akuma587 said:
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? |
I'm not saying that the Yuan - American Dolar peg is a good thing as much as moving or removing it at the current time would be very bad ...
Look at it from another perspective, many other countries around the world have had to pay more to service their debt than the United States has even though their debt was smaller because the Yuan - American Dolar peg kept interest rates for government bonds low. When one currency is pegged to another and its pegged value is worth less than its "real" value the centeral bank of that country builds up large cash reserves of the money it is pegged to in order to preserve the exchange rate. China has taken their built up American Dollar reserves and heavily invested in US bonds which has kept the demand for these bonds high, and therefore the price of the bond has remained high and the yield has remained low.
When the Chinese Yuan to American Dollar peg is moved or removed there will be hundreds of billions of dollars of American debt that won't be purchased because China won't be building up massive cash reserves to preserve a peg, and this money can (therefore) not be invested in the bond market. Now what happens to the United States when the growth of debt, and the increase in cost of that debt, pushes the federal debt to be 33% to 50% of the federal budget?
A year from today oil prices will be much higher than they are today ... In order to maintain Oil Production today there needs to be large investments in exploration and development because we need new wells to over-come the fact that most oil fields are steadily decreasing in production; at the same time, in order to increase oil production there needs to be a lot of money put into R&D of unconventional oil because we have (mostly) found and are pumping the easy to access inexpensive oil around the world. Exploration, research and development has essentially stopped today which means that it is unlikely we will maintain current production levels for long. The only question people have over the price of oil a year from now is whether it will be $125 or $250 a barrel.
By the way, it is likely that countries that have been fiscally well managed and develop products that are exported and have high demand around the world will be the first ones out of this recession (Canada and Austrailia come to mind); and countries which export far less than they import, and have been poorly fiscally managed will be the last out of this recession (United States and the UK come to mind).
