Comments on: Kuwait’s dinar is now on track to appreciate by more than China’s renminbi in 2007 … http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/ Thu, 14 Oct 2010 13:09:54 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Guest http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102326 Guest Mon, 26 Nov 2007 18:13:36 +0000 http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102326 Citigroup Inc., seeking to restore investor confidence amid massive losses due in credit markets and a lack of permanent leadership, is receiving a $7.5 billion capital infusion from the investment arm of the Abu Dhabi government. The investment by the Abu Dhabi Investment Authority will help rebuild Citigroup's capital levels, which have been eroded by a credit crunch that began in the summer. Citigroup Chief Executive Officer and Chairman Charles Prince resigned earlier this month after the bank, which had already written off billions of dollars, said it was facing as much as $11 billion more in losses. Citigroup Inc., seeking to restore investor confidence amid massive losses due in credit markets and a lack of permanent leadership, is receiving a $7.5 billion capital infusion from the investment arm of the Abu Dhabi government.

The investment by the Abu Dhabi Investment Authority will help rebuild Citigroup’s capital levels, which have been eroded by a credit crunch that began in the summer. Citigroup Chief Executive Officer and Chairman Charles Prince resigned earlier this month after the bank, which had already written off billions of dollars, said it was facing as much as $11 billion more in losses.

]]> By: Ed http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102325 Ed Sun, 25 Nov 2007 12:57:04 +0000 http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102325 Brad- Aren't you supporting my argument here? If the current export/investment driven model isn't creating a lot of jobs here then if China's currency appreciates rapidly and people are thrown off the farms, won't they be left unemployed in really large numbers? From what I have read it seems like Chinese agriculture is still highly inefficient. After an industrial accident killed off the local bees, it is still economical to hand-pollinate the pear trees in the Sichuan Province. Farm labor is really cheap there and better employment prospects have yet to pull these folks off the farm. http://www.nytimes.com/2007/10/27/arts/television/27stew.html?ref=television The legitmacy of the current Chinese government seems hinged upon whether or not it can deliver the goods economically. Under the current incremental strengthening of the renminbi it seems like farmers are pulled off the farm by higher wages in the urban areas in a somewhat orderly fashion. If the renminbi appreciated much more agressively against the dollar, it seems to me you run the risk of mass unemployment when the eyes of the world are about to be on China for the Olympics. It seems to me, that PBofChina is testing the waters here, trying to figure out how quickly it can let the renminbi appreciate without causing mass unemployment. They are probably being to conservative for right now, but when you are dealing with the number of people employed in China in agriculture you probably want to be conservative in proving your models for the price elasticity for the demand for agricultural labor in China too. Brad-
Aren’t you supporting my argument here? If the current export/investment driven model isn’t creating a lot of jobs here then if China’s currency appreciates rapidly and people are thrown off the farms, won’t they be left unemployed in really large numbers?

From what I have read it seems like Chinese agriculture is still highly inefficient. After an industrial accident killed off the local bees, it is still economical to hand-pollinate the pear trees in the Sichuan Province. Farm labor is really cheap there and better employment prospects have yet to pull these folks off the farm.

http://www.nytimes.com/2007/10/27/arts/television/27stew.html?ref=television

The legitmacy of the current Chinese government seems hinged upon whether or not it can deliver the goods economically.

Under the current incremental strengthening of the renminbi it seems like farmers are pulled off the farm by higher wages in the urban areas in a somewhat orderly fashion.

If the renminbi appreciated much more agressively against the dollar, it seems to me you run the risk of mass unemployment when the eyes of the world are about to be on China for the Olympics.

It seems to me, that PBofChina is testing the waters here, trying to figure out how quickly it can let the renminbi appreciate without causing mass unemployment. They are probably being to conservative for right now, but when you are dealing with the number of people employed in China in agriculture you probably want to be conservative in proving your models for the price elasticity for the demand for agricultural labor in China too.

