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Author Topic: China Devaluing Currency  (Read 2440 times)
bb113
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March 22, 2012, 02:28:38 AM
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Can anyone explain how this works? It seems to me this practice would discourage Chinese companies from reinvesting money made overseas back into China. The company would be forced to exchange $1 (which buys you 4 gumballs overseas) for X yuan (which buys 3 gumballs in china). What am I missing?
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bb113
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March 22, 2012, 02:32:09 AM
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Sorry if this is dumb.
finway
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March 22, 2012, 02:35:35 AM
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They just print money.

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March 22, 2012, 03:13:05 AM
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Why are they collecting trillions in foreign securities?
ColdHardMetal
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March 22, 2012, 03:21:39 AM
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Why are they collecting trillions in foreign securities?

So the countries they buy the securities from have enough money to buy the products China produces.

It's like a giant department store credit card. They issue you the card hoping you'll run up debt buying their products, but even if you don't buy anything form them, they still make money off your interest payments.

finway
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March 22, 2012, 05:01:19 AM
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Why are they collecting trillions in foreign securities?

China don't buy foreign securities much,
China only buy American bonds,
which is A SCAM.

bb113
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March 22, 2012, 05:59:31 AM
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Finway,

Please describe the line of reasoning that led you to these conclusions.

Thanks,
Bitcoinbitcoin113
bb113
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March 22, 2012, 06:01:01 AM
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Why are they collecting trillions in foreign securities?

So the countries they buy the securities from have enough money to buy the products China produces.

It's like a giant department store credit card. They issue you the card hoping you'll run up debt buying their products, but even if you don't buy anything form them, they still make money off your interest payments.

Makes sense, thanks. I still don't really understand the effects of devaluing currency on industry though.
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March 22, 2012, 06:17:24 AM
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Why are they collecting trillions in foreign securities?

So the countries they buy the securities from have enough money to buy the products China produces.

It's like a giant department store credit card. They issue you the card hoping you'll run up debt buying their products, but even if you don't buy anything form them, they still make money off your interest payments.

Makes sense, thanks. I still don't really understand the effects of devaluing currency on industry though.

Using currency devaluation, the Chinese government is actually giving subsidies to exporting-oriented industry, while damaging ordinary citizens by introducing inflation. The exporting-based economy have been a long-term policy of China since the economic reform. The government acts in this way for these two reasons:

1. The demands inside China is not enough to create many jobs. And the Chinese government deeply fears the unemployment rates, probably much more than any western countries, because the dissatisfaction to the government is about to burst at any time.

2. Exporting-based economy is the best way to use the price signal (of which the origins is from abroad, not China) to guide the resource allocation without the adoption of a fully functional free market. A truly free market economic system is the last thing the Chinese government wants to see, because it will weaken and finally destroy any form of tyranny and dictatorship.

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March 22, 2012, 07:14:32 AM
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Finway,
Please describe the line of reasoning that led you to these conclusions.
Thanks,
Bitcoinbitcoin113

Of course,
American Bonds are SCAM,
because American can't cut their budget.

benjamindees
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March 22, 2012, 01:49:09 PM
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The effect on industry is that devaluation subsidizes exports, which is manufacturing, which provides jobs which the Chinese want because they have been bred for hundreds of years to enjoy doing mindless repetitive tasks.  This also makes Americans happy, since they have been bred for hundreds of years to destroy a never ending stream of goods and resources.  It's the circle of life.

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March 22, 2012, 04:03:53 PM
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Can anyone explain how this works? It seems to me this practice would discourage Chinese companies from reinvesting money made overseas back into China. The company would be forced to exchange $1 (which buys you 4 gumballs overseas) for X yuan (which buys 3 gumballs in china). What am I missing?

There are a lot of capital controls on where Chinese companies and people can invest.  Unless they are big shots and have the OK from a higher authority, Chinese people or companies cannot invest in foreign markets.  It is the same as the Chinese government does not allow most foreigners to invest in the real estate market in China.

Introducing constraints to the economy only serves to limit what can be economical.
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March 22, 2012, 04:18:06 PM
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Quote
It is the same as the Chinese government does not allow most foreigners to invest in the real estate market in China.

You can buy easily enough if you're residing here.

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March 24, 2012, 01:29:20 PM
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Because China without devaluation is not sustainable. Nobody would want to buy what they produce.
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March 25, 2012, 05:15:38 PM
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Because China without devaluation is not sustainable. Nobody would want to buy what they produce.

That's true, for now.  The quality is not there.  But once it gets there, watch out.

Here's an example.  This is a submersible water pump I just bought.  It's tiny, the size of a power plug.  It cost $10, shipped.  It uses 4 watts (rated at 3, but they lie).  The one it's replacing, American-made, cost $50, is 5 times as large, and uses 40 watts.  For my application, the Chinese pump is half as effective, but at 1/10 the power usage and 1/6 the cost.  Where else can I get anything like this?  The Japanese would never produce this.  They're too busy building pumps the size of automobiles.




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March 27, 2012, 03:00:35 PM
 #16

Because China without devaluation is not sustainable. Nobody would want to buy what they produce.

That's true, for now.  The quality is not there.  But once it gets there, watch out.

Here's an example.  This is a submersible water pump I just bought.  It's tiny, the size of a power plug.  It cost $10, shipped.  It uses 4 watts (rated at 3, but they lie).  The one it's replacing, American-made, cost $50, is 5 times as large, and uses 40 watts.  For my application, the Chinese pump is half as effective, but at 1/10 the power usage and 1/6 the cost.  Where else can I get anything like this?  The Japanese would never produce this.  They're too busy building pumps the size of automobiles.


Slightly off topic, but where did you get that, and is it rated for continuous operation?

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