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First of all, isn't pinning the Chinese currency to the US dollar against WTO rules? It is important to note that in order to pin the Chinese currency to the U

by cq 15y ago

First of all, isn't pinning the Chinese currency to the US dollar against WTO rules? It is important to note that in order to pin the Chinese currency to the US dollar, China must regularly print more and more money, and then they buy US debt with it. Considering that 10-year US bonds are at staggeringly low interest rates (1.91% as I write this), they're basically giving us free money every time they do this. Why aren't we spending more federally on job programs to get people employed (and/or trained for employment)? Oh yeah, because >socialism<.

VladRussian 15y ago
>they're basically giving us free money every time they do this. No exactly. China provides US with goods produced in China in exchange for treasuries printed in the US (goods -> dollars, dollars -> treasuries).
tatsuke95 15y ago
China doesn't have to print money to buy US debt; it has massive amounts of foreign currency reserves from the trade imbalance between the countries with which it purchases treasuries. Something to the tune of $1 trillion USD. So, in essence, the US is printing money to provide China with treasury assets. EDIT: Also, I guess you could qualify it as getting free money, but in fact it's money that has already been spent, which is the federal deficit. So what happens when China decides to stop buying that debt? Then we no longer have the money to cover our over-spending. That's the issue. The economic argument lies on whether China will ever consider the US a "bad bet" and stop buying debt (it has, in fact, slowed) or if the two countries are so intertwined as creditor-debtor that both have to continue playing the game in perpetuity.
- truthout 15y ago
  China HAS to print to keep the yuan at parity with the USD. China has already stopped buying US debt and are diversifying it's holdings. If China took all fo the trade deficit, which is close to 300b yearly, and bought US treasuries with it, it may supress the valuation of the yuan. Since it's not the case and the yuan strength is not fixed to US trade but it's global trade, the yuan would still likely appreciate significantly. So in fact China must print yuan to sustain parity with USD otherwise the yuan would rise in value. It's holdings of foreign debt and currency only bolster the stance that the yuan is undervalued. The only direction the yuan has gone in the last 10 years is up. When the Chinese alter the USD peg. The yuan is not floating.

by cq 15y ago

VladRussian 15y ago

>they're basically giving us free money every time they do this. No exactly. China provides US with goods produced in China in exchange for treasuries printed in the US (goods -> dollars, dollars -> treasuries).

tatsuke95 15y ago

China doesn't have to print money to buy US debt; it has massive amounts of foreign currency reserves from the trade imbalance between the countries with which it purchases treasuries. Something to the tune of $1 trillion USD. So, in essence, the US is printing money to provide China with treasury assets. EDIT: Also, I guess you could qualify it as getting free money, but in fact it's money that has already been spent, which is the federal deficit. So what happens when China decides to stop buying that debt? Then we no longer have the money to cover our over-spending. That's the issue. The economic argument lies on whether China will ever consider the US a "bad bet" and stop buying debt (it has, in fact, slowed) or if the two countries are so intertwined as creditor-debtor that both have to continue playing the game in perpetuity.

truthout 15y ago
China HAS to print to keep the yuan at parity with the USD. China has already stopped buying US debt and are diversifying it's holdings. If China took all fo the trade deficit, which is close to 300b yearly, and bought US treasuries with it, it may supress the valuation of the yuan. Since it's not the case and the yuan strength is not fixed to US trade but it's global trade, the yuan would still likely appreciate significantly. So in fact China must print yuan to sustain parity with USD otherwise the yuan would rise in value. It's holdings of foreign debt and currency only bolster the stance that the yuan is undervalued. The only direction the yuan has gone in the last 10 years is up. When the Chinese alter the USD peg. The yuan is not floating.