31 replies to this topic

[dre]

It's a temporary thing because the large global economic disparity is new. Globalization will work to even this out.



Whenever we go to this, I don't understand. Does this mean the price of Chinese exports will rise or fall ?



See question above.



Yes, I agree that this will happen eventually.



Things will eventually settle, and the sea change will be complete with China as a 1st world nation.

It's a temporary thing because the large global economic disparity is new. Globalization will work to even this out.

Global economic disparity is NOT new. The only thing new here is massive trade defecits. Like the Roman empire we are trying to shore up our standard of life by printing dollars. The problem is the value of those printed dollars is backed by production, and it diminishes the more you print.

Whenever we go to this, I don't understand. Does this mean the price of Chinese exports will rise or fall ?

It will rise a lot. Like I said the cost of producing chinese goods would increase 250-300% if china stopped pegging its currency... now... today. Those snowpeas would already cost more than domestic brands.

Things will eventually settle, and the sea change will be complete with China as a 1st world nation.

No sea change required! Youre simply describing an economic imbalance being corrected... This has been going on for thousands of years.

This is actually about the 5th or sixth era of "globalism".


Thats why its important to try and assign some meaning to that word. Ask ten globalists what it means and youll get 10 diferent answers.

Some people will point to the political connectedness between nations caused by new technology. This trend is here to stay and is likely irreversible.

Others will point to the ability of nations to enter into voluntary contracts with each other... but this has existed for thousands of years.

BUT... when some people people think of globalism what they really identify with is the recent period where international trade as a percentage of global GDP is at historical highs. Most people indirectly associate that term with the glut of trade and the massive flow of goods from east to west that started in the 70's and 80's. Most of this trade is going to dry up and economies will localize again (as you seem to realize).

Its a chicken VS egg type of question and theres two ways to look at it. Is the new economy the result of all these trade agreements and some grand new design named "globalism"? Or is it the opposite... The policies that we know of as globalism were actually the inevitable result of that economic imbalance that created an incentive for comsuming nations to want access to those dirt cheap goods?

The interesting argument isnt whether globalism is bad or good. Its different things to different people. The interesting argument is what it actually IS and why its here AGAIN at this particular time.

Edited by dre, 27 January 2012 - 02:15 PM.

[cybercoma]

Don't worry guys! Nothing to see here! It'll all come out in the wash. Just like the Great Depression. Just let the market work its magic! No need to intervene!

[dre]

Don't worry guys! Nothing to see here! It'll all come out in the wash. Just like the Great Depression. Just let the market work its magic! No need to intervene!

They are intervening like crazy...

[eyeball]

The interesting argument isnt whether globalism is bad or good. Its different things to different people. The interesting argument is what it actually IS and why its here AGAIN at this particular time.

The technology that now exists coupled with the prevailing dominant ethos has resulted in a profoundly different environment for this version of globalism to evolve in than previous incarnations enjoyed. What it will become or evolve into could be profoundly interesting too.

I wonder what a transnational corporation infused with the self-awareness of artificial intelligence would come to imagine for itself.

Speaking of the dominant ethos these days resistance to being either absorbed or consumed by it appears futile.

[eyeball]

They are intervening like crazy...

I get this image of technicians frantically trying to push the control rods in as far as they can go.

[dre]

I get this image of technicians frantically trying to push the control rods in as far as they can go.

Yeah in another thread I posted a little analogy to help people grasp the gravity of whats going on here. They have dumped more than 15 trillion dollars into the system to try and stave off collapse and massive failures in the global banking system.

15 trillion dollars is a stack of one dollar bills more than a million miles high... It would reach to the moon, and back... twice. A stack of one trillion dollar bills is about 67,000 miles high.

Its a good thing money is electronic these days, because if all those dollars actually had to be printed on paper, the banking system would cause massive deforestation

[Michael Hardner]

Yeah in another thread I posted a little analogy to help people grasp the gravity of whats going on here. They have dumped more than 15 trillion dollars into the system to try and stave off collapse and massive failures in the global banking system.

15 trillion dollars is a stack of one dollar bills more than a million miles high... It would reach to the moon, and back... twice. A stack of one trillion dollar bills is about 67,000 miles high.

Its a good thing money is electronic these days, because if all those dollars actually had to be printed on paper, the banking system would cause massive deforestation

But 15 1-trillion dollar bills is entirely manageable. On the other hand, in pennies....

etc.

[dre]

But 15 1-trillion dollar bills is entirely manageable. On the other hand, in pennies....

etc.

