Can't believe there are so few posts on this... China and Russia meeting to dump the dollar

[TwixVoy]

In the past 24 hours I have only seen one thread which had any real discussion on this topic.... and some posters had head in the sand like usual. I honestly think many people did not understand what this meant.

This is incredibly huge. Not so much internally for the United States as *externally*. Here is a simple explanation as to why. (one of many reasons actually, but a big one from the consumer point of view)

Internally does it matter how much our dollar is worth to the typical consumers view? Not really. If the dollar is worth 2 Euros today damn near everyone in America still sees one dollar as one dollar. The next day the dollar is worth 1.5 Euros. Again, the typical American still sees one dollar as one dollar.

This changes COMPLETELY once you take your dollars outside the country. When our mega corporations buy things for us to consume internationally (because we make damn near nothing here anymore) the value of the dollar is key. A dollar which is worth a lot means we can get product on the cheap from say China. So let's say the dollar goes down 50% in value. Guess what? In China that means our money is suddenly worth half of what it was before, and no one in China is going to mark down their product 50% just to accommodate that.

So guess what? That mega corporation now has to pay 50% MORE than they did it before for the same products. Guess what that means for the consumer? You pay 50% more too. (the sad thing is 50% is a low ball estimate of the kind of increase we are looking at)

Right now the rest of the world has realized that we are broke. We are in such debt now that mathematically there is a slim to none chance we will ever be able to pay it back. Even the interest is going to be difficult to pay. China and Russia are HUGE powers. China has us by the balls because damn near all of our production has been moved to China. They are now washing their hands of us. We have literally exported our wealth to China and they are NOT going to be kind now that we can't pay the bill.

We are looking at massive hyperinflation coming over the next 1-2 years as a result of this. This will DESTROY the lower classes who can barely afford to live as it is. It will cause many in the middle class to go under as well.

This latest move from the fed to literally take money from one pocket out of thin air and give it to another pocket is only going to make matters worse.

If you are not paying attention to what is going on START TO DO SO before it smacks you in the face one day. We are looking at the dollar turning to shit if Russia and China pull this off.

Link: http://www.reuters.com/article/usDollarRpt/idUSLJ93633020090319

[donheld]

1. Do you have a link?

[TwixVoy]

2. Yes

http://www.reuters.com/article/usDollarRpt/idUSLJ93633020090319

[donheld]

7. Thank you

[B Whale]

3. You lost me when you said 'consumer point of view' I'm not

a consumer, i'm a human being

[TwixVoy]

4. Put your head in the sand

How about taking a damn college economics class? "Consumer" is a term that will be used in every university in the country. Stop being so damn ignorant. It is a well recognized term in the field of economics.

[B Whale]

15. It is that trapped kind of thinking that

got us into this mess in the first place. If it is being used in economics classes across the country then that is even more reason to hate it.

We are not economic units, we are people, we should not be measured and valued by what we consume. Growth at all costs is a bad thing.

Stop thinking within this framework, it is an infected economic mindset that, as can be seen, is toxic, dehumanising and wrong

[EFerrari]

5. I saw the story yesterday but don't really understand what it means.

:dunce:

[TwixVoy]

6. It means our dollar will lose value rapidly

and it will cost CONSIDERABLY more to import all of our cheap wal-mart crap. People are looking at paying 2, 3, 4, 5 times what they are currently paying for damn near everything if Russia and China pull this off.

[EFerrari]

8. Thank you. n/t

[B Whale]

17. Why do you want cheap

wal mart crap?

Why do we all want to return to business as usual its madness. Is the mark we want to leave on the world consuming products and creating garbage?

(i've commented on your below post as well. i'm sorry to pick you up on this but it is contradictory and wrong)

[rollingrock]

29. Simple supply and demand

when the demand of something falls, so does its value.

for example, a Hummer SUV has very little demand these days, hence the value of it drops like a rock. it basically becomes worthless, similar to where the dollar seems to be headed.

[EFerrari]

38. Thanks. I have some kind of economics mental block or something. n/t

[defendandprotect]

9. With all the "printing" and what our dollar is worth after Bush . . .!!??

Bush should be held for TREASON for bankrupting the Treasury -- !!!

