tag:blogger.com,1999:blog-2761684730989137546.post9219814206826400296..comments2024-03-28T07:50:06.102-04:00Comments on Mike Norman Economics: Michael Pettis explains why China will continue to hold US tsys, againmike normanhttp://www.blogger.com/profile/03296006882513340747noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-2761684730989137546.post-53357176361268482482011-08-18T15:51:25.130-04:002011-08-18T15:51:25.130-04:00I don't know the exact mechanics, googe, but t...I don't know the exact mechanics, googe, but the basic principle is that China pegs its currency to the USD, and a peg is a fixed exchange rate where the cb has to manage the fx rate and inflation rate simultaneously. So China has to control the flow of yuan into USD and USD into yuan so as not to break the peg it has set to accomodate its export economy, and it also has to control the flow of both USD investment in China and the flow of yuan into china to control domestic inflation. It does this through regulation and cb operations. So both foreign investment in China and the freedom of Chinese companies to deal directly in fx is regulated, and the PBoC controls fx transactions.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-35486375725117354732011-08-18T15:00:52.119-04:002011-08-18T15:00:52.119-04:00Tom says :
"
They can't spend them in Chi...Tom says :<br />"<br />They can't spend them in China and are not permitted to bank them here themselves. PBoC does the conversion and puts the USD into tsys. <br />"<br /><br />I ask :<br /><br />If the Chinese companies cannot rebank them to China, why does the PBoC have to reconvert from RMB to USD ?<br /><br />Looks like an illogical three step :<br /><br />USD RMB USD RMB ???googleheimhttps://www.blogger.com/profile/14459089745473598235noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-60793251525850338062011-08-18T13:37:17.860-04:002011-08-18T13:37:17.860-04:00It's within China, so RMB, I would assume. Pet...It's within China, so RMB, I would assume. Pettis didn't elaborate on the details as I remember, and I can't recall which post of his I saw it in. It was some time ago.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-88929533399529629862011-08-18T11:56:57.111-04:002011-08-18T11:56:57.111-04:00Tom,
Do you think the PBoC pays interest on the bo...Tom,<br />Do you think the PBoC pays interest on the borrowed USDs in USD or RMB?<br /><br />Resp,Matt Frankohttps://www.blogger.com/profile/11978352335097260145noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-92027235985786977032011-08-18T11:32:03.858-04:002011-08-18T11:32:03.858-04:00Chinese companies earn those dollars here. They ca...Chinese companies earn those dollars here. They can't spend them in China and are not permitted to bank them here themselves. PBoC does the conversion and puts the USD into tsys. <br /><br />Pettis has said previously that the PBoC actually borrows a lot of those dollars from the companies earning them instead of converting them to yuan inorder to keep inflation down in China.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-69764623320721781532011-08-18T11:26:16.784-04:002011-08-18T11:26:16.784-04:00Matt, I'd say that Pettis is about 90% there.
...Matt, I'd say that Pettis is about 90% there.<br /><br />He understands real terms of trade just fine. He includes job loss in that, which I would agree with unless the net importer uses fiscal policy to offset the saving gap.<br /><br />Trade is a creator of more productive jobs due to comparative advantage. The US should ship abroad the low wage job that will just be automated here and give the emerging countries more income and employment, while upgrading here through innovation. In principle, anyway.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-7657109597822341592011-08-18T08:29:27.700-04:002011-08-18T08:29:27.700-04:00He Says "
PBoC must be willing to purchase as...He Says "<br />PBoC must be willing to purchase as many dollars as the market offers at the price it sets. It pays for those dollars in RMB."<br /><br />Is he saying that China exports RMB to buy U$D ?<br /><br />How does that happen ? I thought that China "earns" the USD by selling crap here ?<br /><br />Who let them buy so many US treasuries and bonds ? Which president and which political party ?<br /><br />If they diversify that means by Mike Normal that China will "spend the USD in the USD currency zone" which will mean stimulating USA.<br /><br />If they diversity and spend the USD then they will have to appreciate their RMB.<br /><br />Can someone here, Tom, Matt or Mike clarify this butter ?googleheimhttps://www.blogger.com/profile/14459089745473598235noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-8349346929332514242011-08-18T08:22:35.456-04:002011-08-18T08:22:35.456-04:00Wonderful.
Do I read a key phrase that China is a...Wonderful.<br /><br />Do I read a key phrase that China is a net importer of capital ... that they are not shipping dollars to the USA for us to use ?googleheimhttps://www.blogger.com/profile/14459089745473598235noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-7188037550008996052011-08-18T08:01:26.911-04:002011-08-18T08:01:26.911-04:00Interesting excerpt here:
"A contraction in ...Interesting excerpt here:<br /><br />"A contraction in the US trade deficit is of course expansionary for the economy. Since the purpose of the US fiscal deficit is to create jobs, and a $100 contraction in the trade deficit will create jobs, the US fiscal deficit will contract by $100 for the same level of job creation – perhaps even more if you believe, as most of us do, that increased trade is a more efficient creator of productive jobs than increased government spending."<br /><br />I believe MMT would say that the Fiscal Deficit is not per se a direct policy option for increased employment.<br /><br />Some other statements about causation that I might take issue with.<br /><br />Believes that trade is a 'more efficient' creator of 'productive' jobs: sounds Austrian... who decides what is 'productive'?<br /><br />But Tom at some level Pettis sounds like he understands sectoral balances in/around the external sector for sure... Resp,Matt Frankohttps://www.blogger.com/profile/11978352335097260145noreply@blogger.com