Consider the immediate impact (inflation) on imported goods to the US.
Not sure there will be any
Consider the immediate increase in wealth of the average Chinese, and overnight reduction for them in the cost of energy and other commodities.
Why is their a huge wealth affect?
We have little wealth affect IMO of a falling US$.
Most imported manufactored goods have actually dropped in price. Furthermore you make an ENORMOUS assumption that the Yuan will "go to the moon" or whatever against this basket of currencies and that the US $ will be affected the most.
Perhaps and perhaps not. Even ASSUMING you are correct and the Yuan does soar against the US$, it seems to me that is exactly what the US wants. So who cares, other than China?
Would the Japanese continue to aggressively peg the yen by subsidizing US rates after a yuan revaluation? I don't think so, as the main goal is to stay competitive with China, not the US. I think the Japanese will just let the yen trade higher. That's the quid pro quo with the Chinese to get the deal done.
I disagree that Japans goal is to stay competitive with China. The goal is to keep the US buying its goods. There is a three way relationship here with the Yuan, the Yen, and the US $ that perhaps is not as easy to sort out as you think. At any rate, Japan will hardly let the Yen just rise to the moon unless it was going to do atht anyway and this latest MOF announcement was no more than a bluff.
Probable impacts on the US: higher import prices=inflation, higher interest rates as Asians back away from dollar recycling.
Probable? I doubt it. There is overcapacity and no pricing power on finished goods and that is unlikely to change.
Could the US benefit in the short run from a stronger yen, and yuan versus the USD? Not enough?
Who knows?
The Euro might weaken some, as it would no longer be the only free trading major currency in the world, and because of the backup in US rates.
Not sure what you mean by "backup in US interest rates", but if you mean huge hikes in the FF rate, you are quite simply barking up the wrong tree again.
Finally, I consider all this "news" to be speculative and unreliable. China may merely be attempting to get Snow off its back for all we know. Do we REALLY know if they are discussing this or is this blatant speculation? Even if they are discussing this, remember that "China Time" is not the same as US time. They will do this at their own pace, in due time, and are unlikely to rush into anything.
I would be interested in Jay's views but I bet they are not significantly different than mine.
Mish |
