Suppose they just say "no"?
U.S. Boosts Pressure on China to Float Currency
By Paul Blustein
Washington Post Staff Writer
Friday, April 15, 2005; Page E01
The Bush administration yesterday stepped up its appeals for China to let its currency rise, as pressure mounted in Congress for tougher action on a host of Chinese practices that allegedly fuel the burgeoning U.S. trade deficit.
John B. Taylor, Treasury undersecretary for international affairs, urged China to let its currency, the yuan, rise according to market forces without further delay because it has taken enough preparatory measures to do so. "We have very much stressed that they can begin to have a flexible exchange rate right now," Taylor said.
Taylor's comments, which came at a briefing for reporters, ratcheted up the pressure a notch on Beijing to end its decade-long policy of keeping the Chinese yuan fixed at a rate of about 8.3 yuan per U.S. dollar. That policy has been attacked by many U.S. manufacturers, labor unions and economists as keeping the value of the yuan too low, thereby giving an unfair competitive edge to Chinese products in world markets. The issue was raised repeatedly at a congressional hearing yesterday during which lawmakers vented their frustration over the migration of U.S. jobs to China and the U.S. deficit with Beijing, which soared to $162 billion in 2004, about one-quarter of the total trade gap.
Thanks to this cool feature of being able to edit comments, I am able to be the one to announce that much of this comment has to be revised, based on information I just learned.
The PRC will say no.
This appears now to be an erroneous assumption
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This part that follows, though, still seems alright
This will, in my opinion, have little impact on the current account balance. Nouriel Roubini & Brad Setser have researched the matter at extraordinary length; so has Maurice Obstfelt. Having read their papers, I will say this: first, what really matters is, will the Peopleâs Bank of China (PBoC) coordinate successfully with the Bank of Japan (BoJ) and the European Central Bank (ECB) to bring about an orderly devaluation of the US dollar? If so, excellent; the US will shift to a period of external debt stabilization that would, under the best possible circumstances, lead to trade-weighted devaluation of the USD by about 40%, and external debt of 40% GDP by around 2015.
This strikes me as improbably optimisticâthe ECB and the PBoC have effectively incompatible mandates. The Chinese need the EU and Japan to start running huge trade surpluses with the USA and with China, and this is not as far fetched as it sounds: at a certain point, the ECB and the BoJ will throw up their hands and say, âCrap, we canât buy US securities forever; one of these days weâre going to exchange them for real wealth.â They would then allow the euro and the yen to surge, to â¬1>$2.50 and Â¥100>$2 (i.e., a devaluation >> than 40%) , taking the hit on their assets; I suspect theyâd use several methods to get other parties to eat the asset devaluation. This would then allow the Chinese to continue their strategy of shifting from a US-oriented export strategy to an everywhere-else oriented strategy.
Of course, the staff at the BoJ and ECB know this; they also know that the USA is on a political trajectory favoring absolutely maximized possible current account deficits, implying that our political establishment is playing a game of chicken with the aforementioned central banks. The probable outcome of this game is so awful I will discuss it in private emails, but would prefer not to post here at this time.
I am not a broker, but I am looking into buying stock in the manufacturer of âDepends,â seeing as I could use a pair right now.