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Unfolding Nature Shop: Unfolding Nature: Being in the Implicate Order

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Offlinegregorio
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Pelosi-led House seen not rocking boat on China
    #6277887 - 11/13/06 04:20 AM (14 years, 6 months ago)

http://today.reuters.com/news/articlenew...&src=rss&rpc=22

Quote:

WASHINGTON (Reuters) - A Democratic-controlled U.S. House of Representatives led by frequent China critic Nancy Pelosi will intensify scrutiny of Chinese trade and human rights practices, but will stop short of confrontation, American and Chinese experts said.




So in other words it is all window dressing. All talk no action.


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InvisibleVvellum
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Re: Pelosi-led House seen not rocking boat on China [Re: gregorio]
    #6277912 - 11/13/06 04:55 AM (14 years, 6 months ago)

but what could be done?


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OfflineEconomist
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Re: Pelosi-led House seen not rocking boat on China [Re: Vvellum]
    #6277923 - 11/13/06 05:18 AM (14 years, 6 months ago)

Quote:

bi0 said:
but what could be done?



I agree with this sentiment completely.

What would we do anyway?

If anything, it actually seems like we should probably ignore it. Looking at the past 15 years in China we can see that property rights have been introduced, local democracy has been allowed (most towns now have municipal elections) and the communist party can no longer crack down on protests the way they used to.

It seems like not doing anything is working out just fine...


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InvisibleVvellum
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Re: Pelosi-led House seen not rocking boat on China [Re: Economist]
    #6278410 - 11/13/06 12:51 PM (14 years, 6 months ago)

how does China's economy look in the long run?


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Invisiblezorbman
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Re: Pelosi-led House seen not rocking boat on China [Re: gregorio]
    #6278680 - 11/13/06 02:43 PM (14 years, 6 months ago)

Nothing will be done about China from either the Democrats or Republicans.

Let me ask you a question:
How often do you make demands of your creditors?

You do not make demands of your creditors, they make demands of you.


--------------------
“The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”  -- Rudiger Dornbusch


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Offlinekotik
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Re: Pelosi-led House seen not rocking boat on China [Re: zorbman]
    #6278905 - 11/13/06 03:56 PM (14 years, 6 months ago)

I had to laugh at the title of this thread...

"Pelosi-led House seen not rocking boat on China"

You could say "Pelosi seen not __________" (fill in anything at all)


--------------------
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OfflineEconomist
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Re: Pelosi-led House seen not rocking boat on China [Re: zorbman]
    #6278953 - 11/13/06 04:06 PM (14 years, 6 months ago)

Quote:

zorbman said:
How often do you make demands of your creditors?

You do not make demands of your creditors, they make demands of you.



You're so silly.

Chinese bond holdings are all but immaterial to American financial positions.

Consider this: How could the Chinese ever use them to hurt America?

Their holdings are hardly liquid, a decision to dump the bonds would be every bit as detrimental to their currency situation as to ours. Keep in mind that they peg their currency, meaning that a sudden decision to dump assets would most likely result in bank-runs in China.

So, if an immediate sell-off isn't an option, let's look at a gradual sell-off.

The Chinese are INCREDIBLY dependent upon American trade. They're pegging the Yuan for a reason, and that reason is, quite simply, they NEED America to keep buying their output. If China began to devalue the dollar, then Americans would start buying comparatively cheaper domestically produced goods, supply in China would outstrip global demand, and their economy would come crashing down. Furthermore, because they're dependent upon a pegged currency (as opposed to fiat) their Central Bank does not have as free a hand in manipulating the money supply as the American Federal Reserve does. The recovery from an economic crash in China would be a long and tough journey as a result.

But that's just on the surface. When you get into the mechanisms of US Government debt, Chinese holdings matter even less.

Let's look at the System Open Market Account held by the Federal Reserve.

The Federal Reserve regulates money in America buy creating money out of thin air and using that money to buy outstanding US treasury bonds. Normally, this might result in inflation, however, the US economy is so unbelievably strong that the Federal Reserve has been constantly increasing the money supply since 1980 (you can check the Money Stock measures to verify this http://www.federalreserve[dot]gov/releases/h6/hist/h6hist1.pdf ) and we've experienced no hyper inflation.

Infact, we've experienced lower inflation during the past 15 years than we ever have before in history (I'll post the link to this in a bit).

And what happens to the US treasury securities that the Fed Buys? They go into the System Open Market account. Currently, of the estimated $8.6 trillion of existing government debt, $0.7 trillion is in the System Open Market account ( SOMA holdings: http://www.newyorkfed.org/markets/soma/sysopen_accholdings.html Gov't Debt: http://www.brillig.com/debt_clock/ ). The government pays the procedes from this debt to the Federal Reserve, who in turn, give it back to the government, i.e. the debt has been cancelled. (this is called debt monetization, described here: http://en.wikipedia.org/wiki/Monetization )

What's more, looking at the growth in the System Open Market Account ( http://www.newyorkfed.org/markets/omo/omo2005.pdf check out pg. 13)you can see that the SOMA increases by about 14% annually. This means that, were the government to stop deficit spending today, in about 15 years the Federal Reserve will have created enough money to completely eliminate all outstanding government debt. I.e. the government will owe nobody anything.

