Financial Crisis

[flying]

There was a vote today

Watch this as the gentleman from Texas politely asks for a copy of the newly added (last night ) 300 pages.

See how he is denied for not asking properly?

This is the new cap & trade bill HR2454 that passed today.

Our Reps were ask to & they did vote on this without having even a complete copy to read?

This is what it has come to not unlike the added 500? was it? pages in the bail out.

But watch the folly of it for laughs. Then be glad most of you are already out of the USSA

Edited June 27, 2009 by flying

[Abrak]

"To avoid intrinsic shortcomings in using a sovereign currency as a reserve currency, we need to create an international reserve currency that is divorced from sovereign states and can maintain a stable value over the long term," the PBOC report said.

This is actually no small feat & one that could take years to sort if ever.

Eventually currency will have to be backed by something other than promises & faith in corrupt systems.

Again IMHO only

Flying is of course totally correct in that freeing a reserve currency of its tie to a sovereign nation(s) does not guarantee its stable value unless it is backed by something tangible (and debasable) which does not exist (although gold bugs I suppose believe it does.) To me a sovereign backed promise is at lease worth something while an independent backed promise is worth nothing and ultimately will result in power be handed to some without having to claim responsibility.

I also think that statement shows the bad faith in which PBOC would wish to run the Chinese economy - namely please invent a reserve currency against which we can peg our currency at a ridiculously low rate and enjoy high growth rates at other peoples expense because we are exhausting its effectiveness against the dollar.

[Abrak]

"To avoid intrinsic shortcomings in using a sovereign currency as a reserve currency, we need to create an international reserve currency that is divorced from sovereign states and can maintain a stable value over the long term," the PBOC report said.

This is actually no small feat & one that could take years to sort if ever.

Eventually currency will have to be backed by something other than promises & faith in corrupt systems.

Again IMHO only

Flying is of course totally correct in that freeing a reserve currency of its tie to a sovereign nation(s) does not guarantee its stable value unless it is backed by something tangible (and debasable) which does not exist (although gold bugs I suppose believe it does.) To me a sovereign backed promise is at lease worth something while an independent backed promise is worth nothing and ultimately will result in power be handed to some without having to claim responsibility.

I also think that statement shows the bad faith in which PBOC would wish to run the Chinese economy - namely please invent a reserve currency against which we can peg our currency at a ridiculously low rate and enjoy high growth rates at other peoples expense because we are exhausting its effectiveness against the dollar.

[flying]

Flying is of course totally correct in that freeing a reserve currency of its tie to a sovereign nation(s) does not guarantee its stable value unless it is backed by something tangible (and debasable) which does not exist (although gold bugs I suppose believe it does.) To me a sovereign backed promise is at lease worth something while an independent backed promise is worth nothing and ultimately will result in power be handed to some without having to claim responsibility.

I also think that statement shows the bad faith in which PBOC would wish to run the Chinese economy - namely please invent a reserve currency against which we can peg our currency at a ridiculously low rate and enjoy high growth rates at other peoples expense because we are exhausting its effectiveness against the dollar.

You know the only reason the USD is the reserve currency of the central banks?

It was originally Gold that was held by central banks.

It was changed to the USD only because the USD was backed by Gold

When the USD in 1971 was no longer backed by gold or anything for that matter....

This discussion should have taken place right there & then

The last thing we as a world need is this fiat being replaced by another

IMHO as always

Edited June 27, 2009 by flying

[AlexLah]

I saw it coming this new bubble that will be created with this cap and trade scam (Funny picture posted somewhere).

From what I understand is that these carbon credits are going to be traded on some floor and every year the limit on carbon emission will be lowered so making the carbon credits more expensive to purchase.

The above two clips are very disturbing indeed, a new law/regulation is rammed through without people allowing the time to read it.

Is this the new trend, to push through new legislation/laws/regulations as quickly as possible?

Plenty of previous examples are now well documented and we all know the outcome.

You will soon see the Lisbon treaty being pushed through EU parliament without taking into consideration the no votes.

Democracy rules, the majority wins, the grey sheeps ignoring the few black sheep that dared to asked questions.

[flying]

Is this the new trend, to push through new legislation/laws/regulations as quickly as possible?

You remember reading how & when the FED was voted into existence?

Not much has changed eh?

Except now they do not even wait for a weak attendance. They use

events.

[Abrak]

I think we have a little time, but not much. Imagine when the USD goes pop, the chaos on the commodity markets.

