The accusation of currency manipulation is a pretty serious gauntlet to throw down. Currency manipulation is a serious crime and Congress is required to act on it. The government has avoided calling China a currency manipulator.
This seems to me to be the kind of rookie mistake that can come to haunt Obama during his whole administration. What do you think will be the result of this?
China has been accused of this for years. They have ignored the worlds financial experts who have bitched about it. You can not force them to float the currency but the prez is just airing out the problem for the world to see. It is not a mistake.
Well, it’s a pretty bold move.
He’s been doing quite a bit of that in his first few days.
I’ll be the dumbass.
What’s currency manipulation? I’m thinking it’s probably not folding a dollar bill into a swan, right?
I think its when you show the big mushroom on the one dollar bill.
Seriously though, I think this is the important part of that linked article:
Sounds right and proper to me. What else would you have him do? Ignore the problem?
It’s never officially been a problem before, that’s the news.
ETA: Whatever the fallout, I don’t think a misstep is an appropriate term. That implies an accident. I’m sure this was 100% intentional.
Nope. It’s when you draw a smiley face in every zero on the bill.
It’s when a government (or sometimes private individuals, like George Soros) artifically change exchange rates between two currencies for their own benefit.
mswas, would you explain why this is “potentially catastrophic?” If you’re suggesting it’s because China might decide to bankrupt the U.S. I’m going to disagree in advance, because that’s not going to happen.
That would be Japan.
You keep your currency at a artificially low or high exchange rate to other currencies in order to encourage/discourage imports.
Currently China is thought to be undervaluing the Yuan so as to make it harder for it’s citizens to buy imports. This makes the US sad as we’re unable to sell as much stuff to the Chinese as a result.
That said, I don’t really get the controversy, the Chinese gov’t has always said they keep their money pegged to within a percent or so of a ‘basket’ of western currencies. here’s their central bank saying as much.
Because it could get him started on the wrong foot in terms of Chinese relations. The term, “Currency Manipulator”, is a pretty harsh indictment. It’s not quite as bad as calling them a supporter of terrorism, but it’s not that far down from there either. Essentially, it’s throwing down the gauntlet and calling out China for hostile policy. Maybe it’s a good idea, but it is pretty serious.
Of course China has been doing it for years- we haven’t complained because they keep buying our Treasury bonds and financing our economy. Sounds like Obama is tossing a bone to the labor unions.
The way China does this is they require Chinese businesses to convert the dollars they earn from exports into yuan at the Chinese central bank. The Chinese central bank buys these dollars from Chinese businesses with PRINTED yuan, and this has the effect of driving down the yuan vis a vis the dollar. If the Chinese businesses just converted the dollars to yuan on open currency markets then the yuan would have appreciated long ago and Chinese products would have been a lot more expensive to US consumers.
The Chinese central bank then turns around and uses the dollars it just bought with printed yuan to buy US treasury bonds and agency debt. This arrangement has been going on for years, and it’s what allowed our credit bubble to inflate as far as it did.
It’s easy for Obama to talk tough on the Chinese currency manipulation issue, but if he really makes the Chinese mad then they will just stop buying our bonds and it will be clear who is really boss- China.
Back off Soros. Not that I much like the guy, but what he did was take advantage of (unsustainable) efforts by governments to manipulate their currency exchange rates.
He wasn’t the manipulator. He’s the one that exposed that the government manipulators had no clothes. And made a killing in the process.
Sua
I too am unclear about what “currency manipulation” is. Many countries manage their currencies in one way or another and historically fixed exchange rates have been quite common. Was the gold standard “currency manipulation”? What about Bretton Woods?
While it is possible that undervaluation of the yuan hurts the US economy it is not as clear-cut a case as many think. An undervalued yuan would hurt US exporters but the resulting current account surpluses in China are largely channeled right back into the US economy when the Chinese central bank purchases treasury securities and helps keep US interest rates low. So it is hurting one part of the US economy but helping another and it’s far from clear that the first is more important than the second.
eople have claimed that China keeps its currency cheap (against the US$), in order to keep winning orders from American competitors. If true, this means that China may be selling goods for less than the cost of production.
in any case, our “trade” with china is a one-way street (the Chinese have racked up a $1,200,000,000,000 surplus with the USA. Now, this looks great on paper, but the Chinese dare not undermine the dollar-or they would lose all that money.
So, suppose the Chinese do as we wish (revalue the renminbi). Would this affet anything? The chinese firms would just drop their prices.
red herring:smack:
If there is evidence China has been doing this for a while, and China knows we know they are doing it, is there some advantage to being weak with China? Will they still respect us in the morning as long as they can continue to screw us?
The thing is, they aren’t screwing the US as a whole, they are hurting some and helping others. The Chinese weak yuan policies hurt manufacturing in the US, but it helps Wall Street and the government. US consumers love the fact that they can buy cheap Chinese goods at Walmart. Obama is raising this issue because he has so much labor union support- he’s trying to help the manufacturing sector.
The problem is that he’s about to borrow a trillion plus a year to pay for all his various plans and so he’s going to be in the position of bashing China and then saying “by the way, China, please keep buying our treasury bonds at unsustainably low yields.”
It’s not just about the US in this, it’s about China undercutting manufacturing worldwide by selling it’s goods for below the cost of production.