{"id":12223,"date":"2015-08-22T18:21:56","date_gmt":"2015-08-22T22:21:56","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=12223"},"modified":"2015-08-22T18:21:56","modified_gmt":"2015-08-22T22:21:56","slug":"chinas-dangerous-currency-manipulation","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2015\/08\/22\/chinas-dangerous-currency-manipulation\/","title":{"rendered":"China’s dangerous currency manipulation"},"content":{"rendered":"

I am surprised at John Mauldin’s view in his latest newsletter Playing the Chinese Trump Card<\/a>:<\/p>\n

….This whole myth that China has purposely kept their currency undervalued needs to be completely excised from the economic discussion. First off, the two largest currency-manipulating central banks currently at work in the world are (in order) the Bank of Japan and the European Central Bank. And two to four years ago the hands-down leading manipulator would have been the Federal Reserve of the United States.<\/p><\/blockquote>\n

John is correct that China has in recent years engaged in less quantitative easing than Japan, Europe and the US. And these activities are likely to weaken the respective currencies. But what he ignores is that these actions are puny compared to the $4.5 Trillion in foreign reserves that China has accumulated over the last decade. That is almost 2 years of goods and services imports — far in excess of the 3 months of imports considered prudent to guard against trade shocks. Arthur Laffer highlights this in his recent paper Currency Manipulation and its Distortion of Free Trade<\/a>:<\/p>\n

\"Foreign<\/p>\n

Accumulation of excessive foreign reserves is the favored technique employed by China, and Japan before that, to suppress currency appreciation over the last three decades. Dollar outflows through capital account, used to purchase US Treasuries and other quality government and quasi-government debt, are used to offset dollar inflows from exports. This allows the exporting state to maintain a prolonged trade imbalance without substantial appreciation of their currency. And forces the target (US) to sustain a prolonged trade deficit to offset the capital inflows. Laffer sums up currency manipulation as:<\/p>\n

….. when a country either purchases or sells foreign currency with the intent to move the domestic currency away from equilibrium or to prevent it from moving towards equilibrium.<\/p><\/blockquote>\n

Even Paul Krugman (whose views I seldom agree with) has been wise to the problem for at least 5 years:<\/p>\n

…..economist Paul Krugman and a group of senators led by New York Democrat Chuck Schumer wanted to impose a 25% tariff on Chinese imports.<\/p><\/blockquote>\n

Prolonged current account imbalances cause instability in global financial markets. A sustained US current account deficit was one of the primary weaknesses cited by Nouriel Roubini in his forecasts of the 2008 financial crisis (the other side of the equation was a sustained Chinese surplus). But currency manipulation is not only dangerous, it is also short-sighted. International trade is a zero-sum game. For every dollar of goods, services, capital or interest that goes out, a dollar of goods, services, capital or interest must come in. For every country that runs a current account surplus, another must run a deficit. Without international regulation, each country will try to engineer a trade surplus in order to boost their domestic economy at the expense of their trade partners. An endless game of beggar-thy-neighbor. <\/p>\n

Participants will suffer long-term consequences. The power of financial markets is unstoppable. Central banks attempt to hold back the tide, distorting price signals and shoring up surpluses (or deficits), at their peril. The market will have its way and restore equilibrium in the long term. As Japan in the 1990s and Switzerland recently experienced, the further you move markets away from equilibrium the more powerful the opposing backlash will be. The scale of China’s market manipulation is unprecedented, and caused large-scale distortions in the US. The end result forced the Fed to embark on unprecedented quantitative easing which, in turn, is now impacting back on China. <\/p>\n

The impact will not only be felt by China, as John points out:<\/p>\n

The low rates and massive amounts of money created by quantitative easing in the US showed up in emerging markets, pushing down their rates and driving up their currencies and markets. Just as [governor of the Central Bank of India, Raghuram Rajan] (and I) predicted, once the quantitative easing was taken away, the tremors in the emerging markets began, and those waves are now breaking on our own shores. The putative culprit is China, but at the root of the problem are serious liquidity problems in emerging markets. China\u2019s actions just heighten those concerns.<\/p><\/blockquote>\n

Chinese hopes for a soft landing are futile.<\/p>\n","protected":false},"excerpt":{"rendered":"

I am surprised at John Mauldin’s view in his latest newsletter Playing the Chinese Trump Card: ….This whole myth that China has purposely kept their currency undervalued needs to be completely excised from the economic discussion. First off, the two largest currency-manipulating central banks currently at work in the world are (in order) the Bank … <\/p>\n

