Trade imbalances and the US$

purch

trade imbalances as a real problem

As usual Wookie you interpret/mistake/deliberately misinterpret (take your pick) disagreeing with your conclusion, as also disagreeing about the existance of the problem.

The fact that I do not agree that the ongoing trade imbalances, that have been a huge and growing problem for years, will lead to the demise of the USD and economic chaos anytime soon, does not automatically mean that these imbalances are not a problem that doesn't need to be addressed.

We live in interesting times - and "times they are a changing".

Yes we do, and yes they are, but unfortunately some peoples predjudices and opinions never will change, whatever happens.

Wookster

*MF* wrote: »

Meanwhile this article appears in today's New York Times:

Chinese leaders have adopted a plan aimed at turning the country into one of the leading producers of hybrid and all-electric vehicles within three years, and making it the world leader in electric cars and buses after that.

I'm not sure how China, who is light years behind the Japanese, the US and the Europeans technology wise will succeed where others have failed. I don't think Chinese culture is particularly conducive to fostering environments where creativity and innovation thrive: authoritarianism and marginalisation of women don't do any favours at all.

*MF*

Possible analogy: It's the second mouse that gets the cheese?

Example - the UK tied into a largely old BT landline system, Africa jumps one ahead with mobiles?

But my main point was to raise the social unrest which I think we will see increasing signs of not just in those two countries, (the French are already taking hostages) but using those two, I just wonder whether say, China is better placed to handle that than the USA . but not saying I agree with the methods that might be adopted in either venue.

harryhound

I see similarities between Edwardian Britain & turn of this century USA.
Both economies were living at the expense of the poorer countries of the world, because nobody dared to look at their currency and balance of payment deficit and say "the emperor has got no clothes any more".
The self indulgence of the ruling classes of Britain came to an end when they sacrificed their sons in the mud of the western front.
Britain muddled its way through WW1 until rescued by USA.
I don't think anyone really knew what they were doing in the 20's & 30's.
The second half of the 20th Century featured an all powerful USA, but increasingly weakened (and resented) as it strove to live at the expense of the rest of the world.

We had a bit or a foretaste of the situation when USA tried to go through the Vietnam war without a command economy. As the inflation got a grip in the .70's the Arabs jacked up the price of oil and a lot of other people fled to Swiss francs. The French sat on a pile of gold and Britain had to be bailed out by the IMF.
The world was a lot less interconnected in those days, though the airlines did set up their own "currency".

I would expect to see de facto units created in a basket if currencies (the dollar, Euro & gold for starters) supported by the Chinese. There may well come a time when the Chinese make their currency convertible and the RMB can become part of this new money.

It is all a matter of the answer to this question:
Is this currency not just a world wide unit of exchange but a reasonable store of value; not subject to any arbitrary confiscation?

I don't think the GBP passes this test, now that it is no longer a petro currency.

Wookster

purch wrote: »

As usual Wookie you interpret/mistake/deliberately misinterpret (take your pick) disagreeing with your conclusion, as also disagreeing about the existance of the problem.

Well then why don't you say all that you mean :rolleyes:

How do you see trade imbalances unwinding?

harryhound

I'm not sure how China, who is light years behind the Japanese, the US and the Europeans technology wise will succeed where others have failed. I don't think Chinese culture is particularly conducive to fostering environments where creativity and innovation thrive: authoritarianism and marginalisation of women don't do any favours at all.

Is this still true? When Hitler invaded USSR he thought his economy was miles ahead of Stalin's and it would be over by Christmas.
When the Russian "advisors" pulled out of China, they expected to see a population back in the paddy fields.
When the English pulled out of Suez, they knew the Egyptians would be unable to run the canal, never mind finishing the Aswan dam.

Inside China is a population, just as diverse as the population of Europe, with Internet access, one or two child families, a massive savings ratio, naive like 1950's Americans and ambitious as Hindu immigrants - I don't think their women are marginalised. More like supported by a large diaspora.
(We are not talking Muslims here - Chinese with their strange language structure and trading experience: noisy not shrinking violets).
Don't forget all the numbers in China are like Europe with an extra zero on the end.

Unless corruption or political upheaval disrupts society, do not underestimate China.

*MF*

Slight tangent I know - but on this feminist thing - careful.

From Forbes Magazine 2007:

The 100 Most Powerful Women in the World

#18 Wu Xiaoling

From here:

http://www.forbes.com/lists/2007/11/biz-07women_Wu-Xiaoling_7MJY.html

As I said above she has moved on, but is no less an influence in China - when was the last female Deputy Governor of the Bank of England?

purch

How do you see trade imbalances unwinding?

These Trade Balances won't be corrected by the USD falling in value, just as they didn't get imbalanced just because the USD was overvalued.

The only real way that can be corrected, is by a change in consumption patterns and habits.

setmefree2

Wookster wrote: »

• The reason they can't spend on health, education etc is because they would need to sell their reserves, which are all US$ denominated, in order to fund such spending. Significant sales of their reserves will lower the value of the remaining reserves through devaluation of the US$. So they won't sell their reserves? Interestingly China will need to embark on a stimulus package at some point and they will be forced to sell some US$ denominated Or they will sell their reserves? I'm a bit confused here - do you think China is going to sell her dollar reserves or not? No sarcasm intended.
• If you were Wen Jiabao, sitting on all those dollars, what do you think you could buy with them in the light of your own economy's growth staggering to a halt? Health care, unemployment benefit, pensions, social housing.
• As the single largest holder of US$ reserves how do you think the best way to protect your 'investment' would be? Would you take the Crash approach and announce your intention to sell before you do, or if you had decided to sell would you keep it quiet until you actually sold? But China has had years to spend money on health, education, infrastructure and they haven't - how do you explain that? Again sarcasm not intended. Nobody has made them keep piling up their reserves. They could have spent the money anytime.

They have no need to be the single largest holder of US dollars as I understand it - this is a choice. Some have postulated (Martin Wolf, for example) that the heart of the matter is that the reserves are a result of official Chinese action in the foreign-currency market, to keep their currency down, which are also by definition, hugh official outflows of capital. Thus, those outflows are the deliberate offsets to the foreign exchange receipts.

Presumably - if China wasn't trying so hard to manipulate her currency, she wouldn't have such large reserves.

setmefree2

purch wrote: »

The only real way that can be corrected, is by a change in consumption patterns and habits.

True I think - the countries, such as China, with the large surpluses must achieve more balanced growth. They have to start to consume - public and private (do you know that the Chinese save 60% of the earnings!). However, I'm not saying for one minute that this will be easy to achieve....

Yet, if things continue as they are, some analysts predict that by 2012 China's reserves will have reached $3.7 trillion. It's hard to imagine this happening without a global explosion...massive surpluses and a manipulated currency that's a red flag to the US bull surely?

Maybe we should introduce a global currency - that would eliminate all these problems over night - LOL - can't see that happening in my lifetime