]]> By: bsetser http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102324 bsetser Sun, 25 Nov 2007 06:54:07 +0000 http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102324 Ed -- I think the main flaw in your argument is the implicit assumption that China's current export/ investment driven model has been creating lots of jobs. The data shows that it hasn't -- largely b/c the cost of capital is so cheap that there is a strong incentive to substitute capital for labor. that said, I do think the impact of any revaluation on rural rice farmers is a serious issue, and one that likely requires some kind of offsetting policy action -- i am even open to tariffs to increase the internal price of rise (a la the rest of Asia), tho classic economics says a subsidy is better. what doesn't work is setting the exchange rate to keep the least efficient parts of the Chinese economy (i.e. rice farming) in business. the right exchange rate for rural china is clearly the wrong exchange rate for the coasts - or rather one that introduces major global distortions. DC - methinks is it precisely the ministry of commerce that has lost a bit of credibility here. And in any case, all the concerns about the risk of China losing market share seem a bit misplaced when right now China is gaining market share at the expense of a host of other developing economies ... Ed — I think the main flaw in your argument is the implicit assumption that China’s current export/ investment driven model has been creating lots of jobs. The data shows that it hasn’t — largely b/c the cost of capital is so cheap that there is a strong incentive to substitute capital for labor.

that said, I do think the impact of any revaluation on rural rice farmers is a serious issue, and one that likely requires some kind of offsetting policy action — i am even open to tariffs to increase the internal price of rise (a la the rest of Asia), tho classic economics says a subsidy is better. what doesn’t work is setting the exchange rate to keep the least efficient parts of the Chinese economy (i.e. rice farming) in business. the right exchange rate for rural china is clearly the wrong exchange rate for the coasts – or rather one that introduces major global distortions.

DC – methinks is it precisely the ministry of commerce that has lost a bit of credibility here. And in any case, all the concerns about the risk of China losing market share seem a bit misplaced when right now China is gaining market share at the expense of a host of other developing economies …

]]> By: Guest http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102323 Guest Sun, 25 Nov 2007 06:47:44 +0000 http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102323 "...I visited a leather-goods factory in China, where women 18 to 26 years old earn $120 a month sewing and gluing together luxury-brand leather handbags... One bag I watched them put together... cost $120 apiece to produce. That evening, I saw the same bag at a Hong Kong department store with a price tag of $1,200 — a typical markup..." http://www.nytimes.com/2007/11/23/opinion/23thomas.html?em&ex=1196053200&en=fd9a8ac3bd4ae42f&ei=5087%0A “…I visited a leather-goods factory in China, where women 18 to 26 years old earn $120 a month sewing and gluing together luxury-brand leather handbags… One bag I watched them put together… cost $120 apiece to produce. That evening, I saw the same bag at a Hong Kong department store with a price tag of $1,200 — a typical markup…” http://www.nytimes.com/2007/11/23/opinion/23thomas.html?em&ex=1196053200&en=fd9a8ac3bd4ae42f&ei=5087

]]> By: Guest http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102322 Guest Sun, 25 Nov 2007 06:39:24 +0000 http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102322 Nov. 20, 2007 · "Since the late 1980s, hundreds of thousands of illegal immigrants from China's Fujian province have been smuggled into the United States... the flow of Fujianese to America continues, but the business of human smuggling has changed significantly. When the smuggling began two decades ago, the cost of coming to the United States was around $15,000. Now, immigrants pay $60,000 to $80,000 to be brought to America..." http://www.npr.org/templates/story/story.php?storyId=16422719 Nov. 20, 2007 · “Since the late 1980s, hundreds of thousands of illegal immigrants from China’s Fujian province have been smuggled into the United States… the flow of Fujianese to America continues, but the business of human smuggling has changed significantly. When the smuggling began two decades ago, the cost of coming to the United States was around $15,000. Now, immigrants pay $60,000 to $80,000 to be brought to America…” http://www.npr.org/templates/story/story.php?storyId=16422719

]]> By: gillies http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102321 gillies Sun, 25 Nov 2007 05:21:25 +0000 http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102321 "The story of Mr. Li and the model illustrates both the promise and peril of today's increasingly sophisticated investment world." 'sophisticated' is the wrong word. 'convoluted' ? all ponzi finance is a pyramid which rests entirely upon the last people to join. if they fail to deliver, all fails. so its not sophistication that is required but simple questions : (e g ) this scheme yields higher profits - so who's paying ? incidentally, i read that the holders of c d os do not have the documentation that you need to carry out foreclosures. the borrowers may have the laugh on the banks, yet. . “The story of Mr. Li and the model illustrates both the promise and peril of today’s increasingly sophisticated investment world.”

