First? Who cares---

I have no problem with the idea of addressing the imbalance, but I'm really curious how Krugman thinks that's possible. Sanctions against Chinese imports would almost certainly result in a less-than-stellar participation in bond auctions, I'd think. Would the positive effects of an increase in US exports outweigh a rapid increase in the debt carrying costs and interest rates of the US government?

Seems like a pretty dangerous, but almost certainly overdue, display of brinkmanship.

Agreed - it's time Treasury takes a stand. Is the U.S. the only nation keeping mum? Have any countries spoken up officially?

China Uses Rules on Global Trade to Its Advantage - NY Times

and this

Are Rising US-China Tensions Pointing to a Rupture? « naked capitalism

Two other related postings.

Krugman thinks the surcharge needs to be about 25%. To bring some of the jobs back, I think 40% is what is needed.

It's about time. But not just Treasury. I am sure the Europeans want to do something as well. I am sure the Japanese are not immune.

The Communists need to either play by the rules or face world isolation.

some investor guy wrote:

I probably should know this, but has the WTO ever approved sanctions for keeping currency artificially low?

I don't think that an explicit currency devaluation is within the current WTO agreement. However, if one could prove that the action was subsidizing a particular export sector, it would certainly fall within their mandate.

I don't think the WTO has ever ruled explicitly on currency manipulation; with the exception of China, there are few with pockets deep enough to maintain such a peg for any real length of time.

The US has had a history of pursuing a strong dollar policy when it was beneficial and a weak dollar policy when it was beneficial. Opening gold window, closing gold window, bretton woods etc..

While I agree the imbalances need to be rectified I fail to see how China's tactics are really any different from the US's. Namely choosing a path that is beneficial in the short-term to your own country.

Jonathan wrote:

Default and/or hyperinflation will be along shortly.

There's a pleasant thought, thanks for that

I wish I could disagree, but I don't think I can. Even if I can't see exactly how it is occurring right now, I have a feeling that monetization will be one of those things that is painfully obvious in hindsight, unfortunately.

TJ and The Bear wrote:

Funny, isn't it -- you can argue one sector, but you can't argue it when it's obviously all sectors.

Yes, it's funny but it's true. As long as it's impossible to prove precisely which commodity or product is benefiting from an action, you get all sorts of leeway at the WTO.

btw after watching the michael lewis piece on 60 minutes...

looks like lewis sets the stage for letting the miscreants off of the legal hook

lewis claims in the interview that most of the crisis was the result of ignorance and incentives not to see the truth... rather than fraud., and claims, (how he knows isnt said) that the bankstas CEOs just didnt know what was going on in their companies

what bull shit

many on wall street were well aware of the fraud and danger involved. remember when some at the monolines balked at giving triple A ratings for CDOs and then were ordered to "rethink" their decision.

as early as 2005 and before,blogs across the net were discussing that the financial system was in severe danger and risked a crisis, CR and Tanta just for one example.

paul volker in a speech at stanford in the spring of 05 warned that we were headed off a cliff, but few listened.

goldman and others sold securities they knew were in trouble, represented to clients as good stuff and then hedged against the very same product.

finally, many big investment banks used huge leverage investing in derivatives based on a variety of shakey collateralized debt obligations, and they knew what they were doing was very bad and so pushed much of these investments off book to hide from regulators and stock holders and others.

lewis screws justice when he minimizes the fraud involved

Ives' and, at the core, Evans-Pritchard's take are a worthwhile read on this:

Are Rising US-China Tensions Pointing to a Rupture? « naked capitalism

...
Michael Pettis from Beijing University argues that China’s reserves of $2.4 trillion – arguably $3 trillion – are a sign of weakness, not strength. Only twice before in modern history has a country amassed such a stash equal to 5pc-6pc of global GDP: the US in the 1920s, and Japan in the 1980s. Each time preceeded depression.

The reserves cannot be used internally to support China’s economy. They are dead weight, beyond any level needed for macro-credibility. Indeed, they are the ultimate indictment of China’s dysfunctional strategy, which is to buy $30bn to $40bn of foreign bonds every month to hold down the yuan, refusing to let the economy adjust to trade realities. The result is over-investment in plant, flooding the world with goods at wafer-thin export margins. China’s over-capacity in steel is now greater than Europe’s output.
...

ghostfaceinvestah wrote:

It's about time. But not just Treasury. I am sure the Europeans want to do something as well. I am sure the Japanese are not immune.

