Money Figures Show There's Trouble Ahead

[Guest P-Diddly]

The yuan pegging is entirely under China's control. If those asian currencies had been allowed to appreciate against the USD, US consumption would have slowed and savings increased. That's how Bretton Woods II was supposed to work, all self balancing: if one country printed too much its currency would devalue and it would be able to purchase less from abroad. The Asian countries broke the system since 98 by not allowing their currencies to appreciate; you can't blame the west for that.

I find it quite rich that westerners should be blamed for a policy maintained by others, that only results in their jobs being shipped away.

+1

William, try this. Bit tricky to use and I don't understand all of it, but may assist a quick analysis of trade.

http://info.worldbank.org/etools/wti2008/3a.asp

[lowrentyieldmakessense(honest!)]

I think you are right but I think the 'inflationists' premise (mine at least) is that should the first round of QE not be enough (which seems to be likely) then the authorities will devalue again, and again, and again...

yep

and can anyone give an example of unbacked paper currency rising in value for a prolonged period.

fall in prices of leveraged assets yes - but rise in prices of items needed for daily living

They seek inflation (we should really put hyperinflation to rest)

yep but they know not what they do - they are likely to get the amount to print wrong - and loss of confidence could have a dramatic effect in the perceived value of the currency

not that i think we will get Zimbabwe inflation - but i think 50% inflation within a two year timescale could easily happen - time window 2010 - 2015 at a guess

Edited September 27, 2009 by lowrentyieldmakessense(honest!)

[_w_]

+1

William, try this. Bit tricky to use and I don't understand all of it, but may assist a quick analysis of trade.

http://info.worldbank.org/etools/wti2008/3a.asp

Pretty detailed! And it doesn't even begin to measure the impact of undervalued currencies!

[_w_]

yep but they know not what they do - they are likely to get the amount to print wrong - and loss of confidence could have a dramatic effect in the perceived value of the currency

This is it. Financial/currency markets don't have the characteristics of systems with stable equilibrium. They seem to go from one unstable equilibrium to another with large swings in between. Mervyn King is taking chances.

[_w_]

http://www.cnbc.com/id/15840232?video=1275511738&play=1

[Guest P-Diddly]

Pretty detailed! And it doesn't even begin to measure the impact of undervalued currencies!

Well, there's just about price parity now here in SE Asia with most of the consumer stuff in the UK, this include grocery and food, just about. Cost structures are different mind. By that I mean, the percentage of household budget out-goings on say energy and food and wotnot, especially taxation.

What is under valued is labour, or rather under valued in the East and over valued in the West and I think this is what will correct. Purchasing power is certainly here in the East, plenty of rich people, but wealth distribution is poor. Housing is certainly as expensive now as the UK, in terms of normal peoples income it's much more expensive.

Not sure I really understand myself here. Am I making any sense?

[interestrateripoff]

For all the dole-mole bashing and I'm guilty as charged on this one, the real recipients of welfare are many of the big firms, quangos and of course everyone's favorite . . . the banks.

The payments in welfare are completely dwarfed by the amounts been given to the banks, and even some welfare payments are just direct subsidies to the banks like mortgage interest payments.

[awaytogo]

Like I said elsewhere - I'm only half kidding when I say the unemployed will be given peanuts soon. The British Government is a bankrupt scandal. Deflationary forces are a coiled spring right now in Europe and the US. Welfare is already being cut in the UK - and by a Labour Government. This little holiday from reality everyone's been enjoying over th epast few months is over. The average house price IMHO will be closer to 50k than 150k by this time next year.

Its a catch 22 situation with benifits in this country. Many workers are taking pay cuts or shorter hours due to the recession, Many of the lower paid are going to be encouraged away from work and onto benifits if benifits are more valuable than a working wage. So wages have to be increased or benifits cut to make working beneficial.

[_w_]

Well, there's just about price parity now here in SE Asia with most of the consumer stuff in the UK, this include grocery and food, just about. Cost structures are different mind. By that I mean, the percentage of household budget out-goings on say energy and food and wotnot, especially taxation.

What is under valued is labour, or rather under valued in the East and over valued in the West and I think this is what will correct. Purchasing power is certainly here in the East, plenty of rich people, but wealth distribution is poor. Housing is certainly as expensive now as the UK, in terms of normal peoples income it's much more expensive.

