We’re All Currency Manipulators Now

The BBC reports:

The US has decided not to declare China as having manipulated its currency to gain an unfair trade advantage.

But the Treasury did say that China’s currency, the yuan, remains “significantly undervalued” and urged China to make further progress.

In its semi-annual report, it said Beijing did not meet the criteria to be called a currency manipulator, which could have sparked US trade sanctions.

Critics of China say it keeps the yuan low to keep its exports cheap.

There’s a point that no-one in the establishment will admit.

Every country with a central bank is by definition and without exception a currency manipulator.

Every country that devalues its currency to boost exports is a currency manipulator.

Every country that bails out banks is a currency manipulator.

Every central bank purchase of treasury securities, mortgage-backed securities or equities is currency manipulation.

Every central bank that inflates away treasury debt is a currency manipulator.

And that is why America would look clownish and absurd to label China a currency manipulator, when China can throw back the exact same accusation even more forcefully. China holds trillions and trillions of dollar-denominated assets.

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28 thoughts on “We’re All Currency Manipulators Now

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  2. Just like giving women breasts is going to make them man manipulators, giving bankers money serves the same basic function.

    The problem is not the fact that people will do EVERYTHING to get something for nothing [as this seems to be basic human nature], it is, instead, the that people give these swindlers the tools [because they are so g-d lazy and want/need somebody else to wipe their butts for them].

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    • Jim Chanos is wrong on China. He admitted that he is not a Macro player, so I doubt if he even understands the philosophy of Maoism. The extensive office and residential space, may in the eyes of a Westerner, look like a property bust, but where the US has homeless people and vacant buildings, the Chinese could nationalise any private property and give to the poor at a moments notice.

      China has real materials in its territory. Its Assets far exceed its liabilities. Who does it ultimately owe money to? Most uber rich are criminals anyway and can beexecuted when the Communist party wants to get rid of them or redistribute their wealth (By releasing their file).

      China will issue a currency that will be a Reserve Currency December 2012. Adam Smith’s Wealth of Nations mentions the Spanish decline (They were a reserve currency), In their futile pursuit of Gold mines (Gold value decreases as volume increases) and extended military. It is no different to the US today.

      • Chanos is part wrong and part right.

        He is right that central planning is ultimately unsustainable and that the Chinese system is deeply problematic.

        He is wrong to look for an imminent and total bust in China. There may be some problems, but nothing of the scale he and the other China bears are seeing. Resources, and infrastructure, and a young ambitious population will smooth things for China in the short-to-medium term. It is America (another country with an unsustainable centrally planned system) that will face far greater problems (as well as America’s prototype, Japan).

        • The Chinese could nationalise any private property and give to the poor at a moments notice? Buddy, nationalism draws resources away from preferable allocators, be you Chinese or English, maintaining pure or impure intentions. Race or culture is not really an issue here. Central planning imposes costs unwanted by the many in the long term no matter who is at the helm.

          As Frenchman Frédéric Bastiat once wrote – property does not exist because there are laws, but laws exist because there is property. Properties (or “nations”) with weaker respect for the rule of private property law invite higher costs to their area thanks to capital flight and destabilizing waves of violence: which happens to constitute the most unproductive factor any economy on Earth can experience. Needless to say, nationalising things is not about to start serving the no doubt positive intentions you imagine as compared to choosing individuals acting under law so as to not steal or arbitrarily break contracts (with or without violence). Poverty would have been eliminated long ago if you only required one powerful man to order people how to use resources.

          Around Australia it’s quite common to find people who have attributed to the “rulers” of the Chinese property some type of mystical, God like power, but remember the US on its way to the top endured a war for Independence and a Civil War & then 2 world wars before reaching its peak in the 50s. In any case, Chinese or not, all fiat is elastic.

