Can someone explain how this is good for the US despite the improvement in the trade balance? All the profits have been coming from manufacturing cheap and selling expensive, what happens when this goes away?
you will hear from all the misinformed who believe that you can bring prosperity by depreciating the currency.e one more step in the demise of the dollar.
So can someone explain how the chinese will buy more american goods, or does this just hurt profit margins of manufacturers and retailers? I have an economics degree and cant figure it out.
being linked to the dollar has been the goose that laid the golden egg for China -- as it is for any developing nation. now we'll see (again) what a command economy can do to a currency... eventually. it ought to be great for currency traders. ** now we know what jigged the dollar yesterday -- and here I thought it was Mr. Greenspan's testimony. **
It's supposed to help american based manufacturing companies compete with chinese companies, help american workers compete with cheap chinese labor. It certainly is not going to help importers, outsourcing and offshoring companies, nor was it intended to.
a link to a dollar is like having a defacto dollar. It's similar to the dollar being tied to gold in the olden days. it's an objective value, lending stability like training wheels. china's rotten, communist methods were temporarily shored up by the link to the capitalist, free market dollar. the training wheels are being eased off, and china's currency will (eventually, theoretically) rise and fall based on the merits (or lack thereof) of its own economy. simplistic explanation.
Forgive my Mickey Mouse economics but shouldnt this have a triple impact on US int rates? First, everything one buys from China is now 2% more expensive, contributing to inflation and causing the fed to further hike rates. Second, instead of buying treasuries with those dollars, China will plow them into other foriegn instruments. The result is less demand for treasuries and higher interest rates. Third, China indicated that it would be diversifying it foreign reserves, i.e. selling treasuries, raising US interest rates. I s'pose the good news is that there will be no more worries of the flattening yield curve.