Loading ...Happy Thoughts in the Morning
I woke to this article from the Globe and Mail talking about China letting their currency float:
China’s trading partners have complained the government keeps the yuan at artificially low levels, providing an unfair price advantage for China’s goods as they compete for market share around the world. Until now, China has largely ignored calls for greater currency flexibility.
commentary: Well, yeah they’ve complained but, let’s face some facts here – the major reason China and their currency pegging ways have been blamed is that they are a nice target for market xenophobists who are less willing to recognise their own ability to properly deal with market shifts than anything really tangible.
The long and the short of it is that someone somewhere would have risen to the voracious maw of the American consumer’s ‘need’ over the last twenty years and had they not taken some of the steps that the PRC took, their country’s economy would have been ravaged by the destructive nature of the consumption.
Sounds crazy no? Well, let’s look at one of China’s neighbour’s: India. For nearly ten years, India has been at the forefront of the outsourcing movement in North America as the first on the line to provide English speaking services and technnical skills to replace North American knowledge workers. While this worked well for the companies exporting their jobs overseas, the results otherwise have not been so pretty.
Firstly there is the cultural xenophobia that most North Americans suffer leading to everything from boycotts to continual racist commentary about call centres of some major companies. Next, there is usually the chest beating rage at the ‘culture of entitlement’ that North Americans have which ‘forces these outsourcings’ by CEOs and the like. Finally, you find wage attrition as knowledge workers begin accepting less pay to fill the need for some, any, type of employment.
However, this is not all: in India, there has been rampant inflationary forces at work which have disrupted both the employment picture there from one where there was (and to be fair still is) tremendous competition for good paying jobs as well as an increasing standard of living for the citizens of India.
This sounds good but, it’s only good for the employees who have one of those specialised positions with a company that provides outsourced work. For the rest of the local economies, there is nothing but, price inflation and wage deflation as other jobs pay less in comparison to the actual market realities of the goods and services needed for economic survival.
China, in pegging their currency and actively working to provide some stabilisation in their local economy has, opted to be the flogging boy for this iditioc brow beating rather than allow the ravenous forces of the market destroy their society. This should come as no surprise, they are a committee controlled country and market. Let’s not forget that.
Because while they may be communists, they’re not stupid:
The rise in the yuan is expected to be gradual and is not likely to occur until next year. Still, China is likely to quickly draw increased capital flows into the country as international investors aim to benefit from an eventual rise in the currency and local assets. But that trend brings the risk of potential unsustainable bubbles in its real estate and stock markets.
commentary:
I’m going to be the first to say this: there will be no rise in the yuan in such a way that currency investors will be able to distort the local economy as we see in the US with the brand new carry trading vehicle: the US Peso.
The law of unintended consequences:
But others see more sinister motives in the Chinese move. By resuming a yuan peg to a basket of international currencies, the biggest winner is likely to be the euro, not the dollar, said Peter Morici, former chief economist at the U.S. International Trade Commission. “That makes it more difficult for the Americans to complain, and the Europeans less likely to help lobby the Chinese,” he said.
commentary:
Sinister? You’ve got to be kidding me. Sinister for whom? Who let this fleabag write for the Globe anyways. There is nothing sinister in a side effect of the Euro rising against the dollar in concert with the yuan peg moving. That’s market forces at work.
And what’s more – the perfect reality of the situation is that the whole world’s currencies are moving up vs the US Peso. The twenty first century carry trade is here and it won’t stop until the DXY is 40-60. You can write that one down.
Finally
The move to allow the yuan to rise against the greenback would provide much-needed relief to countries trying to compete against China’s mighty export machine and put further downward pressure on an already battered U.S. dollar.
That sentence right there is why, regardless of what you hear in the MSM about this ‘repegging’ and the ‘victory of the markets’ which means you should probably be cautious when thinking about any serious investment in the PRC Yuan. It’s not going to move that much because they still have a trillion plus of Pesos sitting in some warehouses.
Theme Song
I lol’d at the fact that they allowed a factual (i’m assuming) article to use words such as sinister to describe actions taken.
Attaching value, emotion, opinion should be left to the OpEd section, globeandmail!
This is the kind of shoddy reporting I expect on the Internet, not in a newspaper! No wonder they’re all going out of business…the masses can get this shit for free!
Good post though, cuervo.