Excellent Article

[sdrealtor]

As corrupt and rigged as our system is China takes things to a whole different level in this department. Does anyone really beleive the rest of the world would trust them to be the worlds currency? Does anyone think the PTB in China would want the world looking in on their empire? I beleive they like things the way they are. I’m with pri on this one. The doomists can claim the worst case scenarios are inevitable (like they did with the housing bubble and we know that the crash was much more muted than they guaranteed) but at the end of the day we are still the best thing going in the world and its gonna stay that way.

[Anonymous]

[Edit: I see sdr (lowercase) beat me to a few of my points. I think sdr’s comments are right on.]

SDR (all caps),

I think you may be over-emphasizing a correlation between the growth of the Chinese economy and the stability of their currency.

How reliable are the (mostly self-reported) Chinese GDP and other economic statistics?

How much do we really know about who runs the Chinese economy or who manages their monetary policy?

Most folks who bash Bernake and Geithner couldn’t even name their counterparts in China (I know I can’t.) Are they competent? Are they corrupt? What influences their choices? How are their economic leaders chosen?

[Rich Toscano]

[quote=pri_dk][quote=Rich Toscano]Again, people will find another option.[/quote]

Not if there are no other options.

And there really are no alternatives to the dollar. [/quote]

The alternative is to not use the dollar as the single reserve currency. Like I said, countries are setting up bilateral trade agreements to avoid the dollar and use their own currencies. Some regions could also migrate over to the yuan (maybe not ready yet, but eventually) or the euro (you may laugh now, but some day the problems will shake out and there could be a stable euro).

[quote=pri_dk]
Since the world cannot avoid currency altogether, investors will stay with least risky currency (by a long-shot): The US Dollar[/quote]

I don’t see the dollar as being least risky. This is my whole psychology argument: the only reason it’s seen as safe is that the herd still thinks it’s safe. Once that’s questioned, the fundamental riskiness will become clear.

As Nassim Taleb said: ““The difference between Europe and the U.S. is the consciousness of the problem.”

Guys, this is a fun conversation (and I appreciate everyone except DomoArigato keeping it so civil). But, I am moving today so probably won’t have time to punch into this thread much after this… go on without me. 🙂

[sdrealtor]

Rich
Better you than me. I hate moving. Hope it goes well.

Congrats on the new home

[Anonymous]

The “psychology” argument has me scratching my head a little.

The market price for anything is based upon the outcome of human decisions (that’s the “purist” definition of Economics: The study of human choices.)

Prices are set by supply/demand and the demand is always about “psychology” (what we think we want or need.)

So of course it’s about psychology…it always is!

I think what you are trying to say that there are fundamental, objective measures out-of-whack with the actual demand, and that demand is being driven by “irrational” decisions (like what happened during the housing or dot-com bubbles.)

But I don’t think the objective measurements for currency stability are as well-defined and straightforward as something like the Case-Shiller index, or stock P/E ratios.

PS: Rich, are you bringing the cat with you?

[SD Realtor]

sdr and pr

You guys are very correct on the opaque nature of the Chinese. I would agree that this would be the biggest impediment to internationalization for the yuan.

I guess we will see how it plays out. I do think that our system is fundamentally broken as pr referenced what he thought Rich was trying to say… demand being driven by “irrational decisions”.

[scaredyclassic]

I think what we mean when we talk about psychology in markets is of course people are always crazy but occasionally they are completely batshit crazy. After the market corrects they can go back to their routine level of nuttiness.

[briansd1]

Are we talking about the foreseable future or the future future?

Of course, there will come a time when the US Dollar is no longer the defacto reserve currency. That will not be a calamity.

I can imagine scenarios where that would actually be good for us; and when we don’t have the responsbility of being the engine of the world’s economy. As I said before, a multi-polar economic system, when it comes about, would be better for the world and would allow us to relax and enjoy more.

Closer to the present, lets see what the financial markets are. They are Western financial institutions, investments funds and sovereign wealth funds that invest through those institutions. Are they likely to suddenly sell their US holdings and buy other currencies that they perceive as safer, in the next 10 years?

[briansd1]

[quote=SD Realtor]
Once the yuan reaches a certain threshold with regards to internationalization I think the game will change in a big way.
[/quote]

For that to happen, China must first develop a self-sustaining consumer economy that is balanced between exports and domestic consumption. That economy must be able to operate on auto-pilot regardless of political changes.