Trouble is, when these things are rushed, mistakes are made, often making the situation even worse.

I've no idea what the answer is.

Even if someone dreamt up a solution tomorrow I doubt it could be implemented within 10 years.

The chances of the dollar going 'pop' in the next year or two are fairly small simply because its fundamentals are counterbalanced through China's and the dollar yuan peg. Simplistically the C/A deficit of one matches the surplus of the other.

The peg is however a major structural imbalance in the world economy. If it isnt addressed directly it will start getting addressed indirectly through protectionism (which would be mutually destructive.)

I believe China is heading into very dangerous territory with its actions and statements of late and is really running the risk of protectionism. This primary because of this. China generated huge amounts of forex through undervaluing its currency against the dollar through a peg. However it showed good will in reinvesting those proceeds in USTs (goodwill to the US in lower interest rates and goodwill to other countries in supporting the dollar and not increasing its competitive advantage.) Now that goodwill seems to have disappeared.

In addition the US used to believe there was some advantage in the peg in that it imported deflation but what good is that now. Meanwhile other countries are seeing the US trade deficit shrink while China's surplus does not, so they are losing out. All in all, if I was China, I would be looking to become an independent and freely tradeable currency now from a position of strength and creditability. Instead of asking for a new reserve currency why not go about trying to create one. Afterall against existing currencies they dont face a lot of competition.

[MJP]

I think we have a little time, but not much. Imagine when the USD goes pop, the chaos on the commodity markets.

Trouble is, when these things are rushed, mistakes are made, often making the situation even worse.

I've no idea what the answer is.

Even if someone dreamt up a solution tomorrow I doubt it could be implemented within 10 years.

The chances of the dollar going 'pop' in the next year or two are fairly small simply because its fundamentals are counterbalanced through China's and the dollar yuan peg. Simplistically the C/A deficit of one matches the surplus of the other.

The peg is however a major structural imbalance in the world economy. If it isnt addressed directly it will start getting addressed indirectly through protectionism (which would be mutually destructive.)

I believe China is heading into very dangerous territory with its actions and statements of late and is really running the risk of protectionism. This primary because of this. China generated huge amounts of forex through undervaluing its currency against the dollar through a peg. However it showed good will in reinvesting those proceeds in USTs (goodwill to the US in lower interest rates and goodwill to other countries in supporting the dollar and not increasing its competitive advantage.) Now that goodwill seems to have disappeared.

In addition the US used to believe there was some advantage in the peg in that it imported deflation but what good is that now. Meanwhile other countries are seeing the US trade deficit shrink while China's surplus does not, so they are losing out. All in all, if I was China, I would be looking to become an independent and freely tradeable currency now from a position of strength and creditability. Instead of asking for a new reserve currency why not go about trying to create one. Afterall against existing currencies they dont face a lot of competition.

Good explanation.

I'd like to add that China has had QE all along. Constantly. I read 'The Coming Collapse of China' by Gordon E. Chang, in which he claimed the loss making state owned enterprises were constantly bailed out by the loss making state owned banks. The emphasis on production rather than production for a particular need/market.

If China floated, would it have to open up the books? Would the currency in fact go down?

Don't know.

Edited June 27, 2009 by MJP

[MJP]

.

Edited June 27, 2009 by MJP

[Abrak]

You know the only reason the USD is the reserve currency of the central banks?

It was originally Gold that was held by central banks.

It was changed to the USD only because the USD was backed by Gold

When the USD in 1971 was no longer backed by gold or anything for that matter....

This discussion should have taken place right there & then

The last thing we as a world need is this fiat being replaced by another

IMHO as always

Absolutely.

At one point money was gold and then someone came up with the idea of paper issued backed by gold. (And that left all the gold sitting in the gold vaults and then we came up with banking.)

Sterling used to be backed by gold but at some point during WW2, the country essentially went largely bankrupt and the currency became fiat. So it gradually lost its reserve currency basis to the dollar.

The problem with having a gold backed reserve currency is that it, by definition, it doesnt let you debase it and take advantage of being the reserve currency, so it is not that much fun. And we cant go back to gold because it would mean rebasing the price to some ridiculous level.

Isnt there an inherent problem with a currency actually backed by something tangible in that it is too good and so everyone wants it instead of a fiat currency?

