Mr. GrannisStraftor.com has posted an article regarding China on billoreilly.com that I find very troubling. Perhaps you could find the time to read the article and give me (us) your thoughts on the matter.I want to thank you for the time and energy you put into your blog.The information you present, though often times over my head, is so thought provoking it compelling me to visit your blog every day. You have brought some much needed stability to my own thoughts on the economic times we live in today. Thank you for your time and I look forward to your thoughts on this matter.Michael
lol - free health care! Something that is perfect for a sound bite, but in reality we all should know better - at least if you were employed at some point or understand basic concepts of free markets for goods and services. But at least if Maine failed at it, Mass failed at it, but neither of them can print their own money. :)
Michael, I am a stratfor subscriber and I am familiar with the article. However I am still struggling with the implications. Stratfor has long held that China's economy is not stable and that it will at some point fracture and again be dominated by foreign interests as it was in the 19th century. the question is when. It could take a very long time. For the moment it appears the current administration will pressure China to increase the value of the yuan. Scott can probably explain the consequences more elaborately than me but one consequence would be rising prices of imports from China and probably more exports from the US to China. Bottom line, contractionary for China, Stimulative for the US. I'm sure dissertations could be written on this long term directional change and it will be fascinating to follow. Sorry to horn in. Hope this helps. I also would love Scott's take.
John,I appreciate your thoughts. Does it matter if the Chinese gov't buys U.S. debt or U.S. goods? I realize the yuan is undervalued and we appear to be intentionally weaking the dollar. Doesn't this just add fuel to the inflationary fires while slowing the recovery in each country? I'm not sure $7 a day worker can buy many U.S. goods. I fear the Congress is going to do something ill advised.
Michael,An ill advised policy is probably how O'Reilly is spinning it. I'm still undecided. I suspect the current arrangement of large trade deficits with China and other countries is not going to be acceptable longer term regardless of which party is in power. China is playing IMO a weak hand and we need their help on Iran sanctions among other things so there are an awful lot of moving parts here. It is not a simple cut and dried issue. The biggest reason I subscribe to Stratfor is their pretty straightforward analysis of events through the geopolitical prism. An awful lot of what goes on internationally is driven by factors that transcend domestic politics. The two political parties can move around the margins but the broaded, bigger trends really don't allow a lot of wiggle room. For instance what is going on in Afganistan would have largely occured had McCain won the presidency. That, of course, is my opinion and is an arguable position. I prefer my news and analysis not be filtered through the various cable news networks. They are little more than propaganda outlets for the political parties. Someone's agenda is being promoted with in virtually every sentence. I try to stay away from it. Just my style. Its not for everyone, and I'm not a shill for Stratfor. I have heard a lot of takes on the dollar, especially from the JRs and MFs of the world. There are so many hate America agendas that you really don't know the real motives of a lot of these guys. My general feeling is still that the dollar is an awful long way from being dirt. A few months ago uncle buck didn't appear to have a friend in the world, but since the Greece thing all of a sudden it doesn't look so bad. And 18 months ago, the world ran to it like a drowning man would a liferaft. I really think that at the end of the day the world still looks at the USA as the bright shining star of stability and legal honesty in a very uncertain world. Its really that confidence that makes the dollar the world's only true reserve currency and it allows us to get away with an awful lot of profligacy that a Greece or Argentina can't get away with. Someday we're gonna have to deal with it. But its a little like dying. We're gonna....but not yet....and maybe not for a long time. For America's sake, lets all hope its so.
Stratfor is aligned with the majority of analysts I've read on the subject of China. They all think the economy is a bubble waiting to pop. I'm not so sure, and I've been hearing warnings on China for years. China has no need to revalue the yuan, but they might want to if the US dollar starts losing value again. But a forced revaluation does nobody any good. If I could recommend one thing to the Chinese, it would be that they try to liberalize the economy yet more. Allow salaries to float up, instead of revaluing the yuan. Allow a freer flow of cross-border capital.In the meantime, there is nothing wrong with our having a trade imbalance with the Chinese. Trade "imbalances" exist only in the minds of meddling politicians.
Scott,Thank you for your input. From what I've read the Chinese are going to go out of their way to avoid the perception that they are being 'forced' to devalue. However, they have no good options for alternatives for their exports. I think Stratfor has a good case for their playing a weak hand. In any event, hostility and hardball politics makes for a lot of nervous money and is not a good thing. Incidently, NY Federal Reserve President William Dudley gave a speech this evening I believe in Virginia. He addressed, among other things, the trade imbalances. It was one of three things he cited for longer term economic recovery. It seems like policymakers are beginning to focus more and more on trade surpluses and deficits. I am still undecided on what this means for the global economy. I will be paying close attention to the developments in the coming weeks and months. Again, thank you so much for taking time to comment on this. As always, I think this blog is terrific. Keep up the great work. There are many of us who truly appreciate it.
If anyone is interested the text of William Dudley's speech can be found athttp://www.newyorkfed.org/newsevents/speeches/2010/dud100401.html
There's a urologist in Florida who hung a sign telling Obama voters to go elsewhere:http://wdbo.com/localnews/2010/04/doctor-says-take-a-hike-if-you.html
John: I met Bill Dudley many years ago when he was working for Goldman Sachs, and I followed his career and his forecasts throughout most of the 90s and 00s. My recollection is that he was always solidly mainstream in his views, as good a bellwether as one could hope for, and more often wrong than right. It would be almost impossible to view anything he says as controversial. Thus I don't think his speech is worth much.That he agrees with those who view trade deficits, especially our deficit with China, as bad, says little about whether this is a real problem or not. The main problem here is that politicians and poorly-informed policymakers can create a problem where none exists.
Scott, I think you have if figured correctly that China needs to allow capital to flow freely and liberalize their economy. A case of central planning run amok.Stratfor's contention that the Chinese economy may fracture is interesting. In that China has control of both the printing press and state controlled banks making the investment decisions, they are forcing investment returns toward zero, which is why they are forced to buy UST's and then disingenuously complain about paltry yields and the value of the U.S.dollar.
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