Big tariffs could help with budget deficits too. That might also help get consensus. If governments change their opinion from unfair competition to exporting budget deficits and unemployment, the politics could change very quickly.

This sounds like a fine time to put in a note to those domestic manufacturer lobbyists, Senate staffers, and Wall St Journal reporters who read the blog. Have you asked anyone lately "Is China's currency policy exporting unemployment and budget deficits to the US (and Europe)?"

I don't believe that the renminbi is a convertible so there would be a dearth of renminbi for us to buy or sell on the open market.

some investor guy wrote:

If the Treasury said it would buy unlimited renminbi at 20 cents each, it sounds like real trouble for the 15 cent peg.

Wouldn't the US need to also be able to sell unlimited renminbi? i.e. we only have the Chinese goods, not the currency.

Long long post on what and why China can do.

What the PBoC cannot do with its reserves  (mpettis.com)

Jonathan wrote:

Wouldn't the US need to also be able to sell unlimited renminbi?

I don't think so. If you are the high bidder for an asset and want to move the price, I don't think you need to sell.

However, it wouldn't be long before the US had quite a stack of renminbi, or renminbi-denominated assets.

I wish I had more background on pegged currencies in a mostly floating rate world.

NorkaWest wrote:

I don't believe that the renminbi is a convertible so there would be a dearth of renminbi for us to buy or sell on the open market.

I just wandered through the wiki entry on the renminbi and it had an interesting factoid that I was unaware of:

As of January 2010 Chinese and non-Chinese citizens have an annual quota to change a maximum of 50,000 USD. Exchange will only proceed if the applicant appears in person at the relevant bank, presents his passport resp. his Chinese ID as these deals are being centrally registered. The maximal withdrawal is 10,000 USD per day, the maximal purchase quota of USD is 500 per day. This stringent management of the currency leads to a bottled-up demand for exchange in both directions. It is viewed as a major tool to keep the currency peg i.e. to prevent inflows of 'hot money' (carry trade).

I wonder what the World Bank and the IMF would say to a developing country that tried to implement a similar policy?

Those Chinese bastards: producing cheap Nikes and Blackberries and I-pods and PCs for fat Americans and taking so many paper dollars in exchange. Then they try to artificially prop up the value of the paper. What scum.

Jonathan wrote:

Does any of this address the core imbalance which is that an American worker requires roughly $30,000 to exist, whilst a Chinese worker requires only $3000?

Nor does he require pollution controls, social security, a legal system that works, and a host of other things we take for granted. What we have here is the absurdity of an advanced society trying to compete on unit costs with a third-world industrial society that plays by Victorian-era rules.

The answer: either revert to Victorianism, or force the rules on them. Screw the flat tariff. Impose a tariff on all countries with out-of-control pollution, another for those with no worker safety laws, another for those with no social security, and on and on. Level the playing field for them.

Edit: great minds think alike, noob. But some type faster.

Jonathan wrote:

The actual numbers may be a bit different, but there is a factor of 10 in there, for the foreseeable future.

It would'nt be a factor of 10, if instead of spending renminbi to buy dollars the Chinese were spending renminbi to pay their workers more? Am I correct on this?

Bob Dobbs wrote:

Edit: great minds think alike, noob.

Anak had the same idea as well. Unanimous agreement on any point here at hoocoodanode means that it's time for me to go to bed, as I'm going to have a busy day dealing with the four horses of the apocalypse tomorrow.

"As of January 2010 Chinese and non-Chinese citizens have an annual quota to change a maximum of 50,000 USD. Exchange will only proceed if the applicant appears in person at the relevant bank, presents his passport resp. his Chinese ID as these deals are being centrally registered."

HSBC is still allowing on-line conversion to Yuan from USD and back. It is 50k max USD but you don't have to appear in person. As long as you have an account in China there's no problem doing the conversion on-line.

poic wrote:

As long as you have an account in China there's no problem doing the conversion on-line.

and my understanding is that the mainland based accts yield better than those in HK. But with fewer deposit guarantees....Gotta get some housework done or my paycheck bearing wife will throw me out . . .

The most effective solution is sometimes consumer action: it allows for the most liberty.

Boycotts can withstand some free-riders and still kill profits. Of course when all production of a good is controlled by a corporate oligarchy, stronger action may be needed.