[Abrak]

I'd like to add that China has had QE all along. Constantly. I read 'The Coming Collapse of China' by Gordon E. Chang, in which he claimed the loss making state owned enterprises were constantly bailed out by the loss making state owned banks. The emphasis on production rather than production for a particular need/market.

If China floated, would it have to open up the books? Would the currency in fact go down?

Don't know.

There is something inherently odd about China's banking system that I dont understand but I dont really understand how banking systems work in general.

China stands out as having a very high bank assets to GDP ratio of over 200%. I say that is very high on the basis that although there are many other countries with much higher asset/gdp ratios (like the UK at 350%) they are banking centres and so are integral to financing other economies. In addition, much of China's financing happens through HK which has bank assets/GDP of over 700% which is presumably much attributable to China. Nobody abroad is financing themselves in yuan, so you would expect bank assets to be around 80% of GDP.

Anyway the reason that ratio is going to cause them problems goes like this. As of April loan growth was about 30% so assets as a percent of GDP might have grown anywhere between 40-60%. Now assume the economy is growing at 8% and this investment accounts for 4% of the growth, if the profit from the income generated is 100% then the ROI is between 10% and 7.5%. Now as profit as a per cent of income is likely to be nearer 10% then ROI is likely to be very little. Put simply with banking assets to GDP of 200% a 30% increase in assets resulting in an 8% increase in GDP must imply a very low ROI.

One thing for certain, in so far as you peg your currency at an undervalued rate you really have no monetary policy. To the extent you are generating surpluses and building up reserves presumably you are naturally expanding yuan money supply. And you would expect over time that any competitive advantage you had gained would be eroded by differential inflation rates.

[MJP]

I'd like to add that China has had QE all along. Constantly. I read 'The Coming Collapse of China' by Gordon E. Chang, in which he claimed the loss making state owned enterprises were constantly bailed out by the loss making state owned banks. The emphasis on production rather than production for a particular need/market.

If China floated, would it have to open up the books? Would the currency in fact go down?

Don't know.

There is something inherently odd about China's banking system that I dont understand but I dont really understand how banking systems work in general.

China stands out as having a very high bank assets to GDP ratio of over 200%. I say that is very high on the basis that although there are many other countries with much higher asset/gdp ratios (like the UK at 350%) they are banking centres and so are integral to financing other economies. In addition, much of China's financing happens through HK which has bank assets/GDP of over 700% which is presumably much attributable to China. Nobody abroad is financing themselves in yuan, so you would expect bank assets to be around 80% of GDP.

Anyway the reason that ratio is going to cause them problems goes like this. As of April loan growth was about 30% so assets as a percent of GDP might have grown anywhere between 40-60%. Now assume the economy is growing at 8% and this investment accounts for 4% of the growth, if the profit from the income generated is 100% then the ROI is between 10% and 7.5%. Now as profit as a per cent of income is likely to be nearer 10% then ROI is likely to be very little. Put simply with banking assets to GDP of 200% a 30% increase in assets resulting in an 8% increase in GDP must imply a very low ROI.

One thing for certain, in so far as you peg your currency at an undervalued rate you really have no monetary policy. To the extent you are generating surpluses and building up reserves presumably you are naturally expanding yuan money supply. And you would expect over time that any competitive advantage you had gained would be eroded by differential inflation rates.

But perhaps a realistic ROI? Remember all the ROI in the West (well most of it) came out of fraudulent banking in the past 10 years.

Who knows, I reckon it's all fixed, smoke and mirrors now anyway. We may be talking about a system that doesn't exist.

[Abrak]

But perhaps a realistic ROI? Remember all the ROI in the West (well most of it) came out of fraudulent banking in the past 10 years.

Who knows, I reckon it's all fixed, smoke and mirrors now anyway. We may be talking about a system that doesn't exist.

Oh absolutely falling ROI is endemic to the whole capitalist system worldwide. The financial crisis is a result of a crisis of profitability more than anything else. The problem is not a shortfall in demand but that half the supply needs to be bulldozed.

Western banking systems profits, share prices, directors bonuses etc are driven by loan growth and under provisioning. By under provisioning I mean that according to the IMF in a 'normal' cycle loan losses equate to 5.1% of total loans and who has come across a bank who makes those provisions in a normal cycle.

So this leads to over lending and poor returns on capital.

I suspect causality in China runs rather differently in that the high consumption ratio of the US leads to an inordinately high savings ratio in China. Given forex controls this forces the banks to over lend whether it is for short term profitability or otherwise. BTW this latter argument may be total rubbish - it kind of sounds like it.

