US manipulates currency market (1 Viewer)

[Rorix]

sremify007: What are you arguing for anyway? That China's exchange rate policy is leading to more economic growth than a floating exchange rate? Even if true, it represents a misallocation of resources (with a shift of resources toward the external sector) resulting in decreased long run potential output compared to a floating exchange rate, earlier emergence of the 'speed limits' on growth i.e. inflation and CAD, although the latter isn't really a problem with China. So even if what you are saying is correct, it's still not, long run, the best thing for the Chinese economy and the Chinese people.

 

[seremify007]

This will reduce interest rates, and cause their already booming economy to further overheat, resulting in massive inflation whcih will cause an interest rate rise. The resulting slowdown will adversely affect the world economy.

I'm disagreeing with that bit- I think interest rates will rise not fall in China.

btw as for the pricing thing in China- that's the thing... unlike in Western economies whereby we have access to market research or people can gauge the success of pricing and so on- if you visit China, for the most part, shops simply set prices as they wish and if you want to haggle you can haggle anything... which is why I think it's really hard to gauge prices and their affect on demand if you get what I mean... By theory a cheaper good should have more sales, but then over there, it's just... different. There are also the people who'll think if it's too cheap it's broken or spoilt as well. I know that could apply to Australia too, but I'm basing this on when i go o/s and so on, it's really.. different? I think you have to see it to understand what I mean; the culture is so different to us that I think Western economic principles won't necessarily apply to a non-transparent govt and a culture focussed on improving future generations lives rather than their own.

 

[ND]

I'm disagreeing with that bit- I think interest rates will rise not fall in China.

You can't possibly disagree with the fact that a monetary expansion (which is required to maintain the peg considering the upward pressure on the currency) means a drop in interest rates.

 

[seremify007]

IIRC isn't the peg adjusted daily now similar to how it used to be with the AUD 30 years ago?

Monetary expansion -> more money is produced/offered for sale to keep currency value down right? (I could be wrong here... i'm not that good with terminology).. I don't see why that leads to a definite drop in interest rates because they wouldn't want their economy to overheat. Whilst growth is being pushed at extremely high rates, I think they will start to tone it down because the country's economy is developing at a much faster rate than that of it's people- whether they care or not is another matter...

 

[ND]

I'm assuming you did economics for the HSC? (seeing as you haven't started uni yet) I didn't do HSC econ, but didn't it cover the money market or IS-LM models?

A monetary expansion always reduces interest rates, that's its main purpose (aside from currency control). As the supply of money increases, at the original interest rate there is an excess supply, and market forces push the interest rate down until it reaches equilibrium.

 

[pete_mate]

wtf is this "tampering" bullshit? i did my economics case study on china.

in terms of levels of "free trade" and "free markets" a fixed exchange rate is highest in terms of "tampering" and inhibiting the operations of free markets.

and an undervalued exchange rate is a form of protection. there are no two ways about this.
a disadvantage to china is that importing capital machinary is very expensive.

the currency must appreciate over time otherwise it will not be able to afford increased capital and productivity improvements later. the 10% economic growth is only achievable due to the mobilisation of labour resources, there is massive levels of hidden unemployed in china, which is not declared.

the point about china being unable to cope with a freely floating exchange rate is very true, loans from chinese banks to state owned enterprises are 50% bad debt. it is by no means financially sophisticated

i hate overly patriotic chinese anti-american people much more than trend-whore anti-americans, they forget where all the capital machinery and business practices are coming from, America and Japan. But hey, only they profit the most out of the 10% growth, so i spose the chinese are a type of slave for the time being, continue being patriotic then, keeps you in line i suppose.