China Accuses U.S. of Politicizing Yuan as Trade Surplus Sinks

[teamnelson]

http://www.businessweek.com/news/2010-03-21/china-accuses-u-s-of-politicizing-yuan-as-trade-surplus-sinks.html

While all eyes are on the HC issue ...

[Mnswede]

America isn't the only country that has been complaining about the artificial low price of the Yuan and the Chinese political party refusing to put the Yuan on the free market to be valued against the rest of the world's currencies.

[steve y]

Because China has bought up so much of our debt that if they called in their marker so to speak, that we would be forced to pay a higher interest rate there by reving up inflation? Doesn't that situation allow them to keep their currency down? With China doing that how would that affect us if they did revalue their currency if we messed with any protectionist type actions? I'm trying to learn as much about financial workings as much as possible in order to be better informed. TN thank you for the links you post as they help in my search. Steve

[BBF]

OK, I'm having my ignorance on display again.

So the US has borrowed a gazillion $ from China or at least I presume it isn't their own  currency.

 How is paying them back with US currency a problem since the Treasury can print as much as they can find trees to make paper from?? Or does it require a gold transaction to pay them back??  A simple mind wishes to know

[Mnswede]

With the Yuan on the market, then speculators can play their games with the Chinese currency and also the products coming into and going out of China will flucuate as the Yuans worth changes.  As America runs up the printing press for more money, the Dollar becomes worth less and less so that if we have to borrow, it cost us more and more to do so.  If we continue to print and borrow, it comes to a point that no one will by the treasury bonds for any price.  I believe that President Nixon signed the bill that gold would not be exchanged for dollars around 1971.

[Dee]

Hyper-inflation is what you speak of, and the stage has been set for it for well over 2 years.

[BBF]

Above posts didn't answer my question, now if gold isn't exchanged( handed over) what is the problem. The treasury bills probably generate some sort of interest for the Chinese and the question remains So what? Pay them back with more greenbacks, sorry about the trees and ink.

[mechanic]

Above posts didn't answer my question, now if gold isn't exchanged( handed over) what is the problem. Ther treasury bills probably generate some sort of interest for the Chinese and the question remains So what? Pay them back with more greenbacks, sorry about the trees and ink.

The dollar is just like any other commodity or medium of exchange. 
If you have 1 trillion dollars in circulation, and they print 1 trillion more without growing the economy as a whole, the dollars are worth 1/2 a much.

Demand for the US dollar as a commodity is shrinking, and people are looking for elsewhere to invest.  If you make more, they are worth less.

That means that a $3.30 gallon of milk will now cost $6.60etc.

[teamnelson]

We've been on an artificial economic model for so long people sincerely forget the relationship between value and cost. Currency exchange rates are based on several factors, mostly tangible marks like stock market, GDP, debt, etc. But primarily they're based on confidence. If you think about, the international economy is essentially a confidence game. I can reduce the sell price of your companies stock by leaking a story that you won't be able to deliver product as promised. It becomes viral, there is a panic, and the company is broke. Same is true for countries ... that's why investor confidence in the US has been dipping. China is a bigtime investor in us, and they've hedged their currency against our predictable demise. They consume US, and they've lost confidence. Meanwhile, our confidence in their ability to produce cheap products has not dipped.

[The Hermit]

BBF, actually it is a good question. Trade surpluses favor China now. We buy what they manufacture. Just about everything in the stores is made elsewhere, mostly China and the far east. Their labor cost is low and their profit margins are about 2% GM. The excess US dollars that they accumulate, they buy US treasuries. They hold a massive amount of US debt. The taxpayers have to pay the interest on this debt. In order to keep the ball rolling, the US pays out less than 1% interest and charges the same to banks to keep lending more money out to consumers to buy more. The end result in currency printing is inflation and higher prices. Nixon closed the GOLD window and it can't be opened because there is not enough gold on this planet to give credible backing to the amount of outstanding currency issued. If that happens, then Dee's hyper inflation takes off, resulting in wheel barrels of paper money needed to buy a loaf of bread. 
China is not happy with trade embargos and our increasing debt limits because it makes their treasury holdings worth less every day. They have dumped over $32 billion already. Fasten your seat belts, folks.


The Hermit

[gypsyman]

Since FDR took us off the gold standard back in the '30's, our money basically is what we the people think it's worth. I know there is some pagean ritual on wall street that is suppose to determine what a $20 dollar bill is suppose to bring as far as labor and goods produced. BS!! Our money has been reevalueated so many times becasue of inflation over the last 60 years, it's all a game. The game is about over. Hermit, your right! Fasten your seat belts, as the rollor coaster is about to speed up. gypsyman