China is Manipulating Their Currency

For years on both sides of the great partisan divide, manufacturing as well as some members of Congress have been asking the administration to do something about China's currency manipulation. The Bush administration refused. See Geithner's answer on China's currency manipulation during the confirmation hearings:

 

 

President Obama -- backed by the conclusions of a broad range of economists -- believes that China is manipulating its currency. The new economic team will forge an integrated strategy on how best to achieve currency realignment in the current economic environment.

So, why is this important? It's a legal issue. If the Obama administration will categorize China as a currency manipulator, there is the start of recourse. Even more significant, Obama cosponsored a bill which would have given those affected by China's currency manipulation the ability to file for import tariffs per a specific product against China.

The problem is China holds over $1 trillion in U.S. debt:

In the last five years, China has spent as much as one-seventh of its entire economic output buying foreign debt, mostly American. In September, it surpassed Japan as the largest overseas holder of Treasuries.

So, what happens to U.S. bonds, debt if the Chinese yuan is allowed to rise to true market value?

It seems China has a vested interest in that not happening, all due to trade and exchange rates:

Two officials of the People’s Bank of China, the nation’s central bank, said in separate interviews that the government still had enough money available to buy dollars to prevent China’s currency, the yuan, from rising. A stronger yuan would make Chinese exports less competitive.

For a combination of financial and political reasons, the decline in China’s purchases of dollar-denominated assets may be less steep than the overall decline in its purchases of foreign assets.

Many Chinese companies are keeping more of their dollar revenue overseas instead of bringing it home and converting it into yuan to deposit in Chinese banks.

So, what happens? Manufacture This has some insight:

The tightrope that Beijing is now walking stems from their having pegged the Yuan to the dollar. With the dollar now plummeting in world markets (breaking $1.60 per Euro, for example), China is on the receiving end of the same inflationary pressures as the U.S. As Ulrich explains it, Beijing now faces “the cost of containing imported inflation from higher commodity prices.”

While an artificially low Yuan has helped China become the world’s fastest growing economy in recent years—and a manufacturing juggernaut—such a meteoric rise has also sewn the proverbial whirlwind. Economic problems like rising energy costs, constraints on agricultural production, lagging rural incomes, and troubled global financial markets mean that, more than ever, China wants to keep its export engines running full tilt. But maintaining a low Yuan is starting to bite hard, especially with higher oil prices.

It seems that Beijing is hitting a wall—damned if they do, damned if they don’t. And so, while Congress frets and fractures over whether to take action on China’s undervalued currency, it’s quite possible that inside Beijing’s ruling regime, the same currency debate is taking place.

In the meantime, U.S. manufacturers continue to take a double beating, both from climbing energy prices and competition from China’s undervalued goods.

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Comments

China Currency Manipulation Denial

huffy and fussy.

This is amusing because the evidence they manipulate their currency is beyond overwhelming.

Maybe Geithner is either an idiot (anyone who has done anything with a 1099-misc knows they must pay self-employment, medicare/SS taxes!) or he plain tried to cheat on his taxes...although turbo joke with their "interview" may have confused anyone. still....

but this is one silver lining in the cloud.

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"Risk a protectionist backlash"?!?!?!?!?

Boy, they really don't pay much attention do they? This IS the protectionist backlash, or at least, the start of what passes for a protectionist backlash in the United States this century. Their unbalanced trade policy over the last three decades was the risk, we're now into the response.

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Maximum jobs, not maximum profits.

"Protectionist"

This is just another propaganda attempt to make a "dirty word" out of a fairly nondescript term. Lobbyists, Politicians, have done this in the past, tried to make something a "dirty word".

For example, there was an ongoing campaign to make a dirty word the term "liberal". Or to try to change the word conservative to mean corporate agenda. Many examples.

This is why I wrote the piece You Are a God Damn, *%$$%&*()!!* PROTECTIONIST!

Competitive economic strategy, trade strategy, in the national interest has nothing to do with protectionism.

Currency manipulation clearly violates the theory of free trade as well.

Lobbyists, corporate mouthpieces and our favorite national economic idiot, Thomas Friedman, just spew out this stuff as if it's bad. They are just trying to change the terms.

If you notice George Bush used it in a parting shot before leaving office.

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Indeed....

....language and how it is used is what? 90% of how we think of things.

The 'conservatives' who conserve nothing, and yes I know they are really neo-con(servatives) but no one calls them that, have won the fight to demonize the word 'liberal' but that's backfired on them badly as folks moved on to 'progressive' and Lordy! They started to read and learn about the Progressives of the late 1800s and those great Progressives of my state California and elsewhere from the early 1900s.

History is rife with this sort of linguistic pushback.

What next 'Oh Obama'? That Commerce Secretary appointment, despite the gushing words of the neo-liberal MSM, is not too reassuring.

The stimulus package, at present, looks like a can of Red Bull when we all need a shot of speed.

As for the Bush Idiot...were I he I would not be planning on making much coin of of speaking fees. Who'd have him?

The American Mortuary Society?

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'When you see a rattlesnake poised to strike, you do not wait until he has struck to crush him.'