        • Have you been to China? There is a dramatic wealth gap from the wealthy and the have nots. Poverty in America still means having food and home provided for you by the government. Poor in China means you sleep in a shack with no clean water and enough food to keep you hungry for another day. There is so much incredible anger and resentment towards the ruling party, but right now everyone is too afraid – the rich, the poor, the tiny middle class, and the communist elite.

          You may argue charts and graphs thats been doctored by the Chinese government saying how much better they are now then back then, but the problems are ever present. Pollution, food safety, corruption, dispossession of property, etc. This isn’t a happy go lucky country. Short term and medium term outlook are very negative. Is it better then the west? Maybe, but its like asking which pile of poop stinks more. Long term, yeah China will surpass the West. But you’re getting too caught up in the Chinese propaganda.

        • Blah —

          I watch global trade flows as a heuristic for fragility. The more you produce, and export, the more resilient you are. From that perspective, it’s hard to be hyper-bearish on China.

        • Also, Chanos is correct. The vast majority of companies in China are horrible investments. They are heavily indebted and terribly run. Most of the money is funneled out to the senior management. There is no accounting principles and they all lie. The micro picture looks bad, but its covered over by debt.

          Macro picture is somewhat murky as the numbers are all lies. At the local level, everyone is saying business has slowed, but we’re still profitable. Which sometimes I doubt due to the save face mentality. There is a great deal of worry. Much more then the happy go lucky oblivious of just a year ago. Empty apartments (that are poorly made btw to skim more money into fat pockets) and roads litter the place. There is infrastructure, but most of it isn’t needed. You can build a hundred bridges and damns in unpopulated areas, but it doesn’t mean they will come to them. I build a mall of America in Alaska, doesn’t mean its a good idea or that the infrastructure will fuel the future.

          The youth are unemployed. Many are coming out of college and there are millions upon millions graduating that can’t find a job. They live with parents, steal, sell themselves to prostitution, whatever to live. These are your engineers and scientists and economic majors thrown in.

          Politically, its impossible to change the corruption. It is at every level of politics. You think how western politics is corrupt and impossible to change, yet when it comes to China, well they’ll just root out the corruption? I mean its the way of life here. You pay to get things done. Everyone is on the pay. Even employees take money from their employers and its considered common practice. Sale transaction require 2 invoices just for this purpose. One to show the company, one for the actual price paid. The power isn’t going to relinquish any of it. They aren’t gonna be less corrupt or less abusive. Its a disorderly mess. This idea that they are strong of one mind that will do whats best for China when the time comes is PROPAGANDA. People too often ridicule for not recognizing American propganda, but still swallow hook line and sinker for Chinese bullshit. The Chinese power is just as inept and broken as American power. Face it. Its the blind leading the blind and no ones got a clue whats going on. Whatever you hear from the talking heads and academia are just garbage. They don’t rule the country. The corrupt party leaders rule as confirmed by the transfer of power. Meet the new king same as the old king.

        • Who do you export to? To the messed up western economies.

          And how does production and export relate to fragility? Are you talking about shear size or per capita because China has quite a bit more people then say the US. Do you take into account the fact that there are a shit loads of people in China rather than just the total?

        • Importers are fragile because they are dependent on goods from exporters. Exporters are resilient because all they get from the trade is a paper token (something China has huge quantities of already — in fact we could go so far as to say that the RMB is now effectively a dollar-backed currency).

          Economies run on real goods and services. Remember that. China may be extremely corrupt (and bad for Western investors, very few would dispute that), but at least it’s not dependent on foreign goods and intermediates like the USA. Quite the opposite — the Chinese central planners could significantly damage the US economy tomorrow by restricting the export of essential goods.

          http://azizonomics.com/2012/03/18/global-trade-fragility/

        • China is dependent on foreign goods. Its a global economy today. They get ore from Australia. Energy from Russia and the MIddle East.

          China exports manufactured goods. They import ALOT of raw materials. They only have rare earth metals. If they limit the import of rare earth metals, they would crash their exports making them a major importer of raw materials and a net importer. Limit their manufacturing exports? not gonna happen. China’s economy is very brittle. You say they can crash the US economy, but they will crash themselves in the process. Mutually assured destruction.