‘sophisticated’ is the wrong word. ‘convoluted’ ? all ponzi finance is a pyramid which rests entirely upon the last people to join. if they fail to deliver, all fails.

so its not sophistication that is required but simple questions : (e g ) this scheme yields higher profits – so who’s paying ?

incidentally, i read that the holders of c d os do not have the documentation that you need to carry out foreclosures. the borrowers may have the laugh on the banks, yet.
.

]]> By: Dave Chiang http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102320 Dave Chiang Sun, 25 Nov 2007 04:26:39 +0000 http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102320 " How competitive is Chinese agriculture? If China allows its currency to appreciate more rapidly, won't a lot of these folks be thrown out of work as the agricultural products that produce get priced out of world markets? I know that Chinese infrastructure is pretty good in eastern China, but my understanding is the interior isn't very well developed yet and there aren't many substitute forms of employment there. Where would these folks go? Isn't this how Brazil got its flavellas and los angeles got its problem with illegal aliens? Surplus agricultural labor thrown off work faster than employment could be created in urban areas -causing either slums or mass migration? " - Ed That's absolutely correct. At a Seattle Washington conference, when criticized over China's economic model, former Chinese President Jiang Zemin even told former President Bill Clinton, "If you think we are doing such a Sh!tty job, we would be more than happy to have 10% of our population or 100 million people emigrate to the United States. Let us see how you feed and clothe an extra 100 million people." ” How competitive is Chinese agriculture? If China allows its currency to appreciate more rapidly, won’t a lot of these folks be thrown out of work as the agricultural products that produce get priced out of world markets? I know that Chinese infrastructure is pretty good in eastern China, but my understanding is the interior isn’t very well developed yet and there aren’t many substitute forms of employment there. Where would these folks go?

Isn’t this how Brazil got its flavellas and los angeles got its problem with illegal aliens? Surplus agricultural labor thrown off work faster than employment could be created in urban areas -causing either slums or mass migration? ” – Ed

That’s absolutely correct. At a Seattle Washington conference, when criticized over China’s economic model, former Chinese President Jiang Zemin even told former President Bill Clinton, “If you think we are doing such a Sh!tty job, we would be more than happy to have 10% of our population or 100 million people emigrate to the United States. Let us see how you feed and clothe an extra 100 million people.”

]]> By: Guest http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102319 Guest Sun, 25 Nov 2007 03:24:31 +0000 http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102319 "...Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society... The term "luxury good" implies scarcity and high unit value..." http://www.lewrockwell.com/north/north204.html "...Within the sociology of money, the emphasis has been on Western societies, so that the sociological study of money in Asia and Africa still has to be done..." http://mams.rmit.edu.au/e0eneunbp2w.pdf “…Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society… The term “luxury good” implies scarcity and high unit value…” http://www.lewrockwell.com/north/north204.html

“…Within the sociology of money, the emphasis has been on Western societies, so that the sociological study of money in Asia and Africa still has to be done…” http://mams.rmit.edu.au/e0eneunbp2w.pdf

