corporate debt in the US than anywhere else and it is a high percentage.
    - mobilefriendly 7y ago
      Not necessarily. If the Chinese yuan is devaluing, Chinese investors want very much to hold US dollar denominated debt.
      - AstralStorm 7y ago
        Yes, and so they would want to hold the federal debt. And also find ways to increase it. The GP post relates to China selling the debt to disentangle from USD.
    - formercoder 7y ago
      Luckily there is massive domestic demand for US corporate debt.
  - baybal2 7y ago
    > The impact would be a few basis points at most. After a decade of rock bottom rates, even few basis points will sound big
realmod 7y ago
Actually China was designated currency manipulators by Clinton from 1992 to 1994
- chrisjc 7y ago
  Interesting. What changed in 1994?
  - seanmcdirmid 7y ago
    China reformed their currency. See the historical exchange rate for RMB: https://www.macrotrends.net/2575/us-dollar-yuan-exchange-rate-historical-chart https://www.macrotrends.net/2575/us-dollar-yuan-exchange-rat... It went from 6 RMB/dollar to just less than 9 overnight. It was basically a crazy rate (no one would use that rate unless forced) before the reform. Before that there was even a dual system of foreigner money and local money, only foreigner yuan could be used at the friendship department store...it would have been cool to visit China before 1994.
    - prawn 7y ago
      I visited in 1991 for three months as a 14 year old. I don't recall a dual system (unless it was voucher based?), but I remember the friendship department stores and loads of other interesting things - Russian-styled hotels in Xian, Pudong being basically farmland, snakeboats on the Huangpu, etc. It had changed a lot by the time I next visited in late 2003. I don't think they yet had a McDonalds, but there was a three-storey KFC on Tiananmen that was popular. Yangshuo at the time was a very basic village which made it very charming. I remember staying at a guesthouse used for diplomats near Beidaihe - the mattresses we kids slept on were about half an inch thick. At the end of the trip, we left on a slow-boat from Shanghai to Hong Kong, and the elderly Chinese in the gaming room taught us Mahjong on the multi-day trip.
      - seanmcdirmid 7y ago
        McDonald’s has been in China since the late 90s, there was even a couple of Starbucks when I visited in late 1999! 94 is sort of what I see as the cutoff between old and new China.
lr4444lr 7y ago
There is a general theory that the current US administration's foreign policy, from Russia, to North Korea, to Iran, is all primarily geared to checking China. It's a bit tinfoil hat, I admit, but it's not implausible.
Someone 7y ago
One person’s ‘currency manipulation’ is another person’s ‘monetary management’. https://en.wikipedia.org/wiki/Bretton_Woods_system https://en.wikipedia.org/wiki/Bretton_Woods_system: ”The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained its external exchange rates within 1 percent by tying its currency to gold and the ability of the IMF to bridge temporary imbalances of payments” (See also https://en.wikipedia.org/wiki/Fixed_exchange-rate_system https://en.wikipedia.org/wiki/Fixed_exchange-rate_system, which lists many examples of ‘pegging’)
- krona 7y ago
  Tying the currency to the price of Gold is the opposite of manipulation. That was the point.
epiphanitus 7y ago
1) and 3) to a lesser extent. China's currency has been pegged to the USD for some time now. This is actually a common arrangement. A currency peg is basically a commitment by a government to keep its exchange rate with another country at a certain value, mostly to aid exports. It does this by buying and selling currencies, usually leveraging very large reserves. There are several reasons why the past few Admin. have tolerated the currency peg. A cheaper Yuan means that US consumers get better prices. Also, China buys a lot of Treasuries as part of their sovereign wealth fund. It's still a bitter pill to swallow if you're a US manufacturer or exporter, though. The currency peg also puts downward pressure on real wages for Chinese workers, since it devalues the currency in which they get paid. What happened in the past few days was that the Chinese central bank decided to push the value of the currency down even further, prompting a symbolic US response.
- mieseratte 7y ago
  > prompting a symbolic US response. What makes it symbolic?
  - rossdavidh 7y ago
    So far, it's just words, really. If it results in a WTO finding against China, we could expect it to be followed up by something non-symbolic.
  - wtdata 7y ago
    Well, so far the US only designated China as a currency manipulator. No actual action followed about that designation. My take is that is just a way to pressure China to accept other measures (like increased tariffs) for now.
Balgair 7y ago
> why is the U.S. finally admitting this out loud? 4) The US President is not well. He saw that the stock market went down, so he tweeted a thing. This then became policy simply because he tweeted a thing. As the US lurches from crisis to crisis, this will be forgotten, as many things have before [0,1,2], and there is not a good chance that the thing will be enacted. [0] https://www.washingtonexaminer.com/opinion/trump-keeps-making-threats-he-doesnt-follow-through-on https://www.washingtonexaminer.com/opinion/trump-keeps-makin... [1] https://time.com/5175729/donald-trump-broken-promises/ https://time.com/5175729/donald-trump-broken-promises/ [2] https://www.washingtonpost.com/business/2019/08/06/trump-is-increasingly-relying-himself-not-his-aides-trade-war-with-china/ https://www.washingtonpost.com/business/2019/08/06/trump-is-...
- complexmango 7y ago
  Perhaps this is the first US President in decades, who either out of raw courage, sheer necessity or personal (so far undetected) corruption, called out what has been known for the entire time: 1. That China manipulates its currency to improve its economic competitiveness 2. Restricts access to its domestic markets 3. Uses North Korea in negotiation leverage 4. Uses trade deals to capture foreign territory (e.g. the Sri Lankan port project) Using an ad hominem (“not well”) to discount the democratically elected, leading political actor of a country, seems to be a uniquely American trait (I grew up in India, where we know our politicians are corrupt, but highly intelligent rational actors). Ad hominems are not a useful tool to try and understand motivations of political actors. It’s ok to say ‘I don’t know why’ when the reasons for an action seem opaque.