          Do you have charts showing a correlation between import export and fragility?

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  5. The Australian Reserve Bank (Eq. to US Fed) runs a “managed” currency system, only intervening when “hot” money inflows, caused by excessive speculation occur. The reasoning behind this is it “smoothes” the rate.

    The AUD is buying 1.04 USD now, and as a result I saw a strange thing today. I replaced a part on my mower (Chinese part) with a new part (US made). I never experienced this in my life, so obviously there is either comparative advantage heading to the USA or people have complained about inferior Chinese quality. I think the former, as this Chinese part lasted a reasonable amount of time.

    If the US does not debase, it can’t export. If Australia does not lower interest rates how can it compete? It is now a Reserve currency and even if rates were to drop (and they have and the dollar held against USD) Central Banks world wide are buying AUD. Possible clues are AAA rating and stable outlook, low inflation, and trillions of dollars of minerals and oil/gas in the ground. We are also a safe haven from war (We have not been affected by war, yet).

    So I think our Reserve Bank is doing a great job, and is less prone to upswings and down swings in the official rate. This gives greater stability and reliability for people making interest rate decisions. I was always confused why the US Fed always wildly changed rates up and down. It causes instability. How can you plan investment, housing decisions when rates go up and down like a Yo-Yo?

    • “If the US does not debase, it can’t export.”

      BR, this is not true. Look at Germany and Japan as exporters of very high quality products [as does the US in limited areas, e.g., medical tech/pharma, ag tech, and weapons/weapon systems].

      There was a decision made by the financial elite that it is easier to produce profits through manipulation of the financial system rather than through producing commodities. And they were 100% correct!

      The US could revert back to a manufacturing economy if the leadership desired such. The US has the means, the educated/skilled labor force, transportation infrastructure, and all else necessary.

      And it will.

  6. Also the idea that the RBA has things under control is like devoting faith to a group of blind people leading another blind group. They appear to be going somewhere but really are just going through the motions to convince each other someone does actually know what the destination is and how to get there.

    AUS = Giant housing bubble. Giant student debt bubble. Huge household debt. Huge regulatory State that is growing. Also, the relatively misguided population has a strong tendency to look towards government employees to “fix” things. Additionally, you have Western Australia that is grumbling to break away and Canberra practicing its response to WA with Bruny Island now, a small area wanting its own sovereignty but experiencing “forced help” to keep the nation together. Organised crime laws are strictest in WA because it’s competing with central authorities. You also have mass spying so everything Australian citizens write is recorded for some group of Govt employees to read through. 0 privacy. There is a small to moderate chance government employees might realise their own interests align with their subjects but I don’t plan on finding out. It’s why I would like to and am planning to leave Australia for somewhere in South America or Asia, sorry to say. Also, AUS has massive inflation.

  7. Pingback: Atlas Sound Money Project » Blog Archive » We’re All Currency Manipulators Now

    • Music to the EMU Technocrat and Bureaucrat ears. He will get or keep his stipend. Where is the hyperinflatiobery black swan such as civil unrest in China or a Communist party trade war resulting in a supply choke, ruining the countries they supply and causing civil unrest. BTW the civil unrest could be staged to divert attention away and not giving propaganda credits for a retalitory war effort to gear up local production in the effected countries.

      China gets to be a global reserve currency and supplier when they “crush” the riot and resume function.

      But this is conjecture and the domain of free thinkers. Ahh the beauty of arm chair economics. You do not need to worry about your stipend.

  8. Pingback: Why China is Holding All That Debt « azizonomics

  9. Nice read, I just passed this onto a friend who was doing a little research on that. And he just bought me lunch as I found it for him smile So let me rephrase that: Thank you for lunch! “One who’s our friend is fond of us one who’s fond of us isn’t necessarily our friend.” by Geoffrey F. Albert.

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