All enemies -- "domestic and foreign" --- !!!

And Obama is evidently still plans to finance both wars -- what garbage!!!

[anigbrowl]

10. I don't think this is a badt hing over the long term

I'd point out this bit in the article: "The Russian source said Moscow was aware that the emergence of the new global currency would not happen overnight and said its goal was to initiate a discussion about it at the G20 summit in London on April 2."

Consider that this is effectively how the Euro came into being, and that has increased the overall financial stability of European countries, rather than the other way around, even though individual countries no longer have control of their monetary policy. I am kind of in favor of the idea. It absolutely can't be implemented overnight because such a thing can't pragmatically come into being without the cooperation of the US and EU - it would take a decade, at least - realistically, more like 2. Actually, one approach might be to try and integrate such a thing with emissions permits, and thus establish a long-term link between economic and environmental value.

[TwixVoy]

12. The new global currency idea

is not what is going to cause us pain.

It is the dumping of the dollar as the reserve currency. It will literally make us a poor nation for decades.

[anigbrowl]

27. Germany seems to be doing just fine

even though the deutschemark was a reserve currency within the European market for many years. I don't see the dollar being dumped overnight, nor do I think we should be calculating our fiscal future based on an accounting trick. Yeah, if people just switched away from it immediately that would be a problem. But if it's phased in over the longer term, as existing contracts (like t-bills etc.) are paid down and closed out, it needn't be disruptive.

[ContinentalOp]

11. On the bright side...

This means that domestic manufacturing may become increasingly viable. And any company that deals in exports will do well. I work in the entertainment industry and Hollywood has done pretty well as the dollar has sunk. Even though box office attendance is down overall, profits are up because overseas tickets translate into more dollars than they did before. Do we really need so much cheap, disposable Chinese manufactured crap clogging up our stores and our lives? Of course this will further deepen the energy crisis and hopefully some real energy solutions will come out of it.

[TwixVoy]

13. Yes but look at China

what made them attractive to our corporations for manufacturing? The fact that they were a poor people, could be exploited, and treated like shit forced to work 16 hour days just to earn enough to barely survive.

In order to us to be attractive for manufacturing we will have to be in such a state. And perhaps once our wealth is gone most of us will be.

[ContinentalOp]

That's part of it.

The other part of it was that it's so cheap there and our money is worth so much more that their goods seem incredibly cheap to us. So if the dollar plummets in value, theoretically we could afford to keep a similar standard of living here while selling our exports to Europe and Japan who will think our goods are dirt cheap. In reality our standard of living won't appear to be the same though because we won't have those cheap Chinese flatscreen TVs and cheap oil anymore. We'll be forced to scale back on our energy and consumer consumption but also we'll hopefully be increasingly forced to buy American.

[B Whale]

22. You are talking on your other post

about importing cheap goods from China. Why would you want to do that when, as you say they are exploited and treated like slave labourers. You, as a 'consumer', are culpable in this process.

We should probably pay more for our goods, that way less pointless crap would be bought to stave off the reality that our lives are empty and we are steered towards consuming crap at all costs.

What the leaders of the world want is to kickstart us back on the road as before and treat this nightmare as a glitch in the venerending march of neo-liberal capitalism. Consumption, debt, growth hyper free market capitalism and monopolies.

maybe they are values you want society to aspire to but not me...

[ContinentalOp]

49. I don't think we disagree.

I wasn't talking about wanting to import cheap goods from China, just describing what we're doing now. Maybe if the value of the dollar plummets we won't be able to do that anymore and maybe that's not a bad thing.

[B Whale]

51. agreed. whats important is that we are

humans. Equality, fraternity, liberty

[anigbrowl]

32. Uuuuh....no.

What you describe is more like North Korea than China.

Yes, working in manufacturing in China is a pretty hard life for pretty low wages by our standards, but it's a lot better for Chinese people than you suggest, or they wouldn't be doing it. My extended family is Vietnamese/Chinese, and their relatives over in Asia (who are all blue-collar) aren't starving, they're working hard and buying themselves clothes and motor scooters and so on, and building a middle-class economy. They are not living in a state of slavery by any means. this is not to say that no exploitation happens but on balance labor and economic conditions there are improving constantly.

