4 ms·

Meanwhile, the Chinese are unlikely to allow their currency to appreciate in value Why? Seems like a completely baseless assumption. When US consumption is

by 1gor 17y ago

Meanwhile, the Chinese are unlikely to allow their currency to appreciate in value Why? Seems like a completely baseless assumption. When US consumption is on the rocks, the only engine of growth for China is its own huge domestic market. Strengthening domestic currency will stimulate consumer boom and turn China from pure exporter into a most attractive market in the world, similar to what US has been for most of 20th century. This turnaround will not happen overnight, but it will eventually happen.

cturner 17y ago
Why? If they let the dollar go, it won't just slide, it'll collapse. It'll be game over for the dollar. The leadership will lose staggering amounts face over all these savings they've accrued in this rotten dollar. This will undermine their attempts to push further towards a market economy but - something they can be more fearful of - it will threaten the stability of the state. In the west we can have an economic collapse, and the government is thrown out, and things shake but we swap in a new political class and get back to work. China doesn't have pressure valves, and they're an already unwieldy nation - lots of ethnic groups, many of which don't want to be part of China, a culture of corruption, a huge wealth gap. They have a further problem in that there are examples of small nations of Chinese doing very well without being part of a juggernaut state - Taiwan, but Singapore and the legacy of Hong Kong/Macau in their own way also. As in the west, the Chinese leaders are using stimulus to procrastinate. But the stakes are much higher. The USD situation is like cancer for the Chinese. The only play I can see out of their situation will be to force an arrangement where they could get their holdings of USD reinterpreted into a more trustworthy store of value.
- 1gor 17y ago
  I would not overestimate importance of the dollar for the Chinese. Those dollar holdings are a simple by-product of past currency interventions, a way to park those dollars bought from exporters of electronic goods etc, not a conscious choice to invest some 'savings' in the US. Also, China's trade with US is less than its combined trade with countries of Pacific Region. Also, I would not agree with your characterisation of China and its regime. Its current government has been doing wonders lifting hundreds of millions of people out of poverty, and cases of corruption unfortunately happen everywhere -- from Chicago to Shanghai. They do have a bit different social organization, but its current modification seems to work for them for the past thirty years.

by 1gor 17y ago

cturner 17y ago

Why? If they let the dollar go, it won't just slide, it'll collapse. It'll be game over for the dollar. The leadership will lose staggering amounts face over all these savings they've accrued in this rotten dollar. This will undermine their attempts to push further towards a market economy but - something they can be more fearful of - it will threaten the stability of the state. In the west we can have an economic collapse, and the government is thrown out, and things shake but we swap in a new political class and get back to work. China doesn't have pressure valves, and they're an already unwieldy nation - lots of ethnic groups, many of which don't want to be part of China, a culture of corruption, a huge wealth gap. They have a further problem in that there are examples of small nations of Chinese doing very well without being part of a juggernaut state - Taiwan, but Singapore and the legacy of Hong Kong/Macau in their own way also. As in the west, the Chinese leaders are using stimulus to procrastinate. But the stakes are much higher. The USD situation is like cancer for the Chinese. The only play I can see out of their situation will be to force an arrangement where they could get their holdings of USD reinterpreted into a more trustworthy store of value.

1gor 17y ago
I would not overestimate importance of the dollar for the Chinese. Those dollar holdings are a simple by-product of past currency interventions, a way to park those dollars bought from exporters of electronic goods etc, not a conscious choice to invest some 'savings' in the US. Also, China's trade with US is less than its combined trade with countries of Pacific Region. Also, I would not agree with your characterisation of China and its regime. Its current government has been doing wonders lifting hundreds of millions of people out of poverty, and cases of corruption unfortunately happen everywhere -- from Chicago to Shanghai. They do have a bit different social organization, but its current modification seems to work for them for the past thirty years.