havetocharge 7y ago

US decoupling itself from China would have an avalanche of effects, including huge inflation on most consumer goods, and outright product shortages. China is also a huge foreign debt holder, and if presumably no longer a buyer due to decoupling, will send US interest rates skyrocketing.

internet_user 7y ago
The fed has unlimited control over the rates. They could literally just buy out every bond in existence.
- tunesmith 7y ago
  I don't see how that works. If the US Government has to sell bonds to borrow money to finance the deficit, and buyers start disappearing, they have to raise interest rates to make the bonds more attractive to the remaining buyers, don't they?
  - opportune 7y ago
    Nope because the Federal Reserve can issue new Federal Reserve notes (aka money) to the US Government to buy their bonds at any price point. As the other commenter pointed out this would cause inflation (as it increases the money supply)
    - tunesmith 7y ago
      I see. Printing money to buy new financial assets would also cause greater wealth inequality and populism, although maybe those are seen as benefits to the current administration.
      - deleted 7y ago
        [deleted]
      - opportune 7y ago
        I could be wrong but I don't think buying US treasuries would directly increase wealth inequality, since the money is being used to fund the US government. If the Fed bought other more private assets off the market (which I believe it does) then yes it could increase wealth inequality
        tunesmith 7y ago
        Possibly, I may be confused between simply buying treasuries, and quantitative easing. Still learning!
        ethbro 7y ago
        To broadly simplify: Buying treasuries = the Fed giving money to the US government Quantitative easing = the Fed giving money to banks In the case of the US, the entire game is also complicated by the fact that the US dollar has insinuated itself into the global economy. Most critically in oil markets. Because of this, there are some things the Fed can do (mostly) without the consequences other countries would face.
        gumbo 7y ago
        This would increase wealth inequality because it’s mostly well-off Americans that own financial assets. Look at the wealth inequality increase since 2008. It can mostly be attributed to federal reserve QE policy.
- wrong_variable 7y ago
  Products don't grow on trees. If the fed buys every USD bond in existence ( aka monetize the debt ) - it would lead to a good amount of inflation.
  - imtringued 7y ago
    Inflation isn't global, it can easily happen in economic sectors that exclude the vast majority of the population.
  - drtillberg 7y ago
    Yes, but the pressure to pay off those bonds would be deflationary, so in order to sustain the inflation next the Fed would have to do something even more extraordinary! AFAIK this policy pathway leads ultimately to bond forgivenesses (or funky bankruptcies) that eliminate deflationary pressure but may well have the unpleasant side effect of radically adjusting the fiat currency system.
    - im3w1l 7y ago
      > Pay off those bonds I don't think that would happen. They will just borrow ever more. Which if debt increases slowly enough, is sustainable but causes inflation.
    - AnthonyMouse 7y ago
      How do you mean? If the Fed creates new money and buys bonds with it, the Fed can continue to hold them forever (really just until they mature) if it wants to. Then the Fed is more or less part of the government, so when the bond matures the Fed takes the bond to the treasury which gives it cash, then it gives the cash back to the treasury. It's like the bond evaporates into nothing when it matures while the Fed is holding it. If the Fed theoretically bought all the bonds then it could obviously no longer increase the money supply by buying bonds, but we're a long way from that, and even then the Fed could still create new money and give it directly to the treasury to spend in lieu of collecting taxes. Or in the utopia where buying all outstanding government debt and funding the entire federal budget out of new money still hasn't caused the desired amount of inflation, to use to enact a negative income tax.