Not sure I really understand myself here. Am I making any sense?

I think you are but I disagree.

Volkswagen Golf (same product):

- China = $7,000

- UK: £14,000 ($22,000)

That's not PPP to me.

I agree that luxury executive broom cupboards built in the last ten years are overpriced globally, but they were for a global group of s*ckers with too much money on their hands.

But for day to day living things, your experience doesn't match mine.

[babesagainstmachines]

We also know sterling is not a reserve currency, and a significant portion of UK debt is denominated in other currencies. So we may not follow the US or Japan path.

Over 4% of the world's currency reserves are Sterling. This would increase should use of SDR replace the USD in any significant way.

I 4% doesn't sound much, but it's still significant, since we have about 1% of the world's population.

[Guest P-Diddly]

I think you are but I disagree.

Volkswagen Golf (same product):

- China = $7,000

- UK: £14,000 ($22,000)

That's not PPP to me.

I agree that luxury executive broom cupboards built in the last ten years are overpriced globally, but they were for a global group of s*ckers with too much money on their hands.

But for day to day living things, your experience doesn't match mine.

Likely because we live differently. I also live in a real poor bit, trust me it's like 1.5-2 times the cost of living in the metro areas and directly comparable to the UK.

Okay some of it's relative to income, some of the reasons it's cheap is because it's subsidy (energy and public transport here, big time), some of it's because of low taxation (no local taxes etc) . . . it's structurally different.

But I can walk into a Tesco here and fill a trolley and it will be £100-£120, more even. I can do the same in the UK and it's quite often less.

Cars here are BRUTAL money (import duty). Okay domestic stuff is a little less than the UK, but not much.

IT is more expensive here. Communications, although getting cheaper, are more expensive.

It's closing on price parity for good and services. The only that really isn't is labour costs. Balacning this is unemployment in the UK and outright revolution in Asia (it's on the cards).

Still don't know if this makes any sense, but I'm trying here.

[mdman]

I dont believe the UK can repeat the Asian trick. They kept the currency low, consumption low, wages low and savings high while exporting like crazy. They can now decouple from the West by developing their consumer markets whenever Western demand collapses. They weren't forced into a disruptive transition from high consuming high wage to low consuming low wage society.

We are a high consumption high wage credit ponzi economy. Trying to change into a low wage low consumption economy from this starting point will lead to social unrest and disorder.

[indirectapproach]

"Volkswagen Golf (same product):

- China = $7,000

- UK: £14,000 ($22,000)"

Could you give us your evidence for this.

I'm not saying you're wrong.

I feel sure you're right.

I was just wondering about your evidence and if anyone could explain "why".

[Guest P-Diddly]

I dont believe the UK can repeat the Asian trick. They kept the currency low, consumption low, wages low and savings high while exporting like crazy. They can now decouple from the West by developing their consumer markets whenever Western demand collapses. They weren't forced into a disruptive transition from high consuming high wage to low consuming low wage society.

We are a high consumption high wage credit ponzi economy. Trying to change into a low wage low consumption economy from this starting point will lead to social unrest and disorder.

Believe me, Asia will kick off first. It's at boiling point now.

Surely the Brits can work smarter, focus on the right things, kick start domestic production and consumption etc.

Life will change. But I too was in that boom, it was no fun, it was unbearable volumes of work, it was inefficient carnage. Unnecessary.

I do admit the debt mountain is a bit of a killer, but what do you do? Go back to the land, pull hand ploughs, live in mud huts . . . I don't think so.

[xux42]

Deflationary forces are a coiled spring right now in Europe and the US...

...The average house price IMHO will be closer to 50k than 150k by this time next year.

I reckon you are right, except the extent. Remember that the pound is devaluing as well.

I'm all for cheaper houses - I'd like to upgrade and to see my boys pick up decent houses for 3x average wage.

However, 50k houses would annihilate the UK economy by triggering mass financial delinquency and make the current 60% LTV lending by the banks look like total recklessness.

Tha said, I can quite see 90K at the bottom/overshoot - that will be bad enough.

[CokeSnortingTory]

The yuan pegging is entirely under China's control. If those asian currencies had been allowed to appreciate against the USD, US consumption would have slowed and savings increased. That's how Bretton Woods II was supposed to work, all self balancing: if one country printed too much its currency would devalue and it would be able to purchase less from abroad. The Asian countries broke the system since 98 by not allowing their currencies to appreciate; you can't blame the west for that.