[Abrak]

Anyways I do know I have been overly tough on China in this thread but only because other people will not recognize its inherent political driven weaknesses....

Simply read this article...

“Even though state-controlled enterprises produce between one-quarter and one-third of all output in the country, they receive more than 75 per cent of the country’s capital, and the figure is rising.

China’s state sector owns almost two-thirds of all fixed assets in the country. This is the reverse of what occurred in South Korea (as well as Japan and Taiwan), where the private sector received more than three-quarters of all capital during the 1960s and 1970s.”

“The massive bias towards the state sector would be acceptable if the 120,000 state-controlled enterprises could learn to innovate and adapt. Unfortunately, except for a handful of centrally managed state-controlled enterprises, this is not the case.

To put the situation in perspective: China’s overall use of capital is half as efficient as India’s. World Bank findings indicate that about one-third of recent investments made by the state-controlled sector generated zero or negative returns. This might increase the chances of the Chinese Communist Party remaining in power, but at enormous cost to the country.”

http://www.nst.com.my/Current_News/NST/Tue...icle/index_html

I do not believe I am putting forward a conspiracy theory here. Merely pointing out one of the tragic inherent weaknesses of its growth model. Perhaps everything that I wish to say and needs to be said about China and its ultimate failings is said in the above article. You see if what is written is true ultimately no rational capitalist will be willing to do business in the country and then you will be left back at square one - with nothing but the state (and of course a financial crisis.)

Given that I believe there is a truely productive private sector hiding behind a truely non-productive public one - it would surely be criminal if the result of this financial crisis was to crowd out the genuine private sector by creating growth through artificial non-productive quasi public sector investment.

Edited June 27, 2009 by Abrak

[12DrinkMore]

Well, the Chinese have been active again in their call to reduce the karma of the USD as the world's reserve currency.

http://www.bloomberg.com/apps/news?pid=206...id=aQ.zWVPnOYYg

Dollar Falls Most in Month as China Urges New Reserve Currency

“To prevent the deficiencies in the main reserve currency, there’s a need to create a new currency that’s delinked from the economies of the issuers,” the People’s Bank of China, or PBOC, said.

This whole currency merry-go-round is an exercise in total frustration. What determines the "real" value of a currency? Where should one currency stand against another, what measure of comparison can you use? I don't believe that anybody has an answer. At the moment the USD is being claimed to be overvalued and the Yuan pegged to a value which is too low. But what happens if the USD falls? Then Thailand comes along and says that the THB is too strong. Or the Swiss reckon that the CHF is too high against the EUR, so they talk it down and sell CHF, presumably against the EUR.

Globalisation has resulted in the manufacturung of labour and material intensive real stuff to move the East. The production of vast numbers in a bank's computer system has developed in the West. Until now I believed that "real wealth" was created by "real production". And that all the "financial wizardry" was unsustainable bullshit wealth. I think that I need to shift my personal paradigm so that they are the same in terms of wealth creation. Particularly in the light that the US and UK governments are prepared to rape the tax payers and bail out the bankers, whilst the manufacturers can basically <deleted> off.

The BIG BIG issue is that the bankers concentrate the wealth in the pockets of a few compared to industry, which spreads the profits into the pockets of the workers and shareholders. And the dam_n bankers know they cannot fail, they get bailouts.

It's a sad <deleted> world we've arrived at.

But will a global reserve currency disassociated from any country solve the problems? It would have to be pegged to something solid that the bankers cannot manipulate, and which does not vary with time, availability or speculation. I suggest the speed of light in a vacuum. There we go, the new world's reserve currency, the SOLVE (Speed Of Light in a Vacuum for Earth)

But it won't happen. The bankers are already too powerful, it would be their worst nightmare, a real, fixed constant that cannot be adjusted or speculated against.

The next bubble has been passed

http://www.bloomberg.com/apps/news?pid=206...id=aJmY6ybgeKpU

Can somebody please explain to me why carbon credits should be tradeable, and hedgeable, and derivateable? And please not the obvious answer that the banks can make money from them. I despair.

And if you are interested in trying to work out how the banking system works, this might take you a little deeper into that nasty can of worms.

http://www.rbnz.govt.nz/finstab/banking/re...on/0091769.html

You may have thought that these guys were restrained by the "fractional reserve" ratio in creating more cash. But in fact they have considerably more leeway based on the so called tier 1 and tier 2 ratios.