Of course, the government is unlikely to stop immediate deficit spending, so a more realistic pay-down date would be 30 years in the future.

Simply put, the doomsaying about Chinese bond holdings is utter crap, because it's debt we'll never actually have to pay back.

But, you also don't have to take my arguments. Famous economist Milton Friedman points out an additional reason why Chinese bond holdings don't matter based on Financial Market structure:

(from: http://www.digitalnpq.org/archive/2006_winter/friedman.html this interview also contains the "lowest inflation in 15 years" bit)

Quote:


Interviewer : The US Treasury debt is held mainly by China, Japan and South Korea. Is the huge foreign balance of payments deficit a problem for the US and world economy?

Friedman : I don’t think so. It may well be a statistical mirage. If you look at the balance sheet, the US is heavily in debt. If you look at the income account—the amount of interest the US pays abroad—it is almost exactly equal to the amount of interest that it receives from abroad. American assets held abroad are earning a higher rate of return than foreign assets held here.

That is understandable because what is most attractive about the US to people and countries with wealth is that it can provide security, insurance really, against political instability. Nobody is afraid that the money they place in the US is at risk of expropriation or of in some other way being taken away. For this safety, the wealth holders of the world are willing to accept a lower rate of return. US assets abroad, in contrast, are riskier and thus yield a higher rate of return.

This explains why there is a rough balance in real terms. It is not clear there really is a debt. It looks like the imbalance concerns are misleading. It doesn’t worry me a bit that China and Japan hold so much US debt. In a way, it seems foolish for them to do it because they get lower returns than they might elsewhere. But that is their business.





So, yeah, being concerned about Chinese held debt is rather silly...


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Invisiblepsilomonkey
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Re: Pelosi-led House seen not rocking boat on China [Re: Economist]
    #6279068 - 11/13/06 04:32 PM (14 years, 6 months ago)

I agree that China (like Saudi and Dubai) is not going to use US debt to deliberately hurt America as it would hurt them just as much if not more.

However one thing I do see coming is more protectionism in the US, China has all those dollars, and apart from buying government debt the other real option is to buy US companies, which Congress has already shown resistance to (Unocal & Dubai ports deal).

I think its going to get very bitchy in the years to come.


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Invisiblezorbman
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Re: Pelosi-led House seen not rocking boat on China [Re: Economist]
    #6279104 - 11/13/06 04:45 PM (14 years, 6 months ago)

The Chinese would indeed be foolish to lower the boom on the U.S. as both our countries are economically joined at the hip. However, their economic role towards the U.S. does gives them power over us and that sword hangs over our heads.

I stand by my statement that the U.S. will do nothing to negatively impact that relationship. Do you disagree?

As far as expanding the money supply without experiencing inflation, that is a neat trick. What we are doing is effectively exporting our inflation. All those dollars that would otherwise cause inflation here are being soaked up by foreign governments. What happens when the dollar continues to drop in value to the point that they begin dumping those dollars? Seems to me the process will then continue in reverse and we will then be importing that inflation.


--------------------
“The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”  -- Rudiger Dornbusch


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Offlinegregorio
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Re: Pelosi-led House seen not rocking boat on China [Re: Vvellum]
    #6281641 - 11/14/06 10:05 AM (14 years, 6 months ago)

Quote:

bi0 said:
but what could be done?




If I were in charge I would slap tariffs so high on all imports coming in from China that it would be impossible for them to sell their products over here.

Those products are basically being made with slave labor, so on a high moral plateau, we will make our stand.


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OfflineEconomist
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Re: Pelosi-led House seen not rocking boat on China [Re: zorbman]
    #6283645 - 11/14/06 09:27 PM (14 years, 6 months ago)

Quote:

zorbman said:
I stand by my statement that the U.S. will do nothing to negatively impact that relationship. Do you disagree?



Definitely not.

The US is gaining way too much from trade relations with China to risk ruining them. Even if special interests clamor for change, the US, as a whole, is benefitting too much to listen to them.

Quote:

zorbman said:
What happens when the dollar continues to drop in value to the point that they begin dumping those dollars? Seems to me the process will then continue in reverse and we will then be importing that inflation.



The beauty of the "trick" is that it's predicated on other nations not wanting the dollar to dip. If the dollar drops in value, then American consumers will import less from China and, to a lesser extent, Japan.

Thus, the governments of China and Japan will gladly continue to hold onto (and buy more) dollars in order to up the value so that they maintain their own favorable trading balance.

If the dollar begins to lose value, and China and Japan both dump their holdings, then the dollar will lose value faster and Americans will import less and less from those nations. Thus, China and Japan both hurt themselves by dumping their holdings.


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OfflineEconomist
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Re: Pelosi-led House seen not rocking boat on China [Re: gregorio]
    #6283689 - 11/14/06 09:36 PM (14 years, 6 months ago)

Quote:

gregorio said:
If I were in charge I would slap tariffs so high on all imports coming in from China that it would be impossible for them to sell their products over here.