I find it quite rich that westerners should be blamed for a policy maintained by others, that only results in their jobs being shipped away.

But that just begs the question as to why the USA didn't use it's leverage (when it still had enough) to encourage/force China to remove the peg. The American's didn't have to accept all those cut-price goods, did they? It's no good railing against mercantilism after you've been the recipient of its goodies for over a decade.

Or maybe, you know, they enjoyed the perks and expected to remain powerful enough to never have to pay for them?

[_w_]

Likely because we live differently. I also live in a real poor bit, trust me it's like 1.5-2 times the cost of living in the metro areas and directly comparable to the UK.

Okay some of it's relative to income, some of the reasons it's cheap is because it's subsidy (energy and public transport here, big time), some of it's because of low taxation (no local taxes etc) . . . it's structurally different.

But I can walk into a Tesco here and fill a trolley and it will be £100-£120, more even. I can do the same in the UK and it's quite often less.

Cars here are BRUTAL money (import duty). Okay domestic stuff is a little less than the UK, but not much.

IT is more expensive here. Communications, although getting cheaper, are more expensive.

It's closing on price parity for good and services. The only that really isn't is labour costs. Balacning this is unemployment in the UK and outright revolution in Asia (it's on the cards).

Still don't know if this makes any sense, but I'm trying here.

I must say I wouldn't have imagined it was so expensive in your neck of the woods. China is most definitely different.

[Guest P-Diddly]

I must say I wouldn't have imagined it was so expensive in your neck of the woods. China is most definitely different.

With the Quid in the bog, it can be. I'm set up a bit differently, live efficiently etc, but it's the same price as the UK for most.

Bill, have you lived in China?

[johnny5thumbs]

China is pegging its currency to the dollar. When the dollar devalues so does the yuan so any dollar they get is not devalued in yuan.

Are you absolutely sure about that? Maybe one of the US's reasons for devaluation was out of a sense of "yah boo sucks!" against China's refusal to revalue the yuan. "You won't revalue, then we'll devalue - same effect". Pegging might temporarily stop that outcome, but would create some hefty problems within the Peoples Republic, already undergoing some disobedience in parts. Could be a price too high to pay in the end?

[_w_]

"Volkswagen Golf (same product):

- China = $7,000

- UK: £14,000 ($22,000)"

Could you give us your evidence for this.

I'm not saying you're wrong.

I feel sure you're right.

I was just wondering about your evidence and if anyone could explain "why".

It's anecdotal so difficult to link to a piece. Here's something I came across as I was looking:

http://www.alibaba.com/catalogs/1201/Autom...amp;searchweb=Y

If anything it's fun. All the cars listed are made by western or japanese companies located there so no product difference.

[_w_]

With the Quid in the bog, it can be. I'm set up a bit differently, live efficiently etc, but it's the same price as the UK for most.

Bill, have you lived in China?

I've been there quite a bit in the 90s and still go from time to time.

[Guest P-Diddly]

I've been there quite a bit in the 90s and still go from time to time.

Live there first, then you can properly compare. Seriously. I was taken a-back recently by some prices here.

[indirectapproach]

Thanks,

I got this,

http://www.toyotabeijing.com/

A bit Greek but I hate nit pickers.

[_w_]

Are you absolutely sure about that?

These days I'm not absolutely sure of anything but this one is basic math it seems.

Maybe one of the US's reasons for devaluation was out of a sense of "yah boo sucks!" against China's refusal to revalue the yuan. "You won't revalue, then we'll devalue - same effect".

The USD can't devalue with the Yuan as long as the latter is pegged to it by the Chinese government. The yuan rate is not market driven, it is dictate by the Chinese politburo. It's a no can do, period.

Only political pressure could force the chinese to change that and as CokeSnortingTory writes, you wonder why they haven't before (well actually I don't, it's pretty clear many people have made so much money offshoring production there that they would highlight the importance of not rocking that particular boat).

[_w_]

Thanks,

I got this,

http://www.toyotabeijing.com/

A bit Greek but I hate nit pickers.

Thanks. You can use google to translate the page on the fly, it becomes much clearer!