Krugman: China Unpegs Itself

[idlisambar]

Thursday's statement from the People's Bank of China, announcing that the yuan is no longer pegged to the dollar, was terse and uninformative - you might say inscrutable. There's a good chance that this is simply a piece of theater designed to buy a few months' respite from protectionist pressures in the U.S. Congress.

Nonetheless, it could be the start of a process that will turn the world economy upside down - or, more accurately, right side up. That is, the free ride China has been giving America, in which the world's richest economy has been getting cheap loans from a country that is dynamic but still quite poor, may be coming to an end.

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http://www.nytimes.com/2005/07/22/opinion/22krugman.html

[newswolf56]

1. I wish I knew enough about economics to evaluate...

what Krugman is saying. I don't. Nevertheless, this sounds an awful lot like what used to happen shortly before the bankers foreclosed on the farm, evicted the farmer and his family, and so condemned them all to the horrors of wandering homeless into the Great Depression. And if that's true...

[phantom power]

5. that is one possibility.

I'm of the opinion that it isn't in China's interest to crush us economically, although they probably could if they wanted to (which is a terrible situation for us to be in). After all, we are one of their biggest markets for the stuff they manufacture.

[Neshanic]

6. I agree, but they want us like a crack addict, and they are selling.

They have too much invested, too much groundwork laid to cut us off cold turkey. The Chinese are patient and smart, they have long term plans to end us as a nation; not now, but at their leisure, for there are so many corporations fleeing the US and they have so much to offer the greedy bastards, more factories, more cheap labor, more everything.

[K-W]

8. Not to mention that if they piss us off, its cold war time again.

China is in the position they are in because they play ball. If they stop playing ball the US will change thier position by any means neccessary.

Even if China was in a position to sink the US economy, doing so would be the first salvo in an economic war they would most certainly lose.

[phantom power]

9. I'm curious, why do you think China would lose? I think we'd lose. Big.

[K-W]

10. Because we are by far and away the most powerful nation in the world

It would be an upset of historical proportions for the US to be supplanted by China, so why dont you give some explenations on why you think the clear underdog would win.

[phantom power]

11. Really? What power do we have?

We're running a huge trade-deficit. Our military is completely tied down in Iraq, and we're losing even that. Our economy is a house of cards built on cheap credit, of which China is one of the most significant lenders.

I suppose we have the power to destroy, via nukes or something, but frankly, so do a lot of other nations. It's an empty threat, really, except to anybody mad enough to desire armageddon.

[K-W]

12. We have almost all the power. What planet do you live on?

It seems to me you are confusing hypothetical future scenarios of a time when China has developed more and the US is no longer in control of the global economy and can no longer sustain military dominance with the reality where the US is still very much in control of the world economy, and very much in control of world politics partly through its still unmatchable military.

[phantom power]

13. The future has already arrived. We're just coasting on momentum.

[K-W]

14. Coasting on momentum? We are talking about geopolitics, not a car.

There is no momentum.

The reason the US appears to be massively powerful is because it IS massively powerful.

The future isnt now, and the future isnt garunteed or predictable. You are discussing a possible future scenario, not reality.

[muriel_volestrangler]

16. Power over oil

A significant military presence in the Gulf, which could disrupt oil shipments from there; and a lot of influence with Saudi Arabia, which might make military intervention unnecessary. And the ability to blockade other countries' oil exports, while it's less likely that any other country could do that to oil destined for the USA.

[phantom power]

17. true, although I wonder how secure our grip really is.

For instance, if China and Russia decided to ally and take over the middle east, could we stop them? Short of a nuclear show-down, I don't think we could.

I'm not sure how likely that is. Clearly, a play like that would be extremely dangerous for all sides, but people are going to get increasingly desperate as the oil runs out.

And China is investing in nuclear energy. Unless we do the same (or some other replacement for fossil fuels), we will gradually succumb by an addiction to a drug that no longer exists. Of course, now I am talking about the future, but there's nothing hypothetical about it.

[K-W]

19. 2 thigns

1. We have China and Russia surrounded by military bases for a reason. I really dont see the leaders in either country taking such a massive gamble and risking annihiliation when the US is happy to let them get rich while US companies exploit their economies.

2. We do have plenty of oil for the time being and more than enough resources to build nuclear plants if it became an immediate neccessity.

[phantom power]

20. hopefully, you are right.

What I've read about how we currently extract oil is rather disturbing. The current pumping rates are being maintained by pumping water into the deposits, to keep the pressure up. One side-effect of this technique is that oil production rate eventually collapses. Not slowly, but quickly. One year, we are pulling millions of barrels per day, the next year it's down to a few hundred thousand.

