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The Great Fall of China
China’s Devaluation: Much More Trouble to Come?
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  • Anthony

    “The timing of China’s policy decision signals that one of the largest and most systemically important economies is no longer in a position to play its longstanding role as a locomotive of global growth….”

  • Jacksonian_Libertarian

    “If the Great Bubble is really starting to deflate, we are going to see a lot more turmoil in world markets—and, as some observers have noted, it’s going to be that much harder for the Fed to tighten interest rates in the fall.”

    China spend decades manipulating its currency lower to give its exporters a price advantage, that’s how and why they accumulated $4 Trillion in foreign currency Treasuries. That they are pretending to fight this now as foreign investors attempt to get their investments out of China is just a lie.

    As far as the Fed tightening interest rates, that’s a joke. The US and the world are 7 years into “Great Depression 2.0” and it’s the destructive deflation which is the problem, not some non existent inflation that needs to be fought. The Fed has been creating $1+ Trillion per year, and we are still deflating and interest rates remain at historic lows. Already some banks are charging people to hold their money! That this blog thinks the Fed is going to raise interest rates, shows a terrible ignorance of the REAL state of the world economy.

    • tarentius

      On the contrary the real world says the Fed will hike in September or October.
      Some US banks have started to charge their large depositors (e.g. hedge funds) to store their cash not because of any market forces but because new Federal regulations penalize banks for holding deposits that tend to flee during stressed market environments. It costs the banks more to hold the cash than they can make from it. Suggest you tune into channel real world.

      • Jacksonian_Libertarian

        You are wrong, it was the end of quantitative easing that recently sent the economy into negative growth despite falling energy costs. And any increase in interest rates will send the economy into even more negative territory. There is no Inflation, and no reason for an increase in interest rates to fight a non-existent Inflation. All of the economic indicators say we are in a Deflationary Depression: low interest rates, high unemployment, bankruptcies, foreclosures, a stagnant M3 money supply despite 7 years of quantitative easing, etc… this is what “Great Depression 2.0” looks like.

        • Harry Heller

          There is tremendous inflation, even if FedGov’s inflation calculation methodology is totally flawed. The point is that Bernanke/Yellen have been “stealing the People’s Deflation”. We should be having huge and salutary consumer price declines, but instead, prices in many things are artificially high (and rising – look at meat at the grocery). This lack of deflation, where the purchasing power of the the dollar gets stronger, is attributable to the crony capitalist Wall Street bailout policy of QE.

          You don’t understand economics at all. Read for starters, Hazlitt, Economics in One Lesson; move on to Rothbard, Man, Economy and State; and then finish with a wonderful look at how the Fed has ruined the US economy over the past quarter century, Stockman, The Great Deformation.

          • Obamanus

            dickweed – your messiah alias obama con-fag movfukr extradonaire, has ridden the satanic ocean currents of socialist nazi nigrsht, pelosi-soros-jarret-corzine-fairykoon sharptoon that has flooded amerika. now idiots like you will drown in ur own socialist sht.

          • Harry Heller

            Are you a babbling idiot?

          • Obamanus

            alias Obama built that.

          • wheezer

            Spot on. Bravo.

      • Floyd R Turbot

        “On the contrary the real world says the Fed will hike in September or October.”

        I hope the Fed does raise the interest rates modestly at the next meeting, but I wouldn’t count on it. The “word on the street” has been predicting higher fed rates are just around the corner for about five years.

    • valwayne

      Obama’s policies have killed economic growth and jobs for 7 years. The Fed won’t raise rates now because China’s actions are exporting Unemployment and slower growth to us and we are barely limping along with Zero interest rates. Obama has boxed us into a nightmare scenario.

      • old dog

        Not true. Over the past several years the most important drag on our economy has been high fossil fuel prices. Economic growth built over decades on cheap abundant energy has sputtered and stalled on high energy prices. Nine out the last ten recessions have been triggered by a spike in oil prices. The only exception being the bubble. All those investments we made when oil was cheap, building suburbs far from people’s jobs, building highways instead of railroads, are now coming back to act as giant drags on economic growth. Our choices as a society has left us addicted to fossil fuels and exporting hundreds of billions of dollars, creating the greatest transfer of wealth in human history. The suggestion that lower taxes and deregulation is the wrong cure. A pox on both Dems and Republicans. Neither party is talking about the real issue that is killing economic growth.

        • Bunky

          Three were caused by oil prices, early 70’s, early 80’s, and early 90’s.
          One housing bubble, one dot com bubble.
          Five were monetary/interest rate policy from the fed.

  • Kevin

    The political pressure on the U.S. gov’t to respond to these devaluations will mount. If Obama does little in response and Hillary continues to promote his policies, Sanders will start eating her lunch with blue collar voters who are desperate for a plan to increase wages and employment. The various GOP candidates (Rand Paul, Jeb Bush and maybe Chris Christie, perhaps, excepted) will start moving in that direction. If the TransPacific trade deal comes up for a Congressional vote in this atmosphere the pressure to act will only grow.

    • f1b0nacc1

      If the TPP comes up for a vote anytime soon (i.e. until or unless this blows over…not likely anytime soon…) it will be DOA.

  • Anthony

    China’s Devaluation: Much More Trouble to Come brings to mind that we incline towards a confirmation bias (we favor and remember information that supports, rather than contradicts our beliefs); that is, we systematically overestimate the accuracy of our beliefs – the overconfidence effect – (China [CCP] must have problems). Whether the Yuan’s devaluation indicates anything depends on more than unspecified causal relationships and/or inapt analogies going forward.

  • Andrew Allison

    A better formulation for the opening sentence would have been: The Chinese government has, by setting the trading range around the previous day’s close, effectively floated the currency. The reason, namely to encourage exports and discourage imports in the hope of stabilizing the economy, is self-evident. The real question is if and when, as in the case of the stock market, they put on the brakes.

  • lukelea

    Lubos Motl begs to disagree:

  • valwayne

    The Chinese economy is in meltdown. They are in a panic as the bubbles burst and their recession gets worse. So they’ve decided not to just export deflation, bit with IT Unemployment. Se will sell less ti them and by more. Killing jobs and growth here and sending them to China. It’s selfish, but effective.
    There is just one little problem. Our Obama deamaged economy is hanging by a thread despite Nation Destroying Levels of Debt run up by Obama, zero interest rates, trillions in funny money, and lately low energy costs that Obama fought tooth and nail to keep higher. The Chinese action could burst the real estate and stock market bubbles Obama job killing policies have created and plunge us into recession. The smart folks will get their money into a safe place and hunker down.

  • brian_in_arizona

    China had been trying to reorient its economy from exports and real estate to domestic consumption of Chinese-manufactured consumer goods. It would appear their economic planners have feet of clay…..just like ours.

    All Chinese businesses keep two sets of books: one for the authorities, one for the owners. The Chinese government keeps two sets of economic data: one for the world, one for government officials.

  • bscook111

    The Fed is not going to raise rates this fall. Possibly not even first half next year. It’s an I win You lose option. There is simply too much uncertainty and zero-sum downside in the world for change.

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