The biggest mistake I have ever made in my entire life is to think that engineering was a career with a future. Should have gone into "banking engineering", instead of the Honda Wave I would be looking at a Ferrari....

[MJP]

Well, the Chinese have been active again in their call to reduce the karma of the USD as the world's reserve currency.

http://www.bloomberg.com/apps/news?pid=206...id=aQ.zWVPnOYYg

Dollar Falls Most in Month as China Urges New Reserve Currency

"To prevent the deficiencies in the main reserve currency, there's a need to create a new currency that's delinked from the economies of the issuers," the People's Bank of China, or PBOC, said.

This whole currency merry-go-round is an exercise in total frustration. What determines the "real" value of a currency? Where should one currency stand against another, what measure of comparison can you use? I don't believe that anybody has an answer. At the moment the USD is being claimed to be overvalued and the Yuan pegged to a value which is too low. But what happens if the USD falls? Then Thailand comes along and says that the THB is too strong. Or the Swiss reckon that the CHF is too high against the EUR, so they talk it down and sell CHF, presumably against the EUR.

Globalisation has resulted in the manufacturung of labour and material intensive real stuff to move the East. The production of vast numbers in a bank's computer system has developed in the West. Until now I believed that "real wealth" was created by "real production". And that all the "financial wizardry" was unsustainable bullshit wealth. I think that I need to shift my personal paradigm so that they are the same in terms of wealth creation. Particularly in the light that the US and UK governments are prepared to rape the tax payers and bail out the bankers, whilst the manufacturers can basically <deleted> off.

The BIG BIG issue is that the bankers concentrate the wealth in the pockets of a few compared to industry, which spreads the profits into the pockets of the workers and shareholders. And the dam_n bankers know they cannot fail, they get bailouts.

It's a sad <deleted> world we've arrived at.

But will a global reserve currency disassociated from any country solve the problems? It would have to be pegged to something solid that the bankers cannot manipulate, and which does not vary with time, availability or speculation. I suggest the speed of light in a vacuum. There we go, the new world's reserve currency, the SOLVE (Speed Of Light in a Vacuum for Earth)

But it won't happen. The bankers are already too powerful, it would be their worst nightmare, a real, fixed constant that cannot be adjusted or speculated against.

The next bubble has been passed

http://www.bloomberg.com/apps/news?pid=206...id=aJmY6ybgeKpU

Can somebody please explain to me why carbon credits should be tradeable, and hedgeable, and derivateable? And please not the obvious answer that the banks can make money from them. I despair.

And if you are interested in trying to work out how the banking system works, this might take you a little deeper into that nasty can of worms.

http://www.rbnz.govt.nz/finstab/banking/re...on/0091769.html

You may have thought that these guys were restrained by the "fractional reserve" ratio in creating more cash. But in fact they have considerably more leeway based on the so called tier 1 and tier 2 ratios.

The biggest mistake I have ever made in my entire life is to think that engineering was a career with a future. Should have gone into "banking engineering", instead of the Honda Wave I would be looking at a Ferrari....

Can you imagine how dull it would be compared to making things? Banking I mean, instead of engineering. Dealing with those people. I used to deal with venture capital people. A b er dee n. Dull as dishwater.

[Abrak]

The biggest mistake I have ever made in my entire life is to think that engineering was a career with a future. Should have gone into "banking engineering", instead of the Honda Wave I would be looking at a Ferrari....

Ultimately your biggest mistake was giving it some thought at all. I didnt know what to do for a career - so I simply looked at my friends, worked out which were the stupid ones making a lot of money and picked - stockbroking.

BTW MJP Stockbroking or banking may seem inherently boring (and, as a career, is about as good as being an undertaker as a chat up line) but it is not that boring as you have a lot of power without any responsibility which is always inherently amusing.

Edited June 27, 2009 by Abrak

[MJP]

The biggest mistake I have ever made in my entire life is to think that engineering was a career with a future. Should have gone into "banking engineering", instead of the Honda Wave I would be looking at a Ferrari....

Ultimately your biggest mistake was giving it some thought at all. I didnt know what to do for a career - so I simply looked at my friends, worked out which were the stupid ones making a lot of money and picked - stockbroking.

Careers aren't just about money. Mine pays no where near what yours probably does and I still hate it!

