| HappySqurriel said: Higher interest rates are always a direct consequence of higher inflation ... If the yields available in the bond market do not keep pace with inflation investors pull their money out of the bond market and put it into other investments (stocks, commodities, and real-estate) that have an intrinsic value and therefore increase in value along with inflation. After this money leaves the market the prices of bonds fall, which results in a higher yield and (therefore) higher interest rates. The growth of China's economy along with the Chineese peg on the American dollar has allowed the Federal reserve to keep interest rates artificially low and the American government to have very large deficits for decades without facing the consequences related to these actions. If the peg is moved or removed the American dollar will fall to a level which could cause other countries to dump some or all of their foreign holdings of American dollars; and this would probably result in the American dollar falling further and more countries dumping their reserves of American dollars. Overnight the American people could be facing hyper inflation |
So...wait...are you actually arguing that the yuan-dollar peg is a good thing for the American dollar? Supporting manipulation of the free market? If there has been one thing that has artificially increased our obscene trade deficit, it is this peg. This has caused the U.S. dollar to depreciate without normalizing the balance with a reflection of an appreciation in China's currency. If China's currency was allowed to fluctuate naturally, it would cause their currency to appreciate. That it turn would increase demand for the U.S. dollar (by increasing Chinese demand for U.S. exports and decreasing U.S. demand for Chinese exports) and level out some of the consequent depreciative effect.
Once again, the link between depreciation and inflation is not direct. The value of the dollar can depreciate while also deflating at the same time (like it is right now). Fluctuations in the commodities market could also have some consequences on this debate as well, as I think it is hard to predict where commodities will go in the near to mid future. Oil, for instance, may continue to rise or may plummet again.
You are also assuming that all country's economies will be growing at equal rates at these speculative dates you are talking about in the future. If the U.S.'s economy emerges out of the recession stronger and faster than other countries (which many signs suggest it will), it will increase tax revenues and offset a significant portion of the national debt relative to GDP while other countries are still in the doldrums of a recession. This can have a major effect on currency markets.
Too many of you are looking at this from only one angle. China, for instance, has an incentive to KEEP purchasing U.S. debt because if the dollar depreciates, that means that the amount of revenue it will gain from the U.S. purchasing its exports (pretty much the primary reason its economy has been growing so steadily) will significantly dry up, thereby causing significant contractions in Chinese exports. Why do you think they put the yuan-dollar peg on their currency in the first place?
We had two bags of grass, seventy-five pellets of mescaline, five sheets of high-powered blotter acid, a salt shaker half full of cocaine, a whole galaxy of multi-colored uppers, downers, screamers, laughers…Also a quart of tequila, a quart of rum, a case of beer, a pint of raw ether and two dozen amyls. The only thing that really worried me was the ether. There is nothing in the world more helpless and irresponsible and depraved than a man in the depths of an ether binge. –Raoul Duke
It is hard to shed anything but crocodile tears over White House speechwriter Patrick Buchanan's tragic analysis of the Nixon debacle. "It's like Sisyphus," he said. "We rolled the rock all the way up the mountain...and it rolled right back down on us...." Neither Sisyphus nor the commander of the Light Brigade nor Pat Buchanan had the time or any real inclination to question what they were doing...a martyr, to the bitter end, to a "flawed" cause and a narrow, atavistic concept of conservative politics that has done more damage to itself and the country in less than six years than its liberal enemies could have done in two or three decades. -Hunter S. Thompson