We are not going to end up like the worst factory in China, any more than Europe ended up as a third world region when America became the dominant manufacturing and economic power. People and economies adapt to changing conditions - not without pain and effort, but not without opportunity either. America continues to lead in many areas of design and technology and services. Also, there is more to economic activity than manufacturing. I know you work in the retail business and thus your occupation is the sale of manufactured goods, but this is not the only economic activity out there. Designing, marketing and distributing goods are all service operations, but have no less economic value for that, to pick but one example.

[B Whale]

46. Blue colour middle classes are not the point.

conditions for the rural poor who emigrate to large cities to work in manufacturing are pretty horrendous

[Juche]

39. No we don't

Outsourcing only saves about 5-10% because even though labor is cheaper, labor is a small part of the cost of manufacturing. Raw materials, management, energy, infrastructure, transportation, etc. all go up when you outsource. So you save on labor, but pay more to ship and manage a Chinese plant over a US plant. The electricity probably cost more, shipping costs more, management costs more, communications may not be as good, etc.

Here is a graph of Chinese vs. American steel back when oil was over $100/barrel. The cost of shipping it made it more expensive than domestic steel.




Also China has seen alot of revolt over poor working and environmental conditions. Wages go up about 10-15% a year anyway in China and now the workers are demanding unions and the public want higher environmental standards. Not ony that but due to international pressure China will have to start increasing quality control. All these factors make them less cost competitive.

[Delphinus]

45. I think your last sentence

clearly states what I've been wondering about for a while.

[SpiralHawk]

14. The putrid fruit of republiconomics

[neverforget]

16. In another thread yesterday, I said that inflation was coming and a poster

said I was brainwashed. This is what goes for debate.

[Javaman]

18. ...

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3790751&mesg_id=3790828

[polly7]

19. What happens when a country (any country) really is unable to pay its debts.

I assume more dollars or currency would be printed off but when does this end, and how? My apologies for being ignorant on this but as a non-university person ....... how do these lending countries recoup their money. Not that I'm saying China should recoup all of it, imo it stole U.S. jobs and caused the shutdown of American factories with the willing BigBox corporations ignoring human rights in China and the long-term effects of what all this was doing in the U.S. and other countries. Does it really come down to a level of desperation where the only option is to rebuild and restart domestically? Will China and Japan allow that? Sorry, lots of questions from someone with no knowledge of international economics.

[HamdenRice]

34. It depends on the country. The US has a special advantage here

To understand why, and what the "reserve currency" debate is about, it helps to look at what happened to Latin American countries, like Mexico and Argentina during their crises.

When Argentina borrows money internationally, it borrows in dollars. But the economy generates pesos at home in Argentina. It has to export stuff and get paid in dollars to pay off its loans.

If people get worried about Argentina and dump pesos, the pesos declines against the dollar. That means that the amount of their loans automatically goes up, in a vicious cycle of less confidence the loans can be paid, cheaper peso, bigger debt, less confidence, etc.

The US borrows in its own currency. That's because other countries save in dollars (hence the term, the "reserve currency" because foreign countries keep their reserves in dollars). The US can never be in a position of not being able to pay its foreign loans because it can always print dollars. That would cause the value of the dollar to go down, but would mean that our loans actually get cheaper to pay off rather than more expensive (like Argentina). The main effect is that other countries would be pissed off and would never lend us money again, and would dump dollars as a reserve currency.

[polly7]

40. Thank you.

That makes it a lot more understandable to me. But also makes me wonder why any country would lend in currency not its own, or do they have any choice? Probably not right?, because the dollar was kept artificially high to encourage such lending and would be seen as having the best return. Confusing, but I sorta get it now. (I think).

[HamdenRice]

20. You got a few things wrong there to justify the panicky subject line

For one, the Chinese have pegged the RMB to the dollar so when the dollar declines, the price of Chinese imports does not go up. They may unpeg their currency some time in the future, but that seems unlikely.

The main impact of a declining dollar is rising oil prices, not rising prices of Chinese imports.