What do you mean "its managable"?

[Michael Hardner]

What do you mean "its managable"?

The stack isn't that high.

[Michael Hardner]

I didn't realize you responded here.

Global economic disparity is NOT new. The only thing new here is massive trade defecits. Like the Roman empire we are trying to shore up our standard of life by printing dollars. The problem is the value of those printed dollars is backed by production, and it diminishes the more you print.

Printing dollars means deficit spending yes ? Means borrowing against the future and pumping the money into the economy ?

It will rise a lot. Like I said the cost of producing chinese goods would increase 250-300% if china stopped pegging its currency... now... today. Those snowpeas would already cost more than domestic brands.

I don't understand how this works.

[dre]

The stack isn't that high.

Gotcha, sorry Mike, I didnt read carefully. I thought you meant infusions of cash like this were managable.

[Michael Hardner]

Gotcha, sorry Mike, I didnt read carefully. I thought you meant infusions of cash like this were managable.

Still a few questions for you two posts up, though...

[dre]

I didn't realize you responded here.

Printing dollars means deficit spending yes ? Means borrowing against the future and pumping the money into the economy ?

Yes, although I wouldnt described it as borrowing against the future in monetary terms... Future generations could probably settle all that monetary debt for a bottle of whiskey and a box of cigars. What we are really taking from them is natural resources.

I don't understand how this works.

Ok lets start here.... This is a pretty good basic example of how a floating currency exchange is meant to correct trade imbalances, followed by a description of how China manipulation works.

When a consumer in the U.S. buys a Chinese product, Chinese manufacturers are paid in US dollars. These U.S. dollars are then deposited in a U.S. bank account. At this point, the Chinese exporter needs to convert dollars into yuan. Through its commercial bank it sells the U.S. dollars to the Chinese central bank, the People's Bank of China. Since the trade between the United States and China does not balance, there is a shortage of yuan and a surplus of U.S. dollars in the Chinese central bank (therefore the Yuan must be 'created'). The usual remedy to this situation used in international trade would be for the Chinese central bank sell its dollars on international currency markets and buy yuan in exchange, resulting in a self-correcting system: the U.S. dollar weakens and the Chinese yuan strengthens, until equilibrium is restored and the trade gap closes.

However, in order to avoid this situation (which would decrease Chinese exports), the Chinese central bank chooses a different solution: it slows the appreciation of the Yuan, or in some cases effectively pegs the CNY against the USD. The central bank net buys USD, then sterilizes the excess dollar flows by buying dollar-denominated assets, such as U.S. treasuries. This has the effect of keeping the excess dollars out of the currency exchange markets, where they would cause a correction in the exchange rates. Thus, the Chinese central bank manipulates the exchange rates by creating yuan and buying U.S. debt.

Thats the basic Wikipedia definition, and its pretty good so Im not going to add much. Basically instead of china taking all those US dollars and trading them on international currency markets to get the yuan they need for chinese manufacturers to purchase supplies and pay wages, they spend all that money on US treasuries and simply issue new yuan. This reduces the ammount of US dollars availabe in the currency exchange which puts upward pressure on the value of the dollar, and decreases the demand on the exchange for yuan which puts downward pressure on the yuan.

Tweak things just right and its basically a yuan to dollar "peg".

If China allowed their currency to float it would be worth roughly 3 times what it is now on international exchanges. A chinese DVD player that costs $25 US dollars would cost $75 dollars, and domestic US producers would be competetive (or at least a lot closer). US domestic production would increase and jobs would be created, and chinese exports would decrease and jobs would be lost there.

Edited by dre, 02 February 2012 - 05:06 PM.

[Michael Hardner]

If China allowed their currency to float it would be worth roughly 3 times what it is now on international exchanges. A chinese DVD player that costs $25 US dollars would cost $75 dollars, and domestic US producers would be competetive (or at least a lot closer). US domestic production would increase and jobs would be created, and chinese exports would decrease and jobs would be lost there.

http://en.wikipedia.org/wiki/Renminbi#Purchasing_power_parity

Trying to understand this - but the wiki page above says

One recent study suggests 37.5% undervaluation

[dre]

http://en.wikipedia.org/wiki/Renminbi#Purchasing_power_parity

Trying to understand this - but the wiki page above says

Iv read all kinds of estimates and Im not sure which one is right, so ill retract mine and well use yours. But even if we just use the number in your link, that still represents a hugely slanted playing field.