Continue reading “China’s dangerous currency manipulation”<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[41,7,34],"tags":[572,919,927,1441,2831],"class_list":["post-12223","post","type-post","status-publish","format-standard","hentry","category-china-hk","category-forex","category-us-canada-countries-regions","tag-capital-account-flows","tag-currency-manipulation","tag-current-account","tag-foreign-reserves","tag-quantitative-easing"],"yoast_head":"\nChina's dangerous currency manipulation - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"China's dangerous currency manipulation - the patient investor\" \/>\n<meta property=\"og:description\" content=\"I am surprised at John Mauldin’s view in his latest newsletter Playing the Chinese Trump Card: ….This whole myth that China has purposely kept their currency undervalued needs to be completely excised from the economic discussion. 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Laffer's paper on currency manipulation: ....Successful currency manipulation inhibits the exchange rate from acting as an automatic stabilizer to macroeconomic events, and thereby leads to growth and trade imbalances. Currency manipulation has therefore, in part, inhibited the world from fully recovering from the financial crisis. For\u2026","rel":"","context":"In "China & HK"","block_context":{"text":"China & HK","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/china-hk\/"},"img":{"alt_text":"GDP growth rates","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/2015-08-19-worldgdp.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/2015-08-19-worldgdp.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/2015-08-19-worldgdp.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":6440,"url":"https:\/\/thepatientinvestor.com\/index.php\/2012\/12\/10\/what-to-do-about-the-us-currency-war-alan-kohler-commentary-business-spectator\/","url_meta":{"origin":12223,"position":1},"title":"What to do about the US currency war | Alan Kohler | Business Spectator","author":"Colin Twiggs","date":"December 10, 2012","format":false,"excerpt":"Alan Kohler writes about the Fed's quantitative easing strategy which is effectively debasing the US dollar: Because it is trying to reduce the world\u2019s reserve currency, the Fed is effectively giving other countries two choices: either allow your currencies to appreciate against the US dollar and thus make your economies\u2026","rel":"","context":"In "Australia & NZ"","block_context":{"text":"Australia & NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":16148,"url":"https:\/\/thepatientinvestor.com\/index.php\/2018\/03\/27\/trumps-trade-war\/","url_meta":{"origin":12223,"position":2},"title":"Trump’s Trade War","author":"Colin Twiggs","date":"March 27, 2018","format":false,"excerpt":"First, let me correct the implication that this is a trade war started by Donald Trump. It is not. His is only the first significant response by the US in a trade war initiated by China more than a decade ago, in the early 2000s. In 2011 I warned of\u2026","rel":"","context":"In "International Trade"","block_context":{"text":"International Trade","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/international-trade\/"},"img":{"alt_text":"Foreign Direct Investment in US","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/foreign-inv.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/foreign-inv.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/foreign-inv.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":1724,"url":"https:\/\/thepatientinvestor.com\/index.php\/2011\/11\/02\/creditors-can-huff-but-they-need-debtors-ft-com\/","url_meta":{"origin":12223,"position":3},"title":"Creditors can huff but they need debtors – FT.com","author":"ColinTwiggs","date":"November 2, 2011","format":false,"excerpt":"China already runs its own risk of massive losses on the currency reserves \u2013 now worth $3,200bn \u2013 it has accumulated. That was a public capital outflow aimed at supporting its trade surpluses. But, in its attempts at managing the currency relationship with the US, it is the latter that\u2026","rel":"","context":"In "China & HK"","block_context":{"text":"China & HK","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/china-hk\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":11531,"url":"https:\/\/thepatientinvestor.com\/index.php\/2015\/02\/09\/sectoral-imbalances-the-purple-jobs-eater\/","url_meta":{"origin":12223,"position":4},"title":"Sectoral imbalances: Where have all the jobs gone?","author":"ColinTwiggs","date":"February 9, 2015","format":false,"excerpt":"Great post on Twitter from Naufal Sanaullah depicting US sectoral balances using UK economist Wynne Godley's analytical framework. The key to understanding Godley's analysis is that the sum of the four sectors is always zero. If one sector runs a deficit, it must be funded by a surplus in another\u2026","rel":"","context":"In "China & HK"","block_context":{"text":"China & HK","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/china-hk\/"},"img":{"alt_text":"Output Gap: Wikipedia","src":"http:\/\/upload.wikimedia.org\/wikipedia\/commons\/thumb\/0\/0a\/Actual_potential_GDP_output_gap_CBO_Jan_09_outlook.png\/250px-Actual_potential_GDP_output_gap_CBO_Jan_09_outlook.png","width":350,"height":200},"classes":[]},{"id":6539,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/01\/04\/currency-manipulation-cost-us-economy-up-to-5-million-jobs\/","url_meta":{"origin":12223,"position":5},"title":"Currency manipulation cost US economy up to 5 million jobs","author":"Colin Twiggs","date":"January 4, 2013","format":false,"excerpt":"Extract from a research brief by by C. Fred Bergsten and Joseph E. Gagnon, at Peterson Institute for International Economics, published December 2012: More than 20 countries have increased their aggregate foreign exchange reserves and other official foreign assets by an annual average of nearly $1 trillion in recent years.\u2026","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/12223","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=12223"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/12223\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=12223"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=12223"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=12223"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}