Lock in your adjustable mortgages - China unpegging the yuan

[AngryAmish]

While it looks like China is not floating it completely or devaluing as much as we want, it looks like a good step.

[SmokingJacket]

1. Any speculation on what this might mean?

Other than, Buy your cheap plastic crap NOW!

I'm afraid I avoided econ classes in college...

[AllegroRondo]

2. Off the top of my head

imports from China will be more expensive

exports to China will be less expensive. We dont export that much to them now anyway, exept for food and cotton, some manufactured goods (cars and computers), drugs,

Chinese investment in US Debt will go down


It could mean inflation for the US, and higher interest rates.

[SmokingJacket]

4. Inflation... oy.

It's been pretty bad in many areas already (food, fuel, medicine)... the one place where prices were actually steady or going down was cheap imports (toasters, fans, cheap clothing). Guess that's over.

[AllegroRondo]

7. Cars, PCs, major appliances are going down

but in my opinion, thats more of an indication of how bad the economy is doing. Most people are putting off purchasing 'big ticket' items like cars and washing machines, so manufacturers have to offer big incentives to get people to buy.

[AngryAmish]

3. Read the article

The US has been complaining for years about the value of the yuan was too low. It hurts our trade balance (Chinese goods too cheap, US goods too expensive). Now, powerful interests on both sides of the Pacific like that. Wal-Mart (and their customers) like cheap stuff from China and the Chinese gov't gets prosperity (Chinese gov't officials run many industries and banks. Loans are made because of cloat. This leads to many bad loans to kronies. But if the kronies who run factories can sell stuff cheap, then gov't officials get their kickbacks and everyone is happy. Plus, social peace is very valued in China - the gov't constantly worries about revolution).

However, over the long run huge trade deficits are bad. China buys our debt cheap to finance the trade imbalance. They can't buy forever and they may feel the need to cool off their own economy.

So what are they doing? Trying to adjust the cost of the yuan slowly over time so there is not a hard landing.

I think. I'm not a practicing economist. I just follow this stuff somewhat. Bottom line - interest rates are going up. I think.

[SmokingJacket]

5. Thanks. nt

[AllegroRondo]

6. Good summary.

Id much rather see them tie it to a basket of currencies and slowly unpeg it than let it free-fall all at once.

[AngryAmish]

8. China will NEVER do that

Chna is trying to quell revolution at all costs. Post-Tiaamen (sp?) China is a deal between the populace and the Party. The Chinese Communist Party is just another Imperial Dynasty like all the others. They fear internal rebellian more than anything else (especially since getting rid of the pesky Mngols. WWII Japanese were nothing like the Mongol invasion).

They WANT to make people richer. It keeps them quiet. The people of China want Tiawan back, so that is why the gov't wants it. The Cadres are just getting rich and want a quiet populace so thay can get rich and pass it on to their kids.