America has China over a barrel, not the other way around.

If this is true then why does China have to buy tens of billions of currency to keep the Mud Hutters currency artificially low?

 

Krugman's economics reputation is getting worth and worth.

 

Guess we will revisit this issue in 2020 if humans are still around by then. What did you think of when people said China in 1990, 2000? What do you think of now. Time will be the judge of everything.

 

So you are saying investment (or simply money) can turn any poor country into skilled work force? As a next door neighbore of the U.S. Mexico has had all it needed to develop but it hasn't. One has to wonder there might be something more to it.

Education is probably the most important factor. China is producing over 6 million college graduates a year. And most of those who can't make to college end up going into vocational schools of some sort. Such sheer number of educated mass is the real reason why they can make high volumns of sophisticated products at ease. Just build the roads is not enough, you also need skilled workers. That's what Mexico and other third world countries are lacking. Some posters mentioned computer screens. You place orders for things like that to China they'll build everything. But Mexico most likely has to import a lot of components to make it. Therefore the cost is higher.

It is much harder to improve the education level of a country than to build roads and power plants.

 

This isn't really true. A number of manufacturing jobs left Mexico and relocated to Asia in the early 2000's - it had a lot to do with labor costs and the appreciation of the peso, and very little to do with Chinese universities.

 

The dollar peg helps for sure, in my opinion, it helps both China and US.

In Schiff's opinion, it helps US much more than it does China, and keep advocating the so-called artificial undervaluing is reverse psychology, so that China won't throw away that peg.

In Krugman's opinion, it hurts US greatly and helps China greatly.

But China doesn't get to develop at a 10%+ rate for 20+ years with a peg only; otherwise all the other countries would be pegging and developing like crazy.

US grant green cards for skilled workers, and even super-fast-no-quota EBI and EBII for outstanding professionals. It doesn't mean US has to close all universities once they don't give green cards to foreign outstanding professors.

US encourage Toyota/Honda to open plants in US, it doesn't mean US workers will all be on the street, if they don't do so. Or Americans have no cars to drive if they don't do so.

It catches the mass with the sound-bit of "cheap labor" or "artificially undervalued currency", and it's so easy to blame on others' "foul play", but half-truth is often worse than plain lies. Huge trade surplus with US was not forced by China, but supported by US businesses with calculated decision, and encouraged by government policy (not its words). It's in fact based on cost, education level, productivity, quality, and lots of other factors.

US, as the only superpower in the world now, nobody can force its government to do anything, except for those voting voices domestically. US always have advantage in any negotiation, so US never need to resort to that approach - i am willing to cut off a leg just to upset you. I don't quite get Krugman's excitement.

If US acts it's been outraged about something for more than 10 years, but nothing has changed. Most likely, US isn't really outraged, but rather acts so, to please some acting outraged voters.

 

It's not just the US that's hurt by this policy, it's the rest of the world.

And please, you are trying to present Schiff and Krugster as equals here - that's laughable.

Whatever you feel about his politics, Krugman is an actual economist - a nobel prize winning one - who won the nobel prize for his research into international trade.

Peter Schiff is a Ron Paul-ite demogogue/broker dealer from Connecticut, I'm not even sure if he even has a bachelors degree in economics. It is very nice that he predicted the collapse - so did lots and lots of shortsellers all over the marketplace. That's completely irrelevant however.

No same same.

 

Give China some freaking credit.

 

This is America, all people are supposed to equal, or only they agree with you? LOL.

Sammy, you see here is your problem, as always. Instead of debating on opinions based on facts at hand or theory or personal experience, whenever you are short of counter-argument, you decide to go after the person.

There are only different opinions, no unequal opinions, whether it's from a academic, a farmer, or a self-claimed lawyer, or in this case, a Nobel Prize winner.

Next time, if you see Krugman is disagreeing with you, you will be like "Oh PLEASE, he consulted for ENRON!".

This is economics, just like software, there is never nor will ever be a one for all solution, or the ONLY right solution.

 

Schiff deserves the ad hominem attack because you are taking a crackpot-demagogue and making an appeal to authority argument based on him. You shouldn't, he's an idiot.

But anyway, I have expounded earlier on his arguments and so has Krugman:

Let's expand on elasticity pessimissm a bit.

He claims in that video that rather than behaving according to theory, a depreciation would ONLY reduce imports,and not increase exports, because the US "doesn't do any manufacturing anymore" or something absurd like this.

This is patently absurd for several reasons:

1) This is flat dead wrong according to basic economic theory unless there is a straight vertical demand curve. Anybody who learns anything about the economics of Int'l Trade starts with the baseline assumption that, when Country 1's currency depreciates with respect to country 2, Exports to country 1 decline and TO country 2 increase.