A policy of accepting the money but not the rules has a way of being reversed at the worst times.

Rob Dawg wrote:

A policy of accepting the money but not the rules has a way of being reversed at the worst times.

Quite so. But they have been fudging since the late Qing.

Confucian scholar bureaucrats of the time hoped that the response to the obvious advantages of the West could be met by embracing Chinese learning for the principles (or essence), while western learning could be restricted to practical application (or utility) 中学为体,西学为用.

Today's mandarins are similarly oriented at heart.

What's the best time to accept a change in the rules to those of calvinball?

You discover the monte dealer was using sleight-of-hand. So you refuse to pay. The dealer says,"but you lost and I never said the game was honest..." "So next time get the bet in cash..."

You can game your trading partners whenever you want: call it "legal at the time" (GS/Greece); "gross negligence" (Fuld); "rare extreme measures" (Fed balance sheet trillions). But don't expect repeat business if there is any bargaining power on the other side.

JimPortlandOR wrote:

The US should send a sternly worded letter to China.

Round up the usual disrespects.

Of course the cynic in me says that the American consulate worker was probably working for a rival drug-gang... it's sad this is my natural reaction...

Obama says "we'll bring the killers to justice"... well screw that, lets take down the killers and their whole organization...

It's not Chinese currency manipulation that harms the world economy, it's central bank manipulation anywhere.

That Krugman can't or refuses to see it is unfortunate.

Rob Dawg wrote:

he was willing to throw his own wife under the bus rather than acknowledge systemic deficit spending transcends party.

Sounds rather human to me. Granted, I'm becoming one to loathe anyone teaching "economics" or "finances" an a higher ed. setting.
.
Once they can admit that their theories are broken or teachings are schemes, then I may reconsider my position.

U.S., U.K. Move Closer to Losing AAA Debt Rating, Moody’s Says - Bloomberg.com

Funny how this would have been a shocking headline 3 years ago, especially given Moody's reputation for understatement.

Asun wrote:

Where would I stand?

I would stand aside and let old bug eyes engage the opponent. He'll beat on his chest and state his case assertively and the Chinese will say, "Thanks for the input."

Geebus.
Someone explain to me why SIFMA was lobbying the National Security Council!
3rd Q 2008 lobbying report!

Members' compliance costs related to cooperating with tracking transnational org financial crime?

C

Y'know if you had poor moral fiber, you could leverage that passion for disclosure filing nerdery...

C

Just trying to figure out how to be smarter than a bankster...

I wonder how much consumers pay due to the lobbying activities of banks?

I bet we pay 10% more on everything, at least, just to support political activities or corporations that are trying to screw us more... so it ends up costing well over 10% in the future.

Taffy Trap

ksmithderm wrote:

Also a reliable and stable source of oil, and of military assistance.

and as we share a long, contiguous border, it will be easy to snatch
just after we throw our polite northern neighbors down a flight of stairs

The dollar will always be over valued because most the world debts are denominated in dollars. This has been known for decades.

As Stratfor recently pointed out, if the US decides it wants to (or needs to) be an exporter, it means destabilization across the globe. The last 50 years have been about the US trading its domestic markets for military bases, Japan being the most obvious example. If we don't offer a market, then there is little reason to tolerate being occupied (read: Okinawa).

With neither party prepared to cave Google “is 99.9% certain” that they will quit the Chinese market.

How many other US companies can follow suit ?

Krugman is cheap talk just like infested US government

. . . which is not to say we shouldn't have a whack at sorting out the Chinese renminbi peg. Nor would other trading nations object if we were to do so.

The best victory is when the opponent surrenders of its own accord before there are any actual hostilities... It is best to win without fighting. --Sun Tzu

Good morning

No one is going to take a stand on China or currency exchange rates.
A few will make some noise.

There will be new news tomorrow and something else to make noise about.

Newbie 101 wrote:

I find the poster's use of this word "Communist" to be consciously manipulative, and the absence here of the usual knee-jerk ridicule to be curious.

The post was last night. He isn't here to debate or defend his opinion.

We can either pay higher prices for Chinese goods or pay with higher unemployment and declining wages. The appropriate response
we be "If you make it here, you can sell it here" for manufactured goods. Since the consumer spending will and needs to be a smaller
factor in the economy, the earlier the better. Without tariffs the dollar will need to fall.

I wish for once an economist could follow his thoughts to their logical conclusion.

