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

You sound very speculative about his position and yet your opposing theory is as affirmative.

Is your view point politically motivated? Do you really understand what Krugman was saying? So far I didn't hear any good positive informative criticism toward Krugman's numbers and conclusion in this thread.

I am not saying I like what he says, but make sure you understand what he says if you want to disagree and share with others.

 

Are you still in elementary school?

 

Numbers don't dictate ethics. There are underlying assumptions behind Krugman's advocacy that are legitimate subjects of critique. Are technocrats not authoritarians?

 

Undervalued currency=some cheap ass labor

 

If I'm not mistaken (and I very well could be) about 6/10 Chinese people are under the poverty line already.

I don't know who's quote it is but its something like, one of the most difficult things for a human being is to choose to reduce their own standard of living.

 

That's funny, I was just reading an economist article on almost exactly the same thing, but this one advocates a different approach.

http://www.economist.com/opinion/displayStory.cfm?story_id=15663352&source=features_box3

 

lol @ people (PRCbots mostly) trying to pretend like a Nobel Prize in economics suddenly doesn't mean anything (predictably, by citing a bunch of recipients of the Peace prize - an entirely separate institution).

I'm going to give you boys a little hint:

it does.

Oh, and for the goofball who is obsessed with living in a mud hut - please go there now.

 

This is what I'm thinking too. Can someone explain how the US can come out of this relatively unscathed?

As for China losing a lot of money, I just want to mention that if there's one good(or bad, depending on your perspective) thing about a one-party system, its that the CCP could in fact get away with such a debacle in front of its people. Something that's inconceivable in a more democratic system.

 

A 20% appreciation of the yuan is not going to default anybody.

This is about China stopping its proactive policy of currency manipulation, plain and simple.

 

I understand this. I guess I wasn't clear about "China losing money". I was talking about China's losses in the eventuality that US carries out its threat that Krugman feels is a huge negotiations leverage. I understand the reasoning from an economic standpoint. But international politics isn't always about economics.

 

lol @ paranoid pseudo freedom fighters. Nobel Prize in economics means a lot, still, Nobel Prize winner could be wrong, especially they were wrong many times before.

Nobel Prize in Freedom on the other hand, probably didn't mean that much, especially when people like Arafat was a winner too. President Obama won it after having led some community work in Chicago.

Have you read "Crash Proof" from Peter Schiff? Probably not. According to him, the whole barf about "artificial undervaluing RMB" was maybe a reverse psychology, so the Chinese WON'T do what Americans ask them to do. According to him, higher RMB valuation is the worst thing could happen to US economy.

Again, Peter Schiff is no God, and he could be wrong. But he was right about the housing bubble; he was right about the stock market crash; he was right about Greenspan; he was right about the Feb monetary policy; he was right about the gold price. He was right BEFORE all those happened. You know what? He could be right again, although he didn't win a Nobel Prize.

 

Oh bomb diggity, the Clutchfans PLA is digging up Ron Paulites on economics now. Goodness gracious.

That marriage should end well.

PS since we're citing random bubble callers, Jim Chanos says hi.

 

Sammy boy, you never fail, how predictable?! lol. Every time when discussion goes towards any substance, you resort to your little games of name-calling. 28 thousand plus posts occupy lots of bandwidth and storage, most of them were empty ranting and insulting.

BTW, post a few of your beloved Nazi pics, so you can complete your mission here fighting virtual evil commies. Cheers.

 

Jim Chanos just shorted your mom while you were typing that post.

Oh these appeal-to-authority arguments citing random financial guys are fun. At least mine is not obsessed with the gold standard. Please join us here in the 20th century when you get a chance brah.

The fact of the matter is that all credible evidence does point to China keeping the value of its currency artificially low. Unless you can dispute this, you should stop talking now.

 

Not sure what you are arguing about. Everyone, including Chinese government, agrees, that the exchange rate was artificial. RMB is not free-trade currency, duh. The main argument was whether this low rate is beneficial to Chinese government only, or it's beneficial to Chinese people and American people as well.