2) The US does export goods and services - it exports something like $1.84 trillion worth of goods and services per year. In fact it is probably the 3rd largest gross exporter in the world.

Approximately $1.3 trilllion of this consists of goods and not services.

http://www.trade.gov/press/press_releases/2009/export-factsheet_021109.pdf

So for Schiff to claim that the US wouldn't export goods, becuase it doesn't produce goods, when in fact, it PRODUCES OVER A TRILLION DOLLARS WORTH every year, is just embarrassing for him to say. Might as well claim the earth is flat.

3) History has shown that his theory is empirically wrong - Go back and look at the last few periods of $$$ depreciation during the 2000's, hell go back and look at it LAST YEAR. The dollar goes down in value, exports increase, imports decrease the trade deficit narrows, just like the models say it would. Why is he/you not cognizant of this

So flat out - He is wrong in theory - he is wrong in his assumptions - and he can empirically be proven wrong with actual evidence.

Can you rebut this? I asked another poster the same thing and have not heard a thing yet. Thanks in advance.

 

I thought we were debating over one issue only - whether the Chinese dollar peg is hurting US that much? Not all of Schiff's comments?

Thank you for the data you presented, so US exports did increase while Chinese dollar peg staying unchanged? Chinese "artificially kept low currency" isn't hurting US exports, right? From the biggest US export category - capital goods, US is not really competing with Chinese but rather with Europeans, correct? Or you insist that US has to take on Chinese to compete in cheap shoes market?

Then, how's forcing Chinese to drop the dollar peg going to boost US exports, while US could boost it on its own without changing at Chinese side and their strength in exporting aren't really competing?

 

No actually China did allow the yuan to appreciate a small amount in 2008 when the dollar was depreciating against all other currencies - guess what happened, US exports went up and hit an alltime high. Then the credit crucnh happened and the dollar strengthened considerably and exports fell off a cliff.

 

Wow, just wow. Seriously Sammy, do you have the slightest idea about international business/finance?

1. What currency doing think bilateral trade between China and the US is engaged in? Could it be the dollar, the world trade currency? So here you are, a Chinese producer, received the order, when do you think you get paid? Without going into the details of the whole thing, it typically occurs when the goods arrives in a port in the US, in which case the relevant port will send a received notice (I forget the precise term) to the American company's bank for clearance of payment. The whole process would take at least weeks, if not months. So if the RMB appreciates during that time, what do you think happens to the Chinese producers? They'd be shooting themselves in the foot, especially considering how much money the Fed is printing.

Or of course they can buy multi-million dollar hedges which some of my colleagues would be glad to sell to them...

2. It already is a level playing field (as much as can be expected) when it comes to those "countries that have a right to complain" when it comes to currency valuable. The HK $ is pegged to the dollar. The Vietnam Dong is pegged to the dollar. Want richer countries? The Korean Won was tied to pegged to the dollar at some point. As was the Japanese Yen, incidently another country attempting (though unsuccessfully) to weaken its currency.

Indonesian gave more than a little talk of pegging to the dollar.

The Thai Baht was pegged to the dollar. Incidentally, their decision to float the currency kicked off the Asian Financial Crisis, banks and hedge funds more than realized the house of cards in Thailand and shorted the hell out of that sucker.

So why don't those countries complain about the RMB-dollar peg? Because their own noses aren't that clean. They will be using such monetary policies again in the future which limits their credibility should they can for the RMB to appreciate.

3. Directly related to the above, prior to the Asian Financial Crisis, all of those countries you mentioned about had at least a soft dollar peg, not unlike what China pre 2008. Didn't matter, China wiped them out any ways. Part of the cause of the Crisis was their lack of ability to compete with China. So you think they could compete now when China is in a even stronger position because...?

4. You should read up what your buddy Paul Krugman said about the "Asian Tigers" and their Asian miracle. To summarize for you though, he believed the only reason that regions showed growth was due to the inflow of hot money (again incidentally due in part to much higher rates), causing a speculative bubble, especially in real estate.

5. I said the Chinese government is extremely favourable to businesses and I stand by that decision. I didn't say the US would benefit but Corporate America benefits just fine. In fact, they are all too happy with the dollar peg. More interestingly, their sole purpose is the pursuit of profit, no behind the scenes political motives (unless it favours them). They would not hesitate to drop China like a sake of potatoes should it benefit them. So if those aforementioned countries can compete, why aren't they their already.