I bet if you asked Krugman, he'd tell you that Smoot-Hawley was a bad thing. Yet, here he demands that the functional equivalent be done in the currency market.

Let's just cut to the end game and mark 'em all zero, Smoky.

What if there was 2 kinds of Capitalism, the old version being honest and straight-forward, but the more recent variation was completely the opposite?

It's exactly the same with Communism, the old kind was reprehensible, but the new kind isn't so bad.

Juvenal Delinquent (profile) wrote on Mon, 3/15/2010 - 8:17 am
Engage people with what they expect; it is what they are able to discern and confirms their projections. It settles them into predictable patterns of response, occupying their minds while you wait for the extraordinary moment — that which they cannot anticipate. -- Sun Tzu

Thanks. That's exactly what I was implying, actually.
Please do not buy another fake cold war. I see all of these headlines as pointing the finger everywhere except at those whose policies led us here.

For the last thirty years, piece by piece, flight by flight, trip by trip, US tecnology has been given to China by our on government not to benefit the US but for power hunger Presidents and the groupies that they surrounded themselves with. Now O has hand picked a group of insiders, Hil being the first one on the list to fix things. Why don't he just have this group to outsource America's population to China who are drawing UE to work for free.

Thank you Eric, MaryAnn and others.
Where was Krugman as our industrial base was forseeably gutted, leading to this?
And now, many are fomenting trouble with China. Not wanting to push this too far, but this is the principle: I think they see it as costing somebody else's blood and national treasure. I would naturally resent that.

If I wanted my country back, it is not China that would be my worst enemy.
(And, P.S. to anyone who needs to hear it explicitly, it wouldn't be Israel either.)

Newbie 101 wrote:

Where was Krugman as our industrial base was forseeably gutted, leading to this?

He was a professor of economics at Princeton.

Juvenal Delinquent wrote:

They reckon it would only take about 3 nukes to kill everything electric vis a vis EMP, and we'd be back in the 19th century in a jiffy...

And which of the 2 countries would fair better without electric?

Rhetorical ? of course. Though I imagine some of their big cities would get just as ugly.

The biggest buyer of scrap metal in the 1930's from us was Japan, and cutting them off from oil is what led to Pearl Harbor...

I'd have to place my wager on 3rd World Man being more capable of existing w/o it...

Krugman was telling Lou Dobbs audience to go to Wallmart and buy, buy, buy and Lou Dobbs was screaming you are helping China and Krugman was clueless. I Watched this myself, believe Krugman has educated himself about the economy since this interveiw because he is making headlines and we dumb Americans still believe whatever a celebrity says must be true whether its Krugman or Brittney Spears.

And the is busy squeezing others to death again.

"Over the last three years, Goldman Sachs has extracted more collateral from counterparties in the $605 trillion over-the- counter derivatives markets, according to filings with the SEC. "

Goldman Sachs Demands Derivatives Collateral It Won’t Dish Out - Bloomberg.com

When an American consumer buys something at Walmart, she gets a product but the manufacturer gets some dollars. How does that help China?

speaking of the , I hope this isn't a repeat:

Do other firms use Lehman's accounting 'drug'? - MarketWatch 

sac wrote:

I meant 3 fridges.

I'm behind, only have 2 friges. Does a freezer count?

YouTube - TOMMY EMMANUEL THE GENIUS

1 currency now -yogi wrote:

When an American consumer buys something at Walmart, she gets a product but the manufacturer gets some dollars. How does that help China?

As most items in Walmart are manufactured in China, that is where the dollars go. China gets jobs, China gets manufacturing investment funds. China gets GDP growth.

China then lends to the US, we get debt.

Juvenal Delinquent wrote:

I'd have to place my wager on 3rd World Man being more capable of existing w/o it...

I concur. I ventured forth Sat evening and the local Target was pretty empty except for some folks buying shopping carts full of flashlights, batteries and extension cords (that one had me puzzled) to deal with the widespread power outages.

I guess I shouldn't be surprised but to see even a handful of people lacking a flash light or two and some candles to deal with a lack of electricity was a bit of an eye opener. I think my remark to my wife was - if this lasts more than a week and food stores stay closed there will be violence. She didn't disagree...

Hu has the balls?

Huff says

Michael Lewis: Wall Street Collapse A Story Of 'Mass Delusion' (VIDEO)

I think they have the heading backwards. Did Wall Street collapse?