I would argue that a strong RMB will actually benefit Chinese people in China more, while the low rate benefits the Chinese government more. To what extend, I don't have the expertise to make a clear mind. Nor are those loud politicians presenting any actual number and analysis to justify it. I believe a strong yuan will boost domestic economy more in China, and as many pointed out a great way to fight the inflation and crazy real estate market.

American people have enjoyed the cheap lab provided by Chinese workers, enabled by this low exchange rate. American companies have enjoyed the benefit of this low rate, as Warmat's goods produced in China are actually counted as trade surplus as well. Goldman Sachs and Morgan Stanley have been making insane money by investing in Chinese real estate with this low exchange rate. As for manufacture jobs, if they are not lost to China, they would have been lost to India, Vietnam, Mexico anyways. The whole "outrage" from politicians are just acts.

There is no such thing a higher exchange rate will fix all the problem, and there will be pros and cons for every move, in either direction.

Clutch can stop me from talking but you can't. Clutch can stop you from name-calling, and I can't.

 

I still think Krugman has a very nuanced point. It amounts to dealing with them now while the dollar is the strongest of the weak currencies.

Dumping dollars in any context would be a difficult thing for any central bank because of the amount of our debt they all have. If it were that easy, a lot would've tried to in the last decade when Bush was blatantly pushing a weak dollar policy. They could've jumped back any time.

Punking China or daring them to blink amounts to a wreckless attitude that other banks would notice. Who knows if they would halt purchases as well and would prompt the Fed to sop up that demand too.

Maybe you think Krugman's article is just introducing the notion that we have more leverage than we think, which is true to an extent. But that ultimately depends upon the understanding or biases each reader has, which I think is Krugman's ultimate political intent.

 

You just listed three countries that would be happy to make the crap sold at Walmart. Why you don't see this as a distinct possibility if China doesn't make an effort of conform to world financial norms is a mystery to me. We don't have to buy our crap from China. We can buy our crap from someone else, who would be thrilled to have the work, have the jobs, have the properity, but without artificially manipulating their currency to do so. We used to buy our crap from Japan, from Korea, from Taiwan. The United States is not obliged to buy cheap goods from the Peoples Republic of China.

 

The problem, I believe, is that no one else is also willing or capable right now of buying up our DEBT, which is what allows us to buy up those cheap goods in the first place. Which country will step in and save the day for us should the PRC drastically reduce their Treasury purchasing or even worse, start "diversifying" out of dollars?

 

http://www.forbes.com/2010/03/16/kr...ership-citizenship-rein.html?partner=yahootix

Krugman Is Still All Wrong About The Yuan
Shaun Rein, 03.16.10, 11:37 AM EDT
His recommended fix for China's currency undervaluation would only make matters far worse.

In his latest column in TheNew York Times Paul Krugman recommends that the U.S. impose a 25% tariff on Chinese imports unless China appreciates the renminbi, its currency, whose principal unit is the yuan. As I'vewritten before, the Chinese government can't risk revaluing its currency until world markets are more stable or it will risk driving Chinese exports back into a tailspin, which I estimate would result in another 5 million job losses. Far too many factories are running on the paper-thin margins that American companies like Target and Wal-Mart demand from their suppliers. An appreciation of the yuan would immediately put those factories out of business, just as many closed down when China appreciated the yuan 20% between 2005 and 2008.
Moreover, Krugman doesn't take into account the fact that rising labor costs are already helping fix the imbalance in the dollar-yuan exchange rate without an actual appreciation, and he fails to acknowledge that China's surplus is actually decreasing as China's domestic consumption grows. You don't have to change the exchange rate directly to make the yuan more fairly valued. Even Jim O'Neill, Goldman Sachs' chief economist, who has repeatedly criticized China's exchange rate policy, recently said that the yuan is no longer as underappreciated as it has been.
The reason? Rising labor costs and increasing Chinese consumption. In the last several months many provinces in manufacturing areas have raised the minimum wage and started to enforce the rules that companies must pay medical and social security costs for employees. In Shanghai the government finally equalized the medical and social security benefits for Shanghai residence permit holders and non-Shanghai residents working in Shanghai.
A year ago if a company paid a Shanghai resident $300 in salary, it also had to pay approximately $180 in benefits, while it only had to pay $60 in benefits for a nonresident working there. Now companies have to pay every worker the same amount. That not only is fairer to workers, it also increases companies' cost of doing business, which helps solve the exchange rate imbalance. Doing it this way rather than through an actual appreciation gives companies the ability to plan and make alterations to their business models--such as automating their production lines and creating their own brands, rather than simply being original equipment manufacturers--in a way that a sudden appreciation of the yuan would not.
Rising labor and real estate costs are causing factories to move to China's poorer neighbors like Vietnam, the countries that, unlike the U.S. and Europe, are truly hurt by a weak yuan. Krugman suggests that the China-U.S. trade imbalance would drop if the yuan appreciated, but such a case is also unlikely, as most companies would simply move production to lower-cost places rather than accept lower margins or move jobs back to the U.S., where workers are unlikely to accept $100 a month to make Nike sneakers.
If China doesn't appreciate the yuan anytime soon--and Chinese Premier Wen Jiabao made clear last week that it won't--should the U.S. impose a 25% tariff, as Krugman advocates? I don't think so. Such a course of action would not help anyone.

