Comments on: Attacking China http://www.harryrclarke.com/2010/03/20/attacking-china/ On economics, politics & other things Tue, 07 Feb 2012 11:34:25 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: hc http://www.harryrclarke.com/2010/03/20/attacking-china/comment-page-1/#comment-10645 hc Wed, 24 Mar 2010 11:04:38 +0000 http://www.harryrclarke.com/?p=2864#comment-10645 Sir Henry, These things can take a long time to unravel but your intuition is sound. Sir Henry, These things can take a long time to unravel but your intuition is sound.

]]> By: Sir Henry Casingbroke http://www.harryrclarke.com/2010/03/20/attacking-china/comment-page-1/#comment-10643 Sir Henry Casingbroke Wed, 24 Mar 2010 09:40:35 +0000 http://www.harryrclarke.com/?p=2864#comment-10643 Hmm, so we do a Soros and go short on US Treasury bonds... Hmm, so we do a Soros and go short on US Treasury bonds…

]]> By: conrad http://www.harryrclarke.com/2010/03/20/attacking-china/comment-page-1/#comment-10639 conrad Wed, 24 Mar 2010 01:05:19 +0000 http://www.harryrclarke.com/?p=2864#comment-10639 "Krugman is right. The US has got them by the short and curliest." I don't think that's correct -- I don't see why they can't slowly get rid of it as appears to be beggining to happen already http://www.chinadaily.com.cn/bizchina/2010-02/22/content_9484093.htm and simply plonk it into other assets. “Krugman is right. The US has got them by the short and curliest.”

I don’t think that’s correct — I don’t see why they can’t slowly get rid of it as appears to be beggining to happen already

http://www.chinadaily.com.cn/bizchina/2010-02/22/content_9484093.htm

and simply plonk it into other assets.

]]> By: Uncle Milton http://www.harryrclarke.com/2010/03/20/attacking-china/comment-page-1/#comment-10624 Uncle Milton Mon, 22 Mar 2010 21:46:20 +0000 http://www.harryrclarke.com/?p=2864#comment-10624 Harry, if the Chinese central bank is merely exchanging $US cash for T bills I don't see how this can affect the total assets in their balance sheet and hence the monetary base, but I could be wrong about that. On the currency, well of course the Chinese are going to be upset, but this is the risk you take when you invest in foreign currency denominated assets, and if you are grossly over weight in those assets then you are taking a very big risk. Krugman is right. The US has got them by the short and curliest. It's a variation on the old story. If the bank lends you a million and you can't pay it back then you've got a problem. If it's a billion then the bank has a problem. The Chinese might also come to reaiise that it is in their interests that the US economy recovers as quickly as possible and that can only happen if the $US devalues. And they should also remember that the purpose of exporting is not to build forex reserves but to enable you to pay for imports. If the Chinese revalue the renminbi they will be able Tobit a lot of imports cheaply and thereby do a lot to improve the standard of living of the Chinese people. What's wrong with that? Harry, if the Chinese central bank is merely exchanging $US cash for T bills I don’t see how this can affect the total assets in their balance sheet and hence the monetary base, but I could be wrong about that.

On the currency, well of course the Chinese are going to be upset, but this is the risk you take when you invest in foreign currency denominated assets, and if you are grossly over weight in those assets then you are taking a very big risk.

Krugman is right. The US has got them by the short and curliest. It’s a variation on the old story. If the bank lends you a million and you can’t pay it back then you’ve got a problem. If it’s a billion then the bank has a problem.

The Chinese might also come to reaiise that it is in their interests that the US economy recovers as quickly as possible and that can only happen if the $US devalues.

And they should also remember that the purpose of exporting is not to build forex reserves but to enable you to pay for imports. If the Chinese revalue the renminbi they will be able Tobit a lot of imports cheaply and thereby do a lot to improve the standard of living of the Chinese people. What’s wrong with that?

