[QUOTE=Koxinga]
What do you mean by “market share erosion”? What do you mean by “perpetuating their own market”?
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China will experience market share erosion in the US and anywhere they sell cheap goods because their currency is bound to rise (the natural consequence of a strong economy). There are other reasons for China’s market share erosion, but this is the main one I was discussing and more relevant to this discussion. China’s goods will become more expensive as its currency strengthens causing less people to buy their goods, therefore further slowing its economy. China perpetuates its own market (in the US and other places it has a competitive advantage of selling cheap goods) by tying the Yuan to a 3% variance to the dollar (last time I checked), artificially depressing the value of the Yuan, and at the same time buying more USD to keep the currency down, here and here. The first link better articulates the real world consequences of what the Chinese are doing and why other Asian banks are careful not to compete.
[QUOTE=Koxinga]
And what’s the connection with “the economy that we’re in now”? 
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Because the US dollar is free floating (something that I urge all countries to do), and because China has been propping up demand for it, the interest rates here in the US have been low. Low interest rates mean cheap borrowing/credit. People took that cheap money and created the housing bubble. China diversifies its US holding by buying CDOs made up of these loans, thus providing the basis for the economy we have now.
[QUOTE=Koxinga]
I see no signs that China’s share of anything is eroding, unless there’s some blip in the last month or two that I haven’t kept up with. And I thought you and Airman were arguing that it was in China’s interest to prevent an economic downturn like the one America’s experiencing now.
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China’s stock market is in a downturn as noted by the article I posted in my last post and as also evidenced by my stock portfolio that tracks the Chinese market :smack: like the one I have that tracks the Dow Jones. :smack: :smack: (if I hit 12% loss I’ll probably do a post in the Pit or something). China’s market share in the US market and globally will definitely slow and erode when the Yuan rises in price. The falling US dollar means that US exports are cheap, thus again, crowding out same or like goods in the global markets.
It is in China’s best interest to keep or retain their market share, but I’d rather have them do that by being more competitive and adding value (thereby increasing wealth) than by monkeying around in the markets. They’re trying to take the easy (or Authoritarian) way out and I hope it bites them on the ass and teaches them a lesson. The more they monkey around with the economy, the more distortions and dislocations they will create and the more problems and unintended consequences (usually pretty bad ones) they will create in their society.
[QUOTE=Koxinga]
I’m not sure why this is supposed to be comforting: if personally I run up $100K in credit card bills, I’m not exactly going to be wagging my finger at Mastercard and saying ha, ha, I didn’t force you to put me so deep in the hole. Again:
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No, but you get to declare bankruptcy. I just found out that one of my friends did that exactly, but it wasn’t like she purposely spent money. Though, on the other hand, she is now in a better position and will have her debt wiped away in two years, and she still owns her house. China on the other hand will be left holding the bag. Though, they much rather not have the US default, but they will be suffering from the rise in their currency and the shrinking of their markets, not to mention some heavy inflation and ultimately large unemployment. They will probably look back through a weepy tear and see their half-ass attempt to modernize their economy and their society stagnate.
[QUOTE=Koxinga]
But anyway, and once again, doesn’t this contract Airman’s assertion that Asian central banks have no choice but to buy our debt, for fear of sabotaging their main market? If that’s not forcing them (insofar as such a thing is possible), then what is? How did China get this way in the first place?
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They made their own bed, they should sleep in it. Here’s a thought for them: why not free up the markets and let people choose to do as they please? Oh, but that’s too contrarian for the old communists.
[QUOTE=Koxinga]
Sorry, I really don’t know what you’re talking about here.
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In the long run, and in the nexus where economics meets politics meets sociology, free markets and free people is ultimately desirable. If they let their market cool down, they can focus on heading off wealth-crushing inflation and focusing on the needs of their society, like diversifying the economy away from manufacturing, creating a strong infrastructure, getting the other like 90% (or whatever percentage it is) of their population out of subsistence farming. The state run businesses that are at a loss will shifted to more productive areas. They can stop gas subsidization and encourage conservation, alternative fuel development, increased public transportation and clean up the pollution they toil in. In the long run, another large free market will make a more harmonious global economy.
[QUOTE=Koxinga]
If you agree that it’s in China’s own interest to divest away from dollars, doesn’t that support the argument that the US, still as dependent on foreign debt as ever, will need to seek out other buyers for its debt–buyers that won’t be satisfied with ~2% returns, thereby requiring an interest rate hike?
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They’ll seek out other buyers by offering higher interest rates. This will mean the end of cheap money, but it will force people to save and get their individual financial houses in order. This will normalize and stabilize prices, and head off inflation. Foreign banks (as well as people) should have diversified portfolios as a matter of minimizing risk and identifying other hot areas for investment.
[QUOTE=Koxinga]
I will be very interested to see you defend this assertion. In other words, cite?
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See the first two cites in this post. That’s why there has been a flurry of discussion of other countries holding US debt. There is a minority position out there that it was influx of cheap money set by Alan Greenspan that set cheap interest rates, but that does bear out with the facts at hand. I think it was Paul Krugman (who I respect, but don’t always agree with) who popularized this notion, but I’ve been hearing about it since 2005.
[QUOTE=Koxinga]
I’m not sure who introduced the moron-speak in this discussion, but it wasn’t me.
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Ok, chillax.
[QUOTE=Koxinga]
As for the rest: yes, yes, textbook high school economics. Except it doesn’t always work that way. E.g., Japan has staged a brilliant recovery, what, fifteen years on, is it?
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Japan was at something like 150% debt to GDP ratio last year (a surprise from the estimated 175 or 180% from the year before.) On top of that, they tried to liquidate/spend their way out by setting the interest rate at like 0%. Clearly, the Japanese market is not the American market, but even the US can’t do that. If it isn’t obvious by now, Japan’s time during their recessionary period has not been well spent.
[QUOTE=Koxinga]
Sorry, again I’m unable to parse your meaning here.
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You said you weren’t seeing a hot economy in the US. True, the US isn’t a hot economy (though relatively stable, which is very attractive). China is the hot economy. They had something like 8.6 or 9.5% growth, they can’t keep that up without a slow down or inflation. Inflation aversion should be China’s (and most country’s) number one goal. But, the trick is not to completely stave off inflation as inflation (often called healthy inflation) is needed for an economy to grow. (too simply put for an otherwise complicated concept). As China’s economy slows down, it allows the US to strengthen. It’s a win-win situation.
[QUOTE=Koxinga]
So we reiterate that inflationary pressures give China ample incentive to stop soaking up so many of our dollars to facilitate our current account deficit. Once more, where do you find the comfort in this?
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There are other ways to fight inflation. China’s example clearly isn’t the best way to do it. In fact, what China is doing with their currency monkey games is exasperating the current situation. IOW, they reap what they sow.