Those products are basically being made with slave labor, so on a high moral plateau, we will make our stand.



Look at what we import from China:
textiles (mostly clothing), some foodstuffs, and low-end consumer goods.

What happens if we put tariffs on those products? Americans will have to pay more for clothing, again, some foodstuffs, and low-end consumer goods (blenders, toasters, etc.)

Who suffers the most when the prices of clothes, food, and basic appliances increase?

I'll give you a clue, it's not the wealthy.

So, your "moral highground" asks the American poor to take a pretty hefty blow "for the team". That doesn't sound very "moral" to me.

Furthermore, you should do some research, I think you'd find the claims of "slave labor" to be vastly overstated. Check out this article, for example: http://news.bbc.co.uk/2/hi/business/4623550.stm

I'll give you the summary: Chinese people voluntarily leave poor paying factory jobs all the time. The average Chinese factory loses up to 50% of its employees every year, as they simply move on.

What can we tell from this?

1) There isn't anything close to slave labor taking place if people leave their jobs all the time.
2) There are many favorable opportunities existing in China if people feel secure enough to leave factory jobs so often.


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Offlinegregorio
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Re: Pelosi-led House seen not rocking boat on China [Re: Economist]
    #6290879 - 11/16/06 08:12 PM (14 years, 6 months ago)

Quote:

Ms Huang works 54 hours a week for less than $150 a month in a factory owned by Singaporean electronics company, Flextronics.




Technicaly it is not slave labor but I still do not see how countries that offer their employees decent wages are supposed to compete with that.

There probably are a lot of things more favorable than working 54 hours a week for less than $150 a month.


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Offlinezappaisgod
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Re: Pelosi-led House seen not rocking boat on China [Re: gregorio]
    #6290899 - 11/16/06 08:15 PM (14 years, 6 months ago)

"Countries" shouldn't be in the business of offering wages for factory jobs. That didn't work real well in the USSR.


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Offlinegregorio
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Re: Pelosi-led House seen not rocking boat on China [Re: zappaisgod]
    #6290915 - 11/16/06 08:21 PM (14 years, 6 months ago)

Your right, that was not what I meant and I should have phrased that better.


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InvisibleDieCommie

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Re: Pelosi-led House seen not rocking boat on China [Re: gregorio]
    #6290928 - 11/16/06 08:25 PM (14 years, 6 months ago)

Quote:

gregorio said:Technicaly it is not slave labor but I still do not see how countries that offer their employees decent wages are supposed to compete with that.


America's idea of a decent wage is about as realistic as America's idea of a decent portion for dinner.


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Offlinekotik
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Re: Pelosi-led House seen not rocking boat on China [Re: Economist]
    #6291316 - 11/16/06 09:47 PM (14 years, 6 months ago)

Quote:

Economist said:
hat happens if we put tariffs on those products?  Americans will have to pay more for clothing, again, some foodstuffs, and low-end consumer goods (blenders, toasters, etc.)

Who suffers the most when the prices of clothes, food, and basic appliances increase?

I'll give you a clue, it's not the wealthy.

So, your "moral highground" asks the American poor to take a pretty hefty blow "for the team".  That doesn't sound very "moral" to me.





so the american people are hurt, because they will have to pay more for clothes and appliances?  most of these generalized statements hold no water.  :rolleyes:


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No statements made in any post or message by myself should be construed to mean that I am now, or have ever been, participating in or considering participation in any activities in violation of any local, state, or federal laws. All posts are works of fiction.


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Offlinefireworks_godS
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Re: Pelosi-led House seen not rocking boat on China [Re: kotik]
    #6291456 - 11/16/06 10:17 PM (14 years, 6 months ago)

Quote:

kotik said:
so the american people are hurt, because they will have to pay more for clothes and appliances?  most of these generalized statements hold no water.  :rolleyes:




Well, the line of reasoning is something along the lines that, if an individual has to pay more money for goods than they once had to, then they will either have to live with less money and the same amount of goods, or will have to decide to not purchase the product, as they would now not be affordable.

When you are on a budget and an expense increases, it either means less bottom-line or less revenue for other items on the budget. Either way you look at it, it is a loss. :shocked:

:levitate:


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OfflineEconomist
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Re: Pelosi-led House seen not rocking boat on China [Re: gregorio]
    #6294326 - 11/17/06 05:49 PM (14 years, 5 months ago)

Quote:

gregorio said:
Technicaly it is not slave labor but I still do not see how countries that offer their employees decent wages are supposed to compete with that.



Let's see, better technology, better national infrastructure?

Or even better, don't compete, trade. Do something better than textiles, and get into an industry in which you are more competitive.

Quote:

gregorio said:
There probably are a lot of things more favorable than working 54 hours a week for less than $150 a month.



That depends, do you know what can be bought for $150 a month in China?

@kotik
exactly what firework's god said


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Unfolding Nature Shop: Unfolding Nature: Being in the Implicate Order

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