Second, they are not planning to "dump the dollar". They are planning to shift to a different reserve currency, which in the long term is probably a good thing. If done in an orderly way, this is probably good for the US on balance. China in particular can't "dump the dollar" without wrecking its own investments. Since the Russians in the very article you cited say "it would take up to 30 years to create a new super-currency" they are hardly talking about a sudden, disorderly dumping of the dollar. You never quite explained how a 30 year plan leads to "massive hyperinflation coming over the next 1-2 years as a result of this."

Russia is in a different situation altogether from China. It does not have China's reserves. It is pissed off that in this crisis which the US arguably started, international wealth holders have actually flocked to the dollar enabling the US to finance its way out of its recession on the cheap, while Russia, which had accumulated surpluses and reserves finds itself running out of liquidity as investors flee Russian currency.

Lastly, we are nowhere near as broke as you think we are, so these statements are all wrong: "we are broke. We are in such debt now that mathematically there is a slim to none chance we will ever be able to pay it back. Even the interest is going to be difficult to pay."

Many countries are now or have been in greater debt, including the US after WWII. Clinton showed that with minor adjustments, we could be running surpluses and paying down the debt by the end of Obama's second term. At that point, the key to future prosperity is making sure that the Repugs, the so-called economic wrecking crew, never get in power again.

[Kaleko]

35. Hamden, thank you for weighing in with a more comprehensive view.

You seem to be one of the very few people on DU who have some handle on the complexity of the forces that shape the global economy. Warpy is another voice of reason in a big, steaming pile of kneejerk reactions.
Keep it up, guys. Some of us appreciate your contributions.

[DireStrike]

21. This is fascinating stuff really... I wish I were reading it in a history book though...

instead of living it.

[liberal N proud]

23. Too busy fretting over the Tonight Show hype

[Peacetrain]

31. Exactly... I thought it would have blown over by now.. but nooooooo

[opihimoimoi]

24. Where is the justice for CayLee? Peeps want distractions...not reality

Sad....pathetic even....

[Tierra_y_Libertad]

25. There's a "treasury bubble" that's bound to deflate.

The dollar is overpriced as it now stands, and the Fed is printing money. The Chinese, in particular, are propping up the dollar to keep it strong by lending us money. The Fed has just announced that it is, in effect, going to print more to pay some of the debt.

The Chinese, being smart, are buying all sorts of "real" stuff with the strong dollars they are now awash in. And, their getting the stuff, oil contracts, mineral rights, property, all over the world, at rock bottom prices. When they rid themselves of enough "strong" dollars, they'll cut off the tap and let the dollar slide, causing inflation which will drive up the value of what they bought.

Every economist knows there's a bubble in treasuries without a foundation to hold it up. The dollar is going to become much weaker in the near future as other nations, Russia, Japan, India, get rid of dollars.

Like the housing bubble, this can't continue to go on, and it ain't going to end well.

[azul]

36. Chinese, being smart, are becoming capitalists?

Or, are they dumb, and are sneaking in some plans to make communism really successful?

Don't they have a propensity to make long term plans? China gave the US an important lecture last Friday to make clear its intentions and to protect the Chinese investment in the USA. Did Nixon open up China trade for the US or vice versa?

This is getting pretty weird.

[Tierra_y_Libertad]

41. It seems that the "communists" are taking items from column A and Column B.

A little Communism, a little capitalism, a little Socialism..whatever works for them.

It's all rather fascinating to watch.

I have a Chinese penpal, a young university student that I help with her English (which is her main course of study). Today, I received a reply to my inquiry on how her family was faring during this downturn. Both are working class.

Here's her response:

"My parents are fine. It is true that many people lost their jobs under the serious economic situation. You know , China has her own economic system .The government had taken measures to control this situation of the turmoil economic. So it is ok.

However ，to my family with supporting a college student is a little difficult. But I think we can handle it well."

[dysfunctional press]

26. well- maybe we'll finally have a chance to use all those missiles and bombs and stuff...

that we've been overpaying for, year after year after year...:shrug:

[ThomWV]

28. Well ,,, go on, then what happens? You think that's where it ends?

The first thing that happens is we stop buying so much of the imported junk from China because it has got so expensive in our dollars. Also about that time it becomes a real good idea to invest in Wheat futures because as the dollar drops the value of our major exports - agricultural products - soars.