]]> By: hc http://www.harryrclarke.com/2010/03/20/attacking-china/comment-page-1/#comment-10620 hc Mon, 22 Mar 2010 13:28:08 +0000 http://www.harryrclarke.com/?p=2864#comment-10620 Uncle Milton, So you are saying that the price-specie-flow mechanism doesn't operate (so a fixed exchange rate system doesn't lead to inflation in the surplus country) because government controls on lending limit the money supply expansion effects of a build-up in foreign reserves. That doesn't sound right - currently real interest rates are negative in China and there is a massive credit expansion. Indeed there are widespread fears of a bubble. The question I asked in the post was whether Chinese purchases of US Treasury bills partly nullify the effects of an expansion due to reserve increases in the Chinese monetary base? I assume China pays for these T bills with US reserves. The RMB has appreciated by 25% over recent years. Krugman et al are arguing for up to a further 40% increase. How would you like you savings devalued by over 50% in toto. That's what Krugman is asking of the Chinese. Thanks for the loans fellas but we will pay you back in dollars that are worth less than half of what they were worth when we borrowed from you. Of course the Chinese are upset. Uncle Milton, So you are saying that the price-specie-flow mechanism doesn’t operate (so a fixed exchange rate system doesn’t lead to inflation in the surplus country) because government controls on lending limit the money supply expansion effects of a build-up in foreign reserves. That doesn’t sound right – currently real interest rates are negative in China and there is a massive credit expansion. Indeed there are widespread fears of a bubble.

The question I asked in the post was whether Chinese purchases of US Treasury bills partly nullify the effects of an expansion due to reserve increases in the Chinese monetary base? I assume China pays for these T bills with US reserves.

The RMB has appreciated by 25% over recent years. Krugman et al are arguing for up to a further 40% increase. How would you like you savings devalued by over 50% in toto. That’s what Krugman is asking of the Chinese. Thanks for the loans fellas but we will pay you back in dollars that are worth less than half of what they were worth when we borrowed from you. Of course the Chinese are upset.

]]> By: Uncle Milton http://www.harryrclarke.com/2010/03/20/attacking-china/comment-page-1/#comment-10616 Uncle Milton Mon, 22 Mar 2010 08:22:58 +0000 http://www.harryrclarke.com/?p=2864#comment-10616 Harry, if you want the US to consume less and produce more than one key price is going to change and that is the US dollar renminbi exchang rate. Krugman is right. The Chinese are not allowing a key equilibrating mechanism to run its course. This is not in anyone's interest. Prices do matter in macroeconomics. As to why the Chinese build up of forex isn't inflationary, as you'd expect, it's a good question. But China is not a normal economy. They can stop banks from lending all this putative excess liquidity by regulation and fiat. Harry, if you want the US to consume less and produce more than one key price is going to change and that is the US dollar renminbi exchang rate. Krugman is right. The Chinese are not allowing a key equilibrating mechanism to run its course. This is not in anyone’s interest.

Prices do matter in macroeconomics.

As to why the Chinese build up of forex isn’t inflationary, as you’d expect, it’s a good question. But China is not a normal economy. They can stop banks from lending all this putative excess liquidity by regulation and fiat.

]]> By: Sudie Sankowski http://www.harryrclarke.com/2010/03/20/attacking-china/comment-page-1/#comment-10602 Sudie Sankowski Sun, 21 Mar 2010 04:15:44 +0000 http://www.harryrclarke.com/?p=2864#comment-10602 Another new posting with valid points, I've been a lurker here for a short time but wish to become more engaged soon. Another new posting with valid points, I’ve been a lurker here for a short time but wish to become more engaged soon.

]]> By: conrad http://www.harryrclarke.com/2010/03/20/attacking-china/comment-page-1/#comment-10592 conrad Sat, 20 Mar 2010 19:58:51 +0000 http://www.harryrclarke.com/?p=2864#comment-10592 If you can't solve your own problems, make sure you blame them on someone else -- even if it makes the situation far worse. . It's not just the huge amount spent on trying to get rich by fiddling numbers (including the massive government subsidies) -- it's the huge amount wasted on their military machine. It's like the old Soviet Union where all their money was spent on paranoia and non-productive things like thousands and thousands of nukes. If you can’t solve your own problems, make sure you blame them on someone else — even if it makes the situation far worse.
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It’s not just the huge amount spent on trying to get rich by fiddling numbers (including the massive government subsidies) — it’s the huge amount wasted on their military machine. It’s like the old Soviet Union where all their money was spent on paranoia and non-productive things like thousands and thousands of nukes.

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