The public assumption appears to be that we'll have plenty of time to adjust to a gradual loss of oil. But that assumption is faulty, based on what I've read.

It would take hundreds of nuclear reactors to replace our current oil consumpion (about 1000, if we wanted to replace all energy sources completely). I wonder if we really have the resources to build that many plants quickly, and very likely not in good economic times, but in economic upheaval.

I should add, it wouldn't be just building the reactors themselves, but all of the industries needed to manufacture fuels to run our machinery. Technically doable, but not something we can just whip up in a year or two. It would take many years, and trillions of dollars. The time to start is now. I find it telling that China is starting now, and we are not.

[teryang]

21. "Surrounded by military bases"

These military bases are strategically insignificant and unsustainable in a conventional military conflict. They are landlocked for the most part and lack the throughput capacity to sustain themselves or significant force levels in time of actual war.

The real purpose of these bases is a cultural outposts to market weapons and peddle political influence to guide indigenous governments and groups in the direction we want them to go. It's called the great game. When the game ends in war such bases are militarily untenable.

[K-W]

22. You are forgetting something important.

What the military bases also do is make it impossible for Russia, China, or anyone else to militarily intervene in othere nations without US permission. Russia cant send its army in to change the Regime of or conquer Uzbekistan because there is a US base there.

But you are absolutely right, they are cold war bases, not hot war bases, because hot war between powers would be settled in an apocalyptic manner. But they do serve as a military deterrent, because attacking a US military base would provoke a hot war.

[Oversea Visitor]

23. Haha

You still looking at the Emperor with no clothes :rofl:
And his empire with no teeth :rofl:

Just keep on walking, nice nice deep deep hole in front.

US world position is no more. Time for new world leader.
All the power is useless. What you going to do
Nuke each other to kingdom come?

I don't see a future with US being trusted again.

[K-W]

26. The US was never trusted, what does trust have to do with anything?

I am looking at an emperor with no clothes? What?

No teeth? Are you joking? Yah, the US has no teath... right.

"US world position is no more. Time for new world leader.
All the power is useless. What you going to do
Nuke each other to kingdom come?"

The US world position is still massively better than anyone elses world position. All the power is useless? Huh? How is power useless? I wish you were in the pentagon, because the people there now know how to use that power just fine.

[teryang]

24. Local forces supported by outside powers could force

...withdrawal from these bases. They exist at sufferance of the hosts and their domestic enemies. They exist primarily because of economic reasons. When those economic incentives to permit these shoestring facilities are trumped by the outbreak of open conflict, they will be abandoned quickly because they are a logistics nightmare.

[K-W]

25. That would be an act of war,

Outside forces will not force a US military base out of a country without consequences.

Nobody is starting a war with the US, we can be fairly certain of that.

[WhiteTara]

27. chimpy and the neo cons are

madmen in seach of armageddon. Yes, they want to use those nukes, all of them and as fast as they can. How else can they make more money? Carlyle wants to make more weapons and chimpy gets to inherit all that money tax free. No matter that there won't be a place to spend it because the world will be destroyed.

Maybe we can hurry them to the promised land with the firing squad that is reserved for traitors.

IMPEACH BUSH AND SEND THEM ALL TO THE HAGUE
:rant:

[Dover]

self delete

[Dover]

2. I'm confused. I thought the U.S. WANTED China to unpeg from the dollar.

Can anyone clarify this?

[wli]

3. economic catch-22

China's peg amounts to "beggar thy neighbor" garbage from the First Great Depression. As long as it keeps the peg, it loots the US on jobs, manufacturing base, etc. But once it lets the peg go, the dollar's in free fall.

[Demeter]

4. Be Careful What You Wish For

The pressure on China will backfire on the oppressors, while we little people get crushed. Then we can throw a revolution and do a proper job of insulating the country from fascism in word and deed. Anything less will not hold.

[K-W]

7. I am skeptical that the US is really in such a bad position.

The US people, certainly are. But I very much doubt that the US economic elite has REALLY put China in a position of power over them.

Usually incompetency is just an excuse so that they can explain away the fact that they are lying about their motives.

[idlisambar]

15. one caveat

The pattern for once powerful nation in decline is that the elite (or large swaths of the elite) shelter their assets abroad. We haven't quite gotten to that point yet.

[phantom power]

18. Yes we have. Off-shore tax-havens are an epidemic in the US.

If that isn't sheltering assets abroad, I don't know what is.