Comments on: Is complaining about others’ protectionism protectionist?

By: don

don — Wed, 11 Feb 2009 23:26:16 +0000

Brad, In your answer to DOR, reserve accumulation automatically means an undervalued currency. China is doing no service to an aggregated-demand-challenged world by forcing domestic saving, which is exactly what its currency interventions are doing. Time to start strongly discouraging this policy.

By: Kaushal

Kaushal — Wed, 11 Feb 2009 15:33:36 +0000

Hey, I am really benefitted by you Guys. Thank you all.

By: Glen M

Glen M — Tue, 10 Feb 2009 15:36:14 +0000

Glen Mikkelsen,

No intended impersonation. The similarities in name end at Glen M.

By: bsetser

bsetser — Tue, 10 Feb 2009 14:01:17 +0000

Indian investor — china’s current account surplus is now arond $400b, and its reserve growth is over that b/c f net capital inflows. I published estimates of China’s holdings of US assets/ past purchases grounded in the bop data and the TIC that you clearly didn’t read. Please don’t post inaccurate data.

DOR — I strongly disagree. There was a consensus that the RMB was undervalued in 06 and 07. The IMF’s analysis consistently reached that conclusion. China’s huge current account surplus amid an investment boom also supports that conclusion. As does China’s reserves growth.

that consensus isn’t as solid now for a simple reason — the dollar’s rally finally pushed the RMB up in real terms. the 20% nominal appreciation of the rmb over that time never matched the dollar’s depreciation. Your analysis left out a key fact, namely what the dollar is doing v other currencies.

and the notion that the only reason the us cannot compete with China is because the us hasn’t upgraded its skills is false. furniture production rather clearly moved to china because of the undervalued exchange rate — once wages and transportation costs rose, there were economic incentives to move production back to the US (the raw material inputs are found in n. america, not china … ). Moreover, china is upgrading its skills — as it should. the basic reality is that so long as China maintains an exchange rate that generates a 10% of GDP current account surplus, other countries will be producing fewer tradable goods and shifting the composition of output away from the tradables sector to make space of the excess tradables production generated by china’s undervalued exchange rate. the composition of output globally and in the US changes. I don’t usually agree with Lawrence Lindsey but he got this absolutely right.

I’ll do a post on the real value of the RMB soon.

incidentally, the dollar is overvalued — and it can only be overvalued if some other currencies are undervalued. and if china pegs to the dollar and the dollar resumes its slide, the net result is an undervalued rmb. that is the core problem. the us currency and china’s currency should be moving — based on their respective external positions — in different directions.

By: cdr

cdr — Tue, 10 Feb 2009 11:58:04 +0000

and stop the stupid Ponzi prolonging swap

By: cdr

cdr — Tue, 10 Feb 2009 11:56:34 +0000

With regard to bonds and the will, why then don’t Europeans just sell the complete collection of their Treasuries and refrain from any further flow in this direction ’cause we are all getting fed up here with US and EU »talking« through BoE, Ponzi, China and both types of commodities (WoT inclusive).

By: Indian Investor

Indian Investor — Tue, 10 Feb 2009 10:39:40 +0000

Why at least 2014?
I’ve mentioned this in other deleted comments, but: Since 2008: German foreign minister Steinbruck said in media interviews that he prefers a combination of USD, EUR, JPY and RMB as forex reserves rather than predominantly USD. GBP was conspicuously absent in his list. At Davos, Russia’ Putin warned against excessive reliance on one reserve currency. Iran’s Ahmedinijad made self congratulatory speeches in which he claimed that his decision to replace the USD with EUR in Iran’s reserves was both politically and economically advantageous. Even French President Sarkozy expressed misgivings about the USD prior to the 1st G-20 crisis summit.
The update is that Russia seems to be rapidly exchanging USD from its reserves for trade & political advantages, a move that Dr. Roubini predicted in his writing with the topic something like “Decline of the American Empire” in late 2008 which is there on his web site.
Last week, Russia made out a $350 million loan to Cuba in exchange for information and drilling rights in the Cuban part of the Gulf of Mexico. At a summit of the newly rejuventated CSTO (Collective Security Treaty Organization), Dmitry Medvedev offered a full $2.15 billion to Krygystan, $ 2 billion in loans and the rest in aid.
Now I have given you the direction in which you need to reason to know when the USG may at all be forced to default. You have to know the geopolitics from Darfur to Afghanistan, and it’s no joke. My guess is that it will take at least a few more years for the ROW to come to any drastic conclusions about the “value of the US dollar”.