[Romulox]

30. A strong dollar may be good for "consumers", but its terrible for WORKERS.

The Wall Mart bubble was bound to burst eventually.

[Tierra_y_Libertad]

33. Some useful links on what's happening.

Read all 3 articles in the series for a good picture of what's happening.

http://www.atimes.com/atimes/China_Business/KC18Cb01.html

[Juche]

37. Its not all bad

A weak dollar will support domestic manufacturing (since outsourcing will become less cost effective) and export industries. It will also drive up the cost of gasoline, which will increase public support for renewable energy and high MPG cars.

[Politicalboi]

42. Since China holds our debt

Would it be double to pay down. And by that time we would still owe more money. I can see a silver lining to the factories that will need to be opened to fill Wal Mart with crap. Use of alternative fuel here at home, green cars. It could be a wake up call. And I'm sure President Obama sees this.

[Kip Humphrey]

43. Russia doesn't matter and China is on the dollar hook... This has more to do with inflation

Russia is a commodity country whose main trading partner is Europe. Europe = euros, not dollars. China holds a lot of dollars relative to their GNP. They have moved their currency peg to a basket of currencies but while their trade is so heavily weighted and wedded to the US, they will have to keep faith with the dollar (see Japan for what happens if they don't continue to float their currency with the dollar). The bigger concern is petro-dollars. They are the gold standard propping up the dollar. The recent up-tick in oil prices is reflective not of demand (which remains depressed) but of dollar inflation, which is what has the whole world worried. Look what happened this week when the FED, in a blatant and very open fashion, announced their intent to print over a trillion dollars* (usually they're VERY, VERY quiet about this - like the $2.5 trillion they printed from 2001-2006 under Bush).

A good inflation indicator, other than energy, is food. Food manufacturers have twice reduced packaging sizes so far this year (a hidden form of inflation). Grocery chains are demanding that their wholesalers hold the line on food prices (last week). Inflation pressures have begun to hit food. So, hold on to your wallets; they're about to be raided by inflation gremlins.

*I have some thought that the FED's very public pronouncements are intended to spur buying to counter their own deflationary concerns. If people and companies think prices will shoot up, they will likely not defer needed, planned or desired spending. Rather, they will tend to buy now before prices rise. ...An interesting gambit, if true.

[HamdenRice]

48. "announced their intent to print over a trillion dollars" - Krugman has written about this

First of all, I think most people have misunderstood that until now, the Fed was not "printing dollars." It was more like calling dollars home -- dollars that already existed and were held by foreigners. Moreover, it was doing this in the context of a massive contraction of credit. So there was no inflationary impact, no overall increase in liquidity -- just replacing lost private liquidity with already existing dollars.

I vaguely remember Krugman saying that the only way out of the liquidity trap was for the Fed to signal it's willingness to create excess liquidity.

He was saying that one of the biggest hurdles to get out of the liquidity trap was that the world would continue to believe that the Fed would exercise restraint against inflation no matter what the Fed actually does. It has to say they are printing money and get people to believe it.

Hence, the Fed has to say, "we're going to be irresponsible with the money supply for a while" or else people won't believe it's happening.

Iirc that argument by Krugman correctly, then the Fed is doing exactly what Krugman was suggesting.

[malaise]

44. The problem is that when you to rip off those

who are lending you money, they find ways to protect themselves.
Bushco managed to fugg the entire world economy and those who can protect themselves are taking action.

Business as usual directed from Wall Street and London is over.
Listen carefully to the French and Germans as well.

Everyone was burned by those criminal derivatives. Foreign banks and governments have been lending money in exchange for junk bonds.

Gr.

[Liberal_in_LA]

47. Kick and rec

[Strelnikov_]

50. Since we import 67% of our 'Texas Tea', go-juice will be going up

along with everything else.

[omega minimo]

52. China literally holds the cards/debt. What is striking you as imminent?

"Russia met representatives of China, India and Brazil ahead of the G20 finance ministers meeting last week, as the big emerging powers seek to up their influence on decisionmaking globally. Their first ever joint communique did not mention a new currency but the source said the issue was discussed."


If Russia makes some noise about it, does that mean China will pull the plug? No. This economy is being propped up now. You're right it is a matter for concern.