Edited June 27, 2009 by MJP

[flying]

I believe China is heading into very dangerous territory with its actions and statements of late and is really running the risk of protectionism. This primary because of this. China generated huge amounts of forex through undervaluing its currency against the dollar through a peg. However it showed good will in reinvesting those proceeds in USTs (goodwill to the US in lower interest rates and goodwill to other countries in supporting the dollar and not increasing its competitive advantage.) Now that goodwill seems to have disappeared.

Yes But Jeez...............It is an age old story that has destroyed many relationships. We owe them big big big $$$$$$$$$$$$$$

Now they see they will not only probably not get paid but they are asked to continue on producing real goods for counterfeit more devalued by the day.

Goodwill is a two way street.

Also we should realize China is not asking nor do they want to be the reserve currency themselves. There is no benefit we can say they are trying to claim.

They are only asking for a fair detached from any sovereignty reserve. So this may not happen in the future yet again.

If in fact that detached backing does turn out to be gold the USA is theoretically the one ahead since we theoretically hold the most physical gold today. The Chinese in asking for a detached peg has not to my knowledge even made any suggestion as to what that would be. So they are not acting unfairly or trying to get a leg up IMHO

The problem with having a gold backed reserve currency is that it, by definition, it doesnt let you debase it and take advantage of being the reserve currency, so it is not that much fun. And we cant go back to gold because it would mean rebasing the price to some ridiculous level.

Isnt there an inherent problem with a currency actually backed by something tangible in that it is too good and so everyone wants it instead of a fiat currency?

Not true to my mind. The fact that it cannot be twisted is what makes it perfect.

Rebasing the price may be ridiculous only because the US has printed so much funny paper that needs to be destroyed. Also it is a two way street here also. The $ needs to go to where it belongs not just gold or what ever is used as a backing.

If some paper is not recovered & destroyed then the $ needs to go down big. They knew this when they printed & could be part of the reason for the rush in recent times to push through massive increases in fiat to a point nothing can physically back it. Sign the bail out or ...........

You are right though that everyone will prefer & want a money versus a fiat

Edited June 27, 2009 by flying

[Datsun240Z]

Isn't it stupid that our dreams rely on some digital and printed money?

[MJP]

The biggest mistake I have ever made in my entire life is to think that engineering was a career with a future. Should have gone into "banking engineering", instead of the Honda Wave I would be looking at a Ferrari....

Ultimately your biggest mistake was giving it some thought at all. I didnt know what to do for a career - so I simply looked at my friends, worked out which were the stupid ones making a lot of money and picked - stockbroking.

BTW MJP Stockbroking or banking may seem inherently boring (and, as a career, is about as good as being an undertaker as a chat up line) but it is not that boring as you have a lot of power without any responsibility which is always inherently amusing.

When the contracts you run go to a billion dollars, I too detach myself from reality. I mean it gets so big, what's the point in worrying any more?

[flying]

But will a global reserve currency disassociated from any country solve the problems? It would have to be pegged to something solid that the bankers cannot manipulate, and which does not vary with time, availability or speculation.

You got that right

The next bubble has been passed

http://www.bloomberg.com/apps/news?pid=206...id=aJmY6ybgeKpU

Can somebody please explain to me why carbon credits should be tradeable, and hedgeable, and derivateable? And please not the obvious answer that the banks can make money from them. I despair.

I really cannot believe this thing has passed.

We are in for such a sh!t storm over this.

The biggest mistake I have ever made in my entire life is to think that engineering was a career with a future. Should have gone into "banking engineering", instead of the Honda Wave I would be looking at a Ferrari....

heheheh you must be doing something right Your in TL on a Honda wave that is a dang sight better than many poor saps

[Abrak]

12Drinkmore,

The side of my argument that you dont get is that the US doesnt really owe them BIG $$$$$. In that those BIG $$$$$ were immorally earn t by pegging the yuan at an undervalued rate against the dollar. Inflows of capital meant for the US therefore went to China, jobs were exported from the US to China, growth was exported from the US to China all the US got was deflation (in the form of lower cost of goods) and a large bill for the net imports in the form of USTs. If China's currency had been freely floating its appreciation versus the dollar would have eradicated much of the deficit and much of the reason to invest in China in the first place as well as leaving a very, very much smaller bill at the end.

