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TMFKopp (97.85)

Why China Won't Change Currency Policy

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May 28, 2010 – Comments (5)

Basically our government is shooting itself in the foot when it comes to Chinese currency policy. By digging in the way they have, they've given China little choice but to continue doing exactly what it's doing -- regardless of what's better for China's economy.

Why? As a burgeoning economic power, do you think China really wants to be seen as bowing to bully pressure from the U.S.? What we need to do is give China space to come to the decision on its own and applaud that decision afterwards. By taking such a staunch, public stance we're only fueling a pride-fueled stand-off.

Thoughts? Agree? Disagree?

Matt

5 Comments – Post Your Own

#1) On May 28, 2010 at 11:31 PM, ChrisGraley (28.62) wrote:

China cares not 1 iota about our opinion. What China cares about most, is it's economy and the restless natives. For that reason alone, they will devalue their currency and promote domestic growth. That's why they have been encouraging the average citizen to load up on gold and silver.

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#2) On May 29, 2010 at 1:05 AM, oshiri (< 20) wrote:

Comrade Matty . . .

     I'm more then happy to share "Thoughts? Agree? Disagree?"

     The complexities of the China are beyond description of a sound bite blog like caps.fools.

     AGREE -- yes, China will not do anything that other nations "DEMAND." And who will? Saddam went to the gallows challenging the demands of two Bush'es.

     DISAGREE -- no, China doesn't wants America to applaud, they want internal applause. The masses are placated, feared, and/or destroyed based on central government movements. What they seek is majority population approval to all their economic moves.

     THOUGHTS -- If you really want to see where the Chinese Communist party, and the "People's Republic" is headed, open and read this site everyday -- http://www.xinhuanet.com/english2010/ -- for example, China is maintaining a balance between North and South Korea in their military dispute. XinHua is the OFFICIAL party mouthpiece. This evening the opening photo on the site is the Chinese Communist Premier shaking hands with South Korean President Lee Myung-bak.

     ABC, CBS, FOX, NBS, and PBS would do well to pay attention too xinhuanet.com . . . and you to cap fools! 

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#3) On May 29, 2010 at 11:07 AM, Teacherman1 (< 20) wrote:

Thanks for the link oshiri.

Hope everyone has a nice long weekend, and if you have to work Monday, hope you get paid extra. 

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#4) On May 29, 2010 at 4:11 PM, JakilaTheHun (99.92) wrote:

I somewhat agree with Graley on this, in that China doesn't really care about us.  But I also disagree and believe that Chinese policymakers are starting to realize the negative repurcussions of their currency peg. 

Rather than entrench their position, they might use US pressure as an excuse to change policies if they decide the peg has been backfiring.  And it many ways it is backfiring.  While it has dramatically increased exports, it has also:

(1) Created high inflation

(2) Fueled a huge RE bubble [remember, this is exactly what happened in Japan when they maintained the currency peg]

(3) Dramatically lowered the purchasing power of Chinese consumers, who are seeing their cost-of-living spike, while their incomes are increasing at a much slower rate

(4) Redistributed resources from private individuals to the big exporters. 

In other words, it makes GDP growth look great, but that might be a rather misleading story when the average person in Shanghai may have difficult even affording a place to live. 

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#5) On June 01, 2010 at 1:11 PM, TMFKopp (97.85) wrote:

Thanks for the comments all, and for the link oshiri.

@Jakila

Agreed on what the peg is doing to their economy -- that's precisely why it would be a good idea for them to abandon it.

But...

@ChrisGraley

I probably agree with you that China doesn't necessarily care what we think... However, what I believe they do care about is their image on the world stage. If they look like they're changing currency policy because of pressure from us, they may be concerned that they'll look weak. 

Instead, they need to be given some space by us so that they can say they are changing policy because of the internal economic impacts.

IMHO at least....

Matt

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