 

First, although globalization has become a popular whipping boy in the financial crisis, some level of globalization does help both American companies and consumers. One thing Krugman seems to forget is how much American companies benefit from production in China. Take Apple ( AAPL - news - people ) and the iPhone, for example. Apple is a huge beneficiary of overseas production. Chinese workers assemble phones at factories in Guangdong owned by Foxconn, a Taiwanese company, but Apple is so good at squeezing all it can from its suppliers and manufacturers that most of the profits go to Apple.

Jason Dedrick, a professor at Syracuse University and co-author of the study Mapping the Value of an Innovation: An Analytical Framework, estimates that only 2% of the retail price of an iPhone goes to its Chinese assemblers, and 50% goes to Apple and the retailer in America. Imposition of a 25% tariff would hurt Apple, and Apple's workers in the U.S. and shareholders, the most. American companies are scrounging for any profits they can get right now. Increasing their costs and consumers' costs will not get the economy back on track. Until companies start to generate more earnings, the employment picture will not brighten.

Furthermore, if product prices increase because of tariffs, there's greater danger of massive inflation. Increasing import duties while the Fed increases the money supply and keeps interest rates low would have an astronomical net cost to the American consumer. With consumers already paring down their spending, inflation is something the Fed needs to be very concerned about. The U.S. needs to rebuild global confidence in the dollar. A weak dollar benefits no one right now.

What should the U.S. do about the yuan? Instead of calling China a currency manipulator, as many in Congress want it to do, the Obama administration should continue to push for reforms, but through back channels, not public stridency. The reason is the situation within the Chinese government: Right now there is a lot of jockeying going on for spots that will open up on the Politburo Standing Committee when the current leadership retires in a few years. Reformers, trying to placate hardliners, are taking more hard-line positions, and hard-liners are becoming super-hard-line. Publicly putting China's leadership on the spot, as Google (GOOG - news - people ) has done, makes the Chinese to do the opposite of what you want. No one vying for power can be seen as soft or as giving in to foreigners.
The U.S. should also ease its restrictions on technology transfers to China, so that China can buy more value-added goods from the U.S. Too many products and technologies are banned from export to China. Allowing American companies to sell their products to more markets would be a good thing for American companies and improve the trade imbalance.
If we were to follow Krugman's advice and ramp up protectionism, a trade war would break out, and both America's and China's growth would stop. Needless to say, that would badly damage business confidence in both the U.S. and China. Global business confidence is improving precisely because emerging markets like China and Brazil are plowing ahead. Fear, more than anything else, made the current financial crisis as bad as it has been. We cannot let it reemerge.


Shaun Rein is the founder and managing director of the China Market Research Group, a strategic market intelligence firm. He writes for Forbes on leadership, marketing and China. Follow him on Twitter@shaunrein.