China kicking the dollar over anyway

Look, if we run trade deficits with everyone, then they will logically all be holding large amounts of dollars. They can either step up their purchases of US goods and services or buy US property.

Besides, the value of a currency in an open system is determined by the amount of currency in circulation relative to other currencies and not by trade deficits or surpluses. Note I said "open system". The Chinese are even more reckless printers of currency than the US, but they do not allow their currency to float. This exogenous money is malinvested in excess manufacturing capacity, in bubbly stock markets and in unneeded real estate projects such this (via Mish). This a truly amazing video -- you really have to see it. The world's largest mall is sitting empty outside Guangzhou but remains open. The malinvestment boom in China dwarfs our recent housing madness, in my opinion.

The US economy and the dollar may have its problems, but I don't see who is doing any better.

I wouldn't call it "natural forces", Mr. Dreher. I'd call it what it is: the result of Human action. It was the choices of Human beings, both individual and en masse that put this economy in the situation it is in.

Trying to excuse it by depersonalizing it is, at best, a cheap cop-out.

Your servant,

Lord Karth

Correction: That said, I agree with his analysis and conclusion.

There is nothing more agonizing than helplessly watching CAPTCHA post a mistake that you are powerless to correct. I should slow down.

Justin Fox hits it pretty well also. This is an inevitable change, it just isnt happening real soon.

http://curiouscapitalist.blogs.time.com/2009/10/06/what-if-oil-werent-priced-in-dollars/#more-7027

Steve

Question to Pyrrho. What happens when the United States begins taking down its global military protection umbrella? Already being discussed in Afghanistan. Considering the constant military tension with an unstable Pakistan, the Indian rupee might not look like such a great hedge currency. Same with the Japanese yen on the western Pacific Rim near Communist China and North Korea. Even the Euro, for again, other reasons. That does seem to be the natural conclusion to a deteriorating currency. Reassessment of international commitments for those of a domestic nature. Assuming that to be true (and it is a question), doesn't that once again make the United States dollar the safe haven for international investment?

Clasqm. One way to look at it. Depending on how you interpret "