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2004-11-08 Home Front: Economy

Dollar expected to fall amid China's rumoured selling

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Posted by anonymous2u 2004-11-08 12:19:45 PM|| || Front Page|| [1 views since 2007-05-07] Top

#1 Euros who want to make money will buy American.

The question isn't if China is selling dollars. It's what are they buying? I suspect they aren't selling. The dollar is still the currency of choice worldwide. Euros get them no advantage, overpriced and underbacked as they are.

Posted by Chuck Simmins 2004-11-08 12:28:38 PM|| [http://blog.simmins.org] 2004-11-08 12:28:38 PM|| Front Page Top

#2 FT: China, which has $515bn of reserves, was also said to be selling dollars and buying Asian currencies in readiness to switch the renminbi's dollar peg to a basket arrangement, something Chinese officials have increasingly hinted at.

This makes the other Asian currencies stronger versus the dollar, increasing China's competitiveness. It means that other Asian countries (especially Japan and Korea) will increase their purchases of dollars to regain currency competitiveness, thus negating the Chinese actions. I see the Chinese losing huge chunks of cash if they follow through with this. (The Malaysians tried this some time back and they lost billions). Good...

Posted by Zhang Fei 2004-11-08 12:29:34 PM|| [http://timurileng.blogspot.com] 2004-11-08 12:29:34 PM|| Front Page Top

#3 The US treasury has been urging the Chinese to float their currency for a long time. The Chinese are selling their dollar reserves so that other buyers/countries are left holding the bag when the renminbi is revalued.

Posted by ed 2004-11-08 12:37:39 PM|| 2004-11-08 12:37:39 PM|| Front Page Top

#4 Countries will buy our currency to the extent that they export goods to the US. It's as simple as that. They need to keep our currency high so we continue to buy their goods and they needs to hedge against valuations in our currency because we represent do much of their revenues.

Btw I hope the dollar falls, it's historically been ridiculously overvalued because it's been propped up by Japan and China artificially increasing it's value to increase their exports to us. Which is a really good deal for us since we get to borrow money for far less than we make off the money.

Posted by Damn_Proud_American 2004-11-08 12:55:46 PM|| [http://brighterfuture.blogspot.com] 2004-11-08 12:55:46 PM|| Front Page Top

#5 Wow, I just read my comment... My english needs some work ;) But my point still stands.

Posted by Damn_Proud_American 2004-11-08 12:56:57 PM|| [http://brighterfuture.blogspot.com] 2004-11-08 12:56:57 PM|| Front Page Top

#6 two points:

1) This makes our goods cheaper to export

2) This makes our *people* cheaper to employ

Great way to fix outsourcing.

Posted by Brutus 2004-11-08 1:03:38 PM|| 2004-11-08 1:03:38 PM|| Front Page Top

#7 ZF,

This makes the other Asian currencies stronger versus the dollar, increasing China's competitiveness.

??? You mean, decreasing China's competitiveness. China's imports to the US are going to be significantly more expensive, meaning they will have to improve their quality significantly if they intend to maintain or extend their market share. Perhaps this is possible in the long run, but not anytime within the next five years.

When a third-world exporter wishes to improve its economic fundamentals in the short term, it devalues its currency. A weaker dollar will not help China anytime soon. And it is absolutely devastating to wealthy export-oriented countries like Germany.

Posted by lex 2004-11-08 1:07:52 PM|| 2004-11-08 1:07:52 PM|| Front Page Top

#8 Wouldn't it be truly ironic if George Soros would now recoup his election losses by buying dollar contracts for the inevitable rebound?

Posted by doc 2004-11-08 1:12:39 PM|| 2004-11-08 1:12:39 PM|| Front Page Top

#9 Multiple forces working here.

Weaker dollar = more US exports & probably more jobs here if our exports aren't deliberately boycotted, a possibility in some places.

Weaker dollar = fewer people buying US treasuries, a real problem given the low savings/investment rate by Americans and the huge ballooning debt due to the GWOT plus tax cuts.

Right now it wouldn't be surprising if currency speculators were active - there are structural sticky places in the currency markets which are custom made for it.

Posted by rkb 2004-11-08 1:13:18 PM|| 2004-11-08 1:13:18 PM|| Front Page Top

#10 I thought this would help US.