]]> By: Guest http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102318 Guest Sun, 25 Nov 2007 02:45:42 +0000 http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102318 "..."David Li deserves recognition"... He "brought that innovation into the markets [and] it has facilitated dramatic growth of the credit-derivatives markets." The problem: The scale's calibration isn't foolproof. "The most dangerous part... is when people believe everything coming out of it."... The story of Mr. Li and the model illustrates both the promise and peril of today's increasingly sophisticated investment world. That world extends far beyond its visible tip of stocks and bonds and their reactions to earnings or economic news... Mr. Li, 42 years old, began his journey to this frontier of capitalist innovation three decades ago in rural China. His father, a police official, had moved the family to the countryside to escape the purges of Mao's Cultural Revolution. Most children at the young Mr. Li's school didn't go past the 10th grade, but he made it into China's university system... Mr. Li, who had moved over to a J.P. Morgan Chase & Co. unit (he has since joined Barclays Capital PLC), published his idea in March 2000... The model, known by traders as the Gaussian copula, was born... the model, by making it easier to create and trade collateralized debt obligations, or CDOs, has helped bring forth a slew of new products whose behavior it can predict only somewhat, not with precision... The biggest of these new products is something known as a synthetic CDO... Synthetic CDOs are booming, and largely displacing the old-fashioned kind... Some banks are deeply involved... Much of that money is riding on Mr. Li's idea, which he freely concedes has important flaws. For one, it merely relies on a snapshot of current credit curves, rather than taking into account the way they move... Investment banks try to compensate for the shortcomings of the model by cobbling copula models together with other, proprietary methods... "We're not stupid enough to believe [the model] is omniscient,"... Trouble awaits those who blindly trust the model's output..." http://math.bu.edu/people/murad/MarkWhitehouseSlicesofRisk.txt “…”David Li deserves recognition”… He “brought that innovation into the markets [and] it has facilitated dramatic growth of the credit-derivatives markets.” The problem: The scale’s calibration isn’t foolproof. “The most dangerous part… is when people believe everything coming out of it.”… The story of Mr. Li and the model illustrates both the promise and peril of today’s increasingly sophisticated investment world. That world extends far beyond its visible tip of stocks and bonds and their reactions to earnings or economic news… Mr. Li, 42 years old, began his journey to this frontier of capitalist innovation three decades ago in rural China. His father, a police official, had moved the family to the countryside to escape the purges of Mao’s Cultural Revolution. Most children at the young Mr. Li’s school didn’t go past the 10th grade, but he made it into China’s university system… Mr. Li, who had moved over to a J.P. Morgan Chase & Co. unit (he has since joined Barclays Capital PLC), published his idea in March 2000… The model, known by traders as the Gaussian copula, was born… the model, by making it easier to create and trade collateralized debt obligations, or CDOs, has helped bring forth a slew of new products whose behavior it can predict only somewhat, not with precision… The biggest of these new products is something known as a synthetic CDO… Synthetic CDOs are booming, and largely displacing the old-fashioned kind… Some banks are deeply involved… Much of that money is riding on Mr. Li’s idea, which he freely concedes has important flaws. For one, it merely relies on a snapshot of current credit curves, rather than taking into account the way they move… Investment banks try to compensate for the shortcomings of the model by cobbling copula models together with other, proprietary methods… “We’re not stupid enough to believe [the model] is omniscient,”… Trouble awaits those who blindly trust the model’s output…” http://math.bu.edu/people/murad/MarkWhitehouseSlicesofRisk.txt

]]> By: Guest http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102317 Guest Sun, 25 Nov 2007 01:31:15 +0000 http://blogs.cfr.org/setser/2007/11/23/kuwait-s-dinar-is-now-on-track-to-appreciate-by/#comment-102317 Off-topic: Brad featured on "Naked Capitalism": "Private demand for US financial assets has disappeared" http://www.nakedcapitalism.com/2007/11/private-demand-for-us-financial-assets.html But I believe the second paragraph is technically not quite right: " In theory, the two sides of the equation, the current account (primarily trade in goods and services) and the capital account (largely capital transfers but also includes the purchase or sale of "non-produced goods" like mineral rights and intellectual property) offset each other exactly. On a practical level, however, there are leads, lags, and measurement issues. A serious mismatch strongly indicates the likelihood of further adjustment." Off-topic:

Brad featured on “Naked Capitalism”:

“Private demand for US financial assets has disappeared”

http://www.nakedcapitalism.com/2007/11/private-demand-for-us-financial-assets.html

But I believe the second paragraph is technically not quite right:

” In theory, the two sides of the equation, the current account (primarily trade in goods and services) and the capital account (largely capital transfers but also includes the purchase or sale of “non-produced goods” like mineral rights and intellectual property) offset each other exactly. On a practical level, however, there are leads, lags, and measurement issues. A serious mismatch strongly indicates the likelihood of further adjustment.”

]]>