tenpies 7y ago
> China is also a huge foreign debt holder, and if presumably no longer a buyer due to decoupling, will send US interest rates skyrocketing. Before that happens, the capital exodus demanding to liquidate their Yuan for USD would have burned through the country's USD reserves and they would be insolvent. This is quite similar to what happened in South Korea in 1997 and it took IMF intervention to stabilize the country. The PBOC could limit how much a person can sell, but this would crash their currency (e.g. Venezuela) almost instantly. As much as people want to hate on Trump and/or the US, China is in a weaker position here. Don't get me wrong, both countries suffer, but only one of them would see its financial system collapse.
- chiefalchemist 7y ago
  > "...but only one of them would see its financial system collapse." Unless that is an absolute certainty then and this is a game of high stakes chicken, then I would say the USA has more to lose. While China has certainly developed in the last couple decades they are still relatively used to living with less. On the other hand, Ameicans lose their minds when Facebook goes down for an hour. That is, there would be bedlam in the USA. China much less so.
  - LegitShady 7y ago
    >Unless that is an absolute certainty then and this is a game of high stakes chicken, then I would say the USA has more to lose. Nothing is ever certain and that's not how people make decisions. What are you waiting for Chinese to use manipulated currency to buy local factories all over the world? It's already nearly too late.
    - chiefalchemist 7y ago
      > Nothing is ever certain. That's exactly my point. I was pointing out that unless the previous comment was absolutely true (i.e., China would be wrecked and the USA would not be) then even if both fare badly the USA would __relatively__ be hurt more.
empath75 7y ago
The us decoupling itself from China would be an unmitigated disaster for the us as China would align itself with Russia.
- assblaster 7y ago
  Russia is an irrelevant economic factor in the 21st century. Their export is fossil fuels, and that's about it.
  - deleted 7y ago
    [deleted]
  - fosco 7y ago
    Ice/water will be a major export very soon. Countries will go to war over it.
    - mobilefriendly 7y ago
      Nope. Drought is usually local and water shortages are often from the breakdown of regional infrastructure. There are recently discovered truly massive water lakes in the earth's mantle. https://www.livescience.com/46292-hidden-ocean-locked-in-earth-mantle.html https://www.livescience.com/46292-hidden-ocean-locked-in-ear...
  - dragonelite 7y ago
    Northeast passage in a couple of decades might be a big boom for Russia and China.
- thrwayxyz 7y ago
  Russia has the population of Nigeria and the GDP of Italy. The cold war ended a while ago. Worrying about them today makes about as much sense as worrying about Autria in 1930 because Austrohungaria used to be a world power.
  - chrischen 7y ago
nradov 7y ago
China holds only 5% of US federal government debt, down from a peak of 11%. If they stop buying it won't cause interest rates to skyrocket. The impact would be a few basis points at most.
- AstralStorm 7y ago
  That is presuming private ownership effects won't be big. And they will be. China owns more corporate debt in the US than anywhere else and it is a high percentage.
  - mobilefriendly 7y ago
    Not necessarily. If the Chinese yuan is devaluing, Chinese investors want very much to hold US dollar denominated debt.
    - AstralStorm 7y ago
      Yes, and so they would want to hold the federal debt. And also find ways to increase it. The GP post relates to China selling the debt to disentangle from USD.
  - formercoder 7y ago
    Luckily there is massive domestic demand for US corporate debt.
- baybal2 7y ago
  > The impact would be a few basis points at most. After a decade of rock bottom rates, even few basis points will sound big