Osborne blasts FSA over Lehman Brothers |
Business |
guardian.co.uk

noob goldberg wrote:

Yes, I read that article this morning as well. No better argument for a transparent OTC market; now even the hedgies should be on board with that idea.

Nope. They like the "secrecy" afforded by the OTC market - the lack of transparency can also be helpful in ascertaining performance. I can say it's worth a certain amount based on what my model says. We both know that if the asset actually traded the trade price may differ a bit from the model price.

The Chinese know they have an inflation problem. Perhaps they won't have as much choice about whether or not to let their currency appreciate as they think they have.

The fight against inflation is at the top of the Chinese government's policy agenda, Wen Jiabao, the premier, said yesterday, suggesting the survival of Communist party rule might depend upon it.

Mr Wen insisted that inflation must be managed while maintaining rapid economic growth and carrying out state-led economic restructuring, a goal that he conceded would be "extremely difficult".

Many Chinese officials and experts believe double-digit inflation was a leading cause of the public discontent that spilled over into student-led protests in the spring of 1989 and ended in a bloody military crackdown centred on Beijing's Tiananmen Square. At the time, Mr Wen was a mid-ranking official in the central government.

Mike in Long Island wrote:

Nope. They like the "secrecy" afforded by the OTC market - the lack of transparency can also be helpful in ascertaining performance.

I'm a pretty reserved guy, but this actually makes me very very angry.

RIP Peter Graves. He's in the big Turkish Prison in the sky.

traderwalt (profile) wrote (in reply to...) on Mon, 3/15/2010 - 9:09 am
Since when is/was the economics department at Princeton responsible for America's industrial policy? This is the responsible of the executive branch of the government. Trying to insinuate that Krugman or the any economic department should have been working to correct the situation is disingenuous at the very least.

I'll try again: I wonder what opinions these people, who are considered now to be influential and credible enough to be cited by our host, held back when the forseeably ruinous preconditions were laid? Krugman was made "exhibit A" by CR. That's why I named him. MaryAnn answered me well enough.

josap wrote:

Dow 14000 to 6800

But who suffered the consequence of DOW dropping from 14K to 6K? It wasn't Wall Street

To say China is and Japan is not with the yen carry trade for the last twenty years has some incongruity for me. However this appears to be a two way street. We gave up manufacturing products to manufacture securities. Just as toxic as melamine

A friend is married to a Filipina, and they lived in Manila for about 5 years, and he told me about the frequent energy shortages there, said you could almost count on it happening...

3rd World Man knows the ropes~

What the hell are we doing? China and Russia now have the best oil fields in Iraq. This morning I read that China will bid for contracts to build US high-speed train lines along with doing a joint venture with Argentina for 3.1 billion to give China a 50% stake in Bridas, a major Argentine energy firm. Bridas has oil and gas exploration and production operations in Argentina, Bolivia, and Chile Our jobs and future production for money right now?

t r orwell wrote:

for money right now?

yes

Past administrations have not bene successfull at getting China to stop this manipulation and I don't see the current Obama administration being able to get China to cooperate. China is really flexing not only its economic muscle but its geo policitcal muscle as well. What and how the must the US take a stand is the question.

Krugman: "Time to take a stand" on China Currency Manipulation "

I thought the stand has already been taken, ie - to make a lot of noices and nothing else and don't rock the boat.

The Chinese regime, for all its pomposity, is caught in a trap of its own making. They've promised the Chinese people perpetual prosperity in exchange for political freedom and the only way they can deliver is to beggar-thy-neighbor their trading partners. If the regime doesn't deliver its 8% per annum GDP growth, the unemployment rate increases and civil unrest rises. If the regime continues to opt for cheap currency, it finds itself increasingly likely to lose huge chunks of value in the paper currency it is banking. It doesn't know what to do. The US should just terminate the current Chinese currency manipulation and tell the Chinese we'll figure out to deal with the political ramifications in the US and they can do likewise in China. We'll see which one leads to revolution faster and I suspect Beijing has already calculated the answer to that one, to their dismay. The People's Army isn't big enough.

The price that China sets its exchange rate forms part of the equation of the price of Chinese goods it would surely be best if the Chinese would be kind enough to devalue their currency to zero, we could then all continue to enjoy our unproductive existence and credit expansion forever, being served with all our needs at a price we can always afford .