By: Indian Investor

Indian Investor — Tue, 10 Feb 2009 10:20:40 +0000

Why at least 2014?
As of now the US dollar has a “unique role in international trade” and thereby offers “an exorbitant previlege” to the US Govt. to run “painless deficits”. (These are official terminologies so there’s nothing controversial in using them.)
The dollar’s unique role is that most of the international trade amongst third-party nations is settled in USD. Of this, the most compelling is the trade in crude oil, a commodity that most countries import.
Till recently around 63% of foreign central bank reserves were held in USD. Combined these together, and you get a realistic explanation for why the USD is overvalued more than 1000% in most exchange rates.
This situation never came about as a result of “mercantilism”.
This is more a result of US foreign policy objectives since the 1970s, starting with Middle-East military agreements, and the exercise of other geopolitical influence to make sure that the surplus of oil-exporting nations can be accumulated in USD and recycled.
The USG will stop receiving foreign funding only when foreign central banks shift away from the USD for their reserves. That requires a shift away from trade settlement in USD. This process requires a widespread perception and understanding that the US geopolitical influence is at an end. That influence is derived from the US military.
Unless the US military loses its ability to dominate the world, there will be no complete drain on foreign funding for the USG.
Secure in this knowledge, advantages can be gained by asking China to strengthen its RMB, so that the Chinese economy can suffer a further pandemonium, and just as in the case of Argentina in 2001-2002, larger chunks of the local equity market can be purchased by foreign investors at 10 cents on the dollar.

By: Indian Investor

Indian Investor — Tue, 10 Feb 2009 09:36:08 +0000

Sorry small correction: China has a trade surplus of around $200 billion and around 40% of its exports are to the US. So the latest US trade deficit with China is likely closer to $ 80 billion, and not $ 20 billion as I mentioned above. The trade deficit with China accounts for something like 45% of the overall US trade deficit.
Even with this correction, it’s easy to see that the level of total USG debt can’t be explained by China imports, or imports overall, over the last 8 years.

By: Indian Investor

Indian Investor — Tue, 10 Feb 2009 09:31:04 +0000

@Off the boil: Fortunately my views on the US Govt. finances aren’t controversial at all and I’m just repeating what something called the accountability office has been repeatedly warning for quite some time.
USG has a total debt of $10 trillion plus and the lowest estimate of this year’s deficit is “more than $1 trillion”, from Brad Setser. Other commentators are guessing anywhere from $2 trillion to $ 3 trillion.
If the US Govt. is paying interest on its $10 trillion debt, that interest is being paid out of more borrowings, rather than from its own surplus.
The US latest annual trade deficit with China is close to $20 billion. Even if you assume trade deficits with China have been at the same level for the last 8 years, you’re only accounting for a max of $ 160 b in USG Govt. debt, with an assumption that each dollar of China trade deficit leads to a dollar of USG debt.
Where’s $160 billion over EIGHT years and where’s a TOTAL USG debt of more than $ 10,000 billion?
In this analysis we’re ignoring the estimates that very soon trillions in medicare and social security are going to fall due in the next few years, so the USG deficits are likely to widen further rather than soften.
Despite these terrible looking numbers I don’t expect the USG to default in the immediate future. To paraphrase Dr. Roubini, let me now explain in detail why.