Re: Yuan Devaluation: Good or Bad?
From Stocksite.com: "Trade wars... If we have a yuan devaluation, it's going to add to the trade friction that already is heating up. The dollar has been going straight up, which has made the trade deficit completely out of control, but now it looks like we're headed for trade conflicts. ....trade problems are developing, which is the outcome of our currency going up and the rest of the world's going down. Not to be too pessimistic about this, but when we speak of ominous parallels to the late '20s and early '30s, currency devaluation and trade wars both were part of the picture."
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Thread,
Just taking the other side of a yuan devaluation for arguments sake. Is the worry caused by such an event mainly media driven? After all, we have been hearing about this doomsday scenario for about 19 months now. If China lets the peg go, then it means Asia crashes further and the US gets hurt because they lose their export market.
There is this belief that China will just let the peg go completely, but in most cases, it doesn't happen that way. It's more of a gradually lowering. If China held on this long, you would think they have the ability to adjust slowly. And after all, they are competing with economies who currencies have weakened considerably. Shouldn't China truly have a weaker one too.
Another side of a yuan devaluation means that the fear created could even have more capital heading to the US. Hence a much stronger dollar and hopefully lower interest rates. This would enable the US to continue supporting an already massive current account deficit.
Also I wonder how much worse can the trade deficit get? By most accounts, Asia has been in serious trouble for a long time now and the trade deficit is pretty lop-sided as is. Granted it will get worse with a yuan devaluation, but I'm simply wondering to what degree?
Then there's that old argument about Asia's problems keeping world inflation down to the almost non-existent level. I don't think I can recall anyone 19 months ago predicting how incredibly well this appears to have worked! The problems in Asia has created in the US, a "Goldilocks," economy. If China does decide to devalue, this even puts more downward pressure on inflation.
Now there probably would be a problem if Americans quit doing what they do best, CONSUME. But that has never seem to be a big problem with US culture. So if unemployment remains low and interest rates remain low, then maybe a yuan devaluation wouldn't be so bad after all?
I've just never seen anyone take the other side of a yuan devaluation before, and am just curious if my comments are totally off-base.
Thanks,
MikeM(From Florida)
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