South China Morning Post article here
Some thoughts from the peanut gallery
Key words: “basically” stable. Last I looked – modifiers to the word stable were at best illusory.
Parker’s Translation: the yuan will appreciate, but will do so “modestly”
Parker’s guess (now about 60days old) that it’ll happen before July.
While it’ll appease the US government and idiots like … well, all of them, it’ll cause prices to go up at Walmart. So the vaunted “Main Street” that the US’ Democratic Party LOVES to talk about all the time will not like that.
Imagine the foolish furniture and sock factory workers in NC (who are still whining about the Commie Chinese) when EVERYTHING at Walmart goes up in value. Then what will they bitch about?
The double edge to the sword is that while the currency appreciation will appease the talking heads, it’ll weaken the Chinese economy. Practically every other day some leading paragon of journalizm writes that the Chinese economy is too export focused. Yes, we all know this. Many of us know that the ‘profit’ that the majority of factories make in China is solely due to the fact that the Chinese government provides rebates for exported goods; take away the rebate, and remove their profit margin. (It’s the bane of the corporate social responsibility focused companies).
So what will happen when the same factory – who now receives USD 8 for some ‘fashion wear’ receives a different amount of money after the appreciation?
If you’re not familiar with currency exchange on a daily basis … now they’re receiving 6.86 RMB per US dollar. So, 8 x 6.86 = 54.88 Chinese Yuan (RMB). So if there is a 5% change, then the factory will receive only 52.14 Chinese Yuan. a 5% drop. Imagine your company – needing to supply the same goods / services – but due to international pressure, 100% of your revenue suddenly drops by 5%. How happy would your boss be? How about your next bonus check? What if your factory was barely profitable now?
More importantly, how about the next few months of new orders – think the quality will be the same? Think the factory will push for a 5% increase in revenue for the same order?
Eventually some of the currency appreciation will be pushed back on the consumers (as why would they NOT push it back? Who says that the Chinese should net 5% less? They won’t agree to that).
Chinese Held Treasuries
The USA has begged for more money regularly – and now by appreciating the Yuan, the Chinese will receive LESS back for their trouble. Interesting long term political strategizing going on there.
Can some explain why they’d be interested in continuing to lend us more and more money (don’t forget that they started lending to us when it took more than 8.5 Yuan to buy a dollar… that’s a 20% LOSS in currency exchange alone) in the future?
(The only good thing is that there are no other markets on earth that can handle the volume that the Chinese have to invest)
Just my Chinese Yuan 0.13 (US $0.02) opinion
I look forward to hearing how this helps anyone.