China still has a lot of work to do. Same goes for Brazil, Argentina, and the ASEAN region. Europe has at least another decade of political adjustments.

[Allan from Fallbrook]

[quote=briansd1][quote=SD Realtor]
Once the yuan reaches a certain threshold with regards to internationalization I think the game will change in a big way.
[/quote]

For that to happen, China must first develop a self-sustaining consumer economy that is balanced between exports and domestic consumption. That economy must be able to operate on auto-pilot regardless of political changes.

China still has a lot of work to do. Same goes for Brazil, Argentina, and the ASEAN region. Europe has at least another decade of political adjustments.[/quote]

Brian: Here we go again with these anodyne solutions. China must develop a self-sustaining consumer economy? Okay, I’ll bite. How long will that take? Given that China is going to get old before they get rich, who will provide this self-sustaining consumer economy? Most important, what happens in the meantime? Because that’s the real question, isn’t it?

China is a massive, state-sponsored bubble. Their real estate market is possibly heading for a hard landing and there are untold billions in bad loans on the books that will have to be dealt with.

Proffering simple solutions and tautologies as a working plan is meaningless. China’s “success”, such as it is, is about to come to a screeching halt and the Communist Party leadership doesn’t have a solution. Witness the incredible amount of capital flight from China right now. Think those folks might know a thing or two about what’s going to happen?

[Anonymous]

Allan, read the thread – you and Brian are in violent agreement.

Thanks for the word of the day:

anodyne
adj ˈa-nə-ˌdīn
1: serving to alleviate pain
2: not likely to offend or arouse tensions

I think you’ve taught me more vocabulary than my 9th grade English teacher.

[Allan from Fallbrook]

[quote=pri_dk]Allan, read the thread – you and Brian are in violent agreement.

Thanks for the word of the day:

anodyne
adj ˈa-nə-ˌdīn
1: serving to alleviate pain
2: not likely to offend or arouse tensions

I think you’ve taught me more vocabulary than my 9th grade English teacher.[/quote]

Pri: I’m happy to have supplanted Mrs. Bigglesworth’s contributions to your vocab, but, egads, don’t tell me that Brian and I are in agreement. I’m too mentally fragile for such a reality.

Kidding aside, I actually agree more with what SDR and you said: China is opaque and that opacity serves an excellent purpose. China is an AUTOCRATIC, COMMUNIST country and anyone who hopes that someone they’ll grudgingly join in the free market system and sing “Kumbaya” with the rest of us is sorely mistaken.

China cannot make the transition to a consumer-driven internal market. They don’t have the time and they don’t have the customers. China’s meteoric rise is more due to circumstances (they had much farther to travel after the 1979 market reforms) and the Party’s willingness to plow billions upon billions into nearly worthless infrastructure programs (ghost cities and trains to nowhere). The bill is coming due and the correction, when it occurs, will be fugly. Not ugly, not bugly, but FUGLY.

[briansd1]

[quote=Allan from Fallbrook] Brian: Here we go again with these anodyne solutions. China must develop a self-sustaining consumer economy? Okay, I’ll bite. How long will that take? Given that China is going to get old before they get rich, who will provide this self-sustaining consumer economy? Most important, what happens in the meantime? Because that’s the real question, isn’t it?[/quote]

As pri_dk said, we are in violent agreement. 😉

America has strutural problems and so does China. I was simply saying that in order for the Yuan to become a reserve currency, China will first need to develop a self-sustaining consumer economy. They are a long way from that.

Earlier in this thread, I predicted that China will suffer an economic crisis before we do. So we’ll get another reprieve and more time to put our house in order.

Allan, as you have well put before, demography is destiny. China will eventually have to embrace immigrants from other countries, and higher birth rates from its non-Han Muslim population to the West, in order to keep on growing later this century.

Because we are a country of immigrants, America is much better positioned to thrive and grow in a globalized world. We have more solutions in our toolbox.

I’m not yet worried about a US Dollar currency crisis.

[CAwireman]

[quote=Rich Toscano]
Guys, this is a fun conversation (and I appreciate everyone except DomoArigato keeping it so civil). But, I am moving today so probably won’t have time to punch into this thread much after this… go on without me. :-)[/quote]

Holy S**t, Rich, did you and the missus buy a place?

[Author]

Posts