My husband is in mfg. The Chicoms might be winning the bid, but parts are being made in the US so they have to be playing the currency differential. Trinket-wise, all China all the time, but stuff that goes inside machines???? US.

But they can't compete on turnaround time and quality in some areas. And if AQ and their ilk start sinking tankers.... more stuff will come home or go South.

Plus, earlier this year I read an article in the Brit papers that the Sauds cried wolf, said the Euro wasn't ready for prime time and lost about $200 bill on their play.

Posted by anonymous2u 2004-11-08 1:18:29 PM|| 2004-11-08 1:18:29 PM|| Front Page Top

#11 Well, rkb, there might really be a mandate to cut the budget.

I have some ideas.

I wonder if Ter-AY-Zha is buying international stocks again and dumping treasuries.

Posted by anonymous2u 2004-11-08 1:27:21 PM|| 2004-11-08 1:27:21 PM|| Front Page Top

#12 My inner conspiracy theorist wants to see China's actions as an attempt to undermine the US economy and make us too weak to consider military action against their new partners in Iran.

Posted by AzCat 2004-11-08 1:47:15 PM|| 2004-11-08 1:47:15 PM|| Front Page Top

#13 China selling dollars does not weaken the economy, at least in the short term. In the middle term, China will have less dollars with which to fund its explosive growth in infrastructure improvement and military hardware. Since China runs a trade deficit with everyone but the United States, it won't hurt us for a while. Russia prices its Kilos in dollars, not Euros.

Posted by Chuck Simmins 2004-11-08 2:36:57 PM|| [http://blog.simmins.org] 2004-11-08 2:36:57 PM|| Front Page Top

#14 lex: ??? You mean, decreasing China's competitiveness. China's imports to the US are going to be significantly more expensive

China competes primarily with the East Asian countries for manufacturing work. Many of China's exports used to be exports from other East Asian countries (Singapore, Malaysia, Thailand, Indonesia, Korea and Taiwan). China's cheap wages (1/4 to 1/10 of many East Asian countries) made it necessary for many manufacturers in those countries to relocate their plants to China just to stay alive. By buying up the currencies of its East Asian neighbors, China is making their currencies stronger relative to the Chinese yuan, thereby keeping Chinese manufacturing wages low relative to theirs and helping to keep Chinese costs competitive compared to other East Asia countries.

This isn't pure currency speculation on China's part - a lot of it is trade-related. If the Chinese yuan becomes stronger with respect to the East Asian currencies, it will become less attractive for foreign investors to build factories in China. China's purchase of East Asian currencies is just a pre-emptive strike against the possibility of the Chinese yuan increasing in value against the East Asian currencies. And China's neighbors will retaliate by buying up dollars to keep their currencies competitive.

Whatever happens, any shift in jobs will primarily be from one East Asian country to another. In the event that China's currency becomes too strong, investors in China's coastal areas are looking at building plants in coastal and riverine countries like Vietnam, Laos and Cambodia instead of in China's interior because of the high transportation costs involved in using China's undeveloped road networks.

Posted by Zhang Fei 2004-11-08 2:37:05 PM|| [http://timurileng.blogspot.com] 2004-11-08 2:37:05 PM|| Front Page Top

#15 I suspect that China is actually acting at the USs behest on this one. Our economist gnomes showed their economist gnomes through great and powerful number-crunching magic that their economy was about to self-destruct, unless they did exactly this. It will be very painful, and will probably be their first major recession, perhaps lasting several years; but it will keep them from utter and chaotic collapse.

Posted by Anonymoose 2004-11-08 3:41:49 PM|| 2004-11-08 3:41:49 PM|| Front Page Top

#16 Moose: Despite the selling of dollar reserves and the recent interest rate increase, it's hard to believe that China is anywhere near a recession. Inflation is still relatively low, and growth is still projected at 9%.

I believe that when the economic crunch comes for China, because of its internal political and economic structures, it will result in a collapse, not a recession. China is not a free market in any recognizable sense of the term and will not behave as a free market does. It's a pyramid scheme, and has to tumble eventually.

Look for Chinese to starve and warlords to become publicly visible. I would suggest an interesting possibility in the First World economic region around Shanghai uniting with Taiwan out of self-preservation and necessity.

Posted by Chuck Simmins 2004-11-08 4:31:53 PM|| [http://blog.simmins.org] 2004-11-08 4:31:53 PM|| Front Page Top

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