realmod 7y ago

Actually China was designated currency manipulators by Clinton from 1992 to 1994

chrisjc 7y ago
Interesting. What changed in 1994?
- seanmcdirmid 7y ago
  China reformed their currency. See the historical exchange rate for RMB: https://www.macrotrends.net/2575/us-dollar-yuan-exchange-rate-historical-chart https://www.macrotrends.net/2575/us-dollar-yuan-exchange-rat... It went from 6 RMB/dollar to just less than 9 overnight. It was basically a crazy rate (no one would use that rate unless forced) before the reform. Before that there was even a dual system of foreigner money and local money, only foreigner yuan could be used at the friendship department store...it would have been cool to visit China before 1994.
  - prawn 7y ago
    I visited in 1991 for three months as a 14 year old. I don't recall a dual system (unless it was voucher based?), but I remember the friendship department stores and loads of other interesting things - Russian-styled hotels in Xian, Pudong being basically farmland, snakeboats on the Huangpu, etc. It had changed a lot by the time I next visited in late 2003. I don't think they yet had a McDonalds, but there was a three-storey KFC on Tiananmen that was popular. Yangshuo at the time was a very basic village which made it very charming. I remember staying at a guesthouse used for diplomats near Beidaihe - the mattresses we kids slept on were about half an inch thick. At the end of the trip, we left on a slow-boat from Shanghai to Hong Kong, and the elderly Chinese in the gaming room taught us Mahjong on the multi-day trip.
    - seanmcdirmid 7y ago
      McDonald’s has been in China since the late 90s, there was even a couple of Starbucks when I visited in late 1999! 94 is sort of what I see as the cutoff between old and new China.

lr4444lr 7y ago

There is a general theory that the current US administration's foreign policy, from Russia, to North Korea, to Iran, is all primarily geared to checking China. It's a bit tinfoil hat, I admit, but it's not implausible.

Someone 7y ago

One person’s ‘currency manipulation’ is another person’s ‘monetary management’. https://en.wikipedia.org/wiki/Bretton_Woods_system https://en.wikipedia.org/wiki/Bretton_Woods_system: ”The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained its external exchange rates within 1 percent by tying its currency to gold and the ability of the IMF to bridge temporary imbalances of payments” (See also https://en.wikipedia.org/wiki/Fixed_exchange-rate_system https://en.wikipedia.org/wiki/Fixed_exchange-rate_system, which lists many examples of ‘pegging’)

krona 7y ago
Tying the currency to the price of Gold is the opposite of manipulation. That was the point.

epiphanitus 7y ago

1) and 3) to a lesser extent. China's currency has been pegged to the USD for some time now. This is actually a common arrangement. A currency peg is basically a commitment by a government to keep its exchange rate with another country at a certain value, mostly to aid exports. It does this by buying and selling currencies, usually leveraging very large reserves. There are several reasons why the past few Admin. have tolerated the currency peg. A cheaper Yuan means that US consumers get better prices. Also, China buys a lot of Treasuries as part of their sovereign wealth fund. It's still a bitter pill to swallow if you're a US manufacturer or exporter, though. The currency peg also puts downward pressure on real wages for Chinese workers, since it devalues the currency in which they get paid. What happened in the past few days was that the Chinese central bank decided to push the value of the currency down even further, prompting a symbolic US response.

mieseratte 7y ago
> prompting a symbolic US response. What makes it symbolic?
- rossdavidh 7y ago
  So far, it's just words, really. If it results in a WTO finding against China, we could expect it to be followed up by something non-symbolic.
- wtdata 7y ago
  Well, so far the US only designated China as a currency manipulator. No actual action followed about that designation. My take is that is just a way to pressure China to accept other measures (like increased tariffs) for now.

Balgair 7y ago

> why is the U.S. finally admitting this out loud? 4) The US President is not well. He saw that the stock market went down, so he tweeted a thing. This then became policy simply because he tweeted a thing. As the US lurches from crisis to crisis, this will be forgotten, as many things have before [0,1,2], and there is not a good chance that the thing will be enacted. [0] https://www.washingtonexaminer.com/opinion/trump-keeps-making-threats-he-doesnt-follow-through-on https://www.washingtonexaminer.com/opinion/trump-keeps-makin... [1] https://time.com/5175729/donald-trump-broken-promises/ https://time.com/5175729/donald-trump-broken-promises/ [2] https://www.washingtonpost.com/business/2019/08/06/trump-is-increasingly-relying-himself-not-his-aides-trade-war-with-china/ https://www.washingtonpost.com/business/2019/08/06/trump-is-...

complexmango 7y ago
Perhaps this is the first US President in decades, who either out of raw courage, sheer necessity or personal (so far undetected) corruption, called out what has been known for the entire time: 1. That China manipulates its currency to improve its economic competitiveness 2. Restricts access to its domestic markets 3. Uses North Korea in negotiation leverage 4. Uses trade deals to capture foreign territory (e.g. the Sri Lankan port project) Using an ad hominem (“not well”) to discount the democratically elected, leading political actor of a country, seems to be a uniquely American trait (I grew up in India, where we know our politicians are corrupt, but highly intelligent rational actors). Ad hominems are not a useful tool to try and understand motivations of political actors. It’s ok to say ‘I don’t know why’ when the reasons for an action seem opaque.