Obviously China pegging its currency against the dollar at an undervalued rate is 'taking advantage' of the US. If you cant see you are being scammed then so be it. But if I can scam you this easily I have a few properties I own that I wish to offer you. As I said before the fact that the yuan is undervalued against the dollar is blatant to anyone, therefore China's investment in the profits of their scam into over valued dollars rather than selling them and increasing the blatancy of their scam could be regarded as an act of goodwill. To some extent if they had taken the profits and reinvested elsewhere the scam would have become apparent to all. Perhaps not. Perhaps the idea of investing in USTs was they believed that their undervalued peg was to the most undervalued currency and now this is no longer the case.

[Abrak]

Isn't it stupid that our dreams rely on some digital and printed money?

Yeah I like that one....

Remember in this thread there is a long discussion about Japanese bankers and US$134bn fake bearer bonds.

Well at the end of the day they KNOW they are fake because nowadays all government bonds are DIGITAL rather than PAPER.

How reassuring is that?

At least I can wipe my ass with paper currency.

[flying]

The side of my argument that you dont get is that the US doesnt really owe them BIG $$$. In that those BIG $$$ were immorally earn t by pegging the yuan at an undervalued rate against the dollar.

So basically if I go to a store & buy a bunch of things on credit..........

Then later refuse to pay as I think they were unfair in their valuation....that is acceptable?

We have been doing business for years. We cannot cry this tune now.

If we feel they were unfair in the rate of exchange then we should not buy products.

But then that is another whole can of worms isn't it?

Edited June 27, 2009 by flying

[Abrak]

The side of my argument that you dont get is that the US doesnt really owe them BIG $$$. In that those BIG $$$ were immorally earn t by pegging the yuan at an undervalued rate against the dollar.

So basically if I go to a store & buy a bunch of things on credit..........

Then later refuse to pay as I think they were unfair in their valuation....that is acceptable?

We have been doing business for years. We cannot cry this tune now.

If we feel they were unfair then we should not buy products.

1 wongs dont make a right

but 2 wrights can make a airplane :D

You are right in so far as in that the peg was unequal and unfair, the US should not have agreed to it.

To the extent you agree to a scam there is little point in complaining about being scammed afterwards.

My point is that the US could feel alright about the scam so long as 1) the profits were being reinvested back in the US (via USTs) and 2) that the deflation it was importing as a result was seen as positive rather than detrimental. Both these factors no longer seem in place, therefore expect increased recognition that a scam is a scam.

So from the US's point of view it is a bit like marrying a girl on the basis that she will shag you every day for the remains of your life and then a) you realize that you would like to shag other women too and she is a lousy shag anyways. Now on the basis she is a lousy shag I say the marriage contract is a scam. You obviously point out that the guy is simply a fool. (I think this modified post makes it clear where I feel the fault lies.)

Edited June 27, 2009 by Abrak

[flying]

To the extent you agree to a scam there is little point in complaining about being scammed afterwards.

My point is that the US could feel alright about the scam so long as 1) the profits were being reinvested back in the US (via USTs) and 2) that the deflation it was importing as a result was seen as positive rather than detrimental. Both these factors no longer seem in place, therefore expect increased recognition that a scam is a scam.

Yes I see what your saying but I guess I would call it a mutual agreement rather than a scam. You are saying they mutually agreed & now the Chinese are not following through on their end?

Or are you saying the US was foolish to expect something implied in their mind to be a concrete business deal?

[Datsun240Z]

Isn't it stupid that our dreams rely on some digital and printed money?

Yeah I like that one....

Remember in this thread there is a long discussion about Japanese bankers and US$134bn fake bearer bonds.

Well at the end of the day they KNOW they are fake because nowadays all government bonds are DIGITAL rather than PAPER.

How reassuring is that?

At least I can wipe my ass with paper currency.

Even more worrying -> Digital money ? It actually means, there is nothing. Who said all digital money is really there? ..it's not~!

[Abrak]

Even more worrying -> Digital money ? It actually means, there is nothing. Who said all digital money is really there? ..it's not~!

Yeah well one thing that would certainly make Marx roll in his grave (in fits of giggles) if, if the end of capitalism is marked not by revolution, not by war or swine flue but my some computer virus that wipes out all known records of peoples assets and liabilities.

This is not quite as absurd as it sounds. During the Thai financial crisis liabilities were being bought and swapped on a regular basis. I know of two people who actively tried to pay back their liabilities (at a discount) only to find that there was no record of the liabilities actually existing.

[Naam]

Anyways I do know I have been overly tough on China in this thread but only because other people will not recognize its inherent political driven weaknesses....

you have been indeed and with all due respect to your overall financial knowledge... your overweighting of China has become quite boring