6. Of note too Sammy, Joseph Stiglitz is officially on record calling for the US to weaken the dollar. I was wondering when that was going to happen. But I gave him some credit. You know why? He stated there are economic policies that benefit the international community and there are those that benefits a country. He further stated that weakening the dollar won't help international economics but would help the US in the near term.

So I gave him credit for at least not being a hypocrite. You on the other hand...

 

Wow. Sammy, I can't believe I missed this little gem last night. Are you talking about the increase in exports during those bubble years in the 2000's? You mean to tell me that exports would increase during what would turn out to be one of the biggest series of bubble years in history, with an extremely loose monetary policy to boot, where worldwide consumption (but especially in the west) reached new new new record levels? Oh boy. Colour me shocked.

Might want to check your numbers again. Germany, Japan, ALL exporter nations' exports increase. China for example, had RECORD export years despite the currency appreciation and a 28% rise in labour cost.

But don't let facts get in the way of your bullsh1t.

 

Wait, so you're saying with a depreciating dollar, US exports increase? THat's amazing! Because it really rebuts MY argument, which is that with a depreciating dollar, US exports increase. (PS they increased in real terms, not just nominal ones FYI).

 

This never gets old:

Homer: Not a bear in sight. The Bear Patrol must be working like a charm.
Lisa: That’s specious reasoning, Dad.
Homer: Thank you, dear.
Lisa: By your logic I could claim that this rock keeps tigers away.
Homer: Oh, how does it work?
Lisa: It doesn’t work.
Homer: Uh-huh.
Lisa: It’s just a stupid rock.
Homer: Uh-huh.
Lisa: But I don’t see any tigers around, do you?
[Homer thinks of this, then pulls out some money]
Homer: Lisa, I want to buy your rock.

 

Geez Sammy, that's a new low in terms of idiotic arguments even from you. You see, there is this thing called a demand curve, and occasionally it shifts outwards, in which case it did, by alot, during the early 2000's, due not only due to unprecedent appetite for consumption, but also funded by (at the time) unprecedented easy money. Believe it or not, in such a case, at EVERY price point, demand went up, irrespective of the supply curve. That is by definition, a shift in the demand curve. Hence, for every supplier nation to satisfy that demand, China, US, Germany, Japan, etc, exports went up.

And while I may not necessarily agree with Schiff, he did not say anything that violated modern economic theories. For example, he did not violate the demand curve by saying something along the line of "demand of American goods would go down if American goods were cheaper." He said American goods still would not be favoured the best because even without China, there are still other nations (many, as a matter of fact) that would be willing to supply the goods for less, which is absolutely true. I mean, man, sometimes I think you can't distinguish between the supply curve from the demand curve.

Also, as real_egal already mentioned, America and China don't compete for exports in the same segment. Haven't for years. During those bubble years, the increase in American exports didn't come at the expense of China. Your insinuation that allowing the RMB to appreciate will create American exports in those segments (assuming there are still American producers producing them) is like saying Mercedes lowered the price on its luxury sedans to better compete and gained market share against Apple IPods.

Face it, those segments aren't coming back no matter where the RMB is. Want to know? Google comparative advantage. Hell, google absolute advantage too, because China has that in that particular segment.

 

The difference is that unlike rocks and bears, between which there is no logical connection, the exchange rate is both theoretically and empirically known to be a driver of exports which is why China buys billions of dollars every day to keep it artificially low.

Then why does the trade deficit narrow at the same time? If what you were saying were true, the US trade deficit wouldn't narrow when the currency depreciates, yet it does. Just like the theory would predict.

 

I don't have much to add to this thread except that I wouldn't rely on the argument that the Chinese can tolerate living in mud huts while Americans can't to say that the PRC can win a war of economic attrition.

The current generation of Chinese have not lived in mudhuts and all those residents of Shanghai and Beijing and are not going to take well to living in mud huts after living for decades in modern cities. At the sametime the stability and even survival of the CCP since the Cultural Revolution has been driven by the implicit deal of improving standards of living. If they fail to deliver on that there is no telling that whether the Chinese people will continue to support the CCP out of shear patriotism.

 

Check again Sammy. The US' annual trade imbalance during those bubble years went from the $83 billion in 2001, the end of the last recession, to $263 billion in 2008, early in the current Great Recession, before the common man knew how deep of a sh1thole we're in.

The US' shrinking trade deficit did not come at the expense of China or SE Asia or (to a lesser extent) Brazil. It came at the expense of Europe, Japan and Canada, which do compete in the same segment.

But I got good news for you Sammy. Lost in all the political hubris is the fact that US exports to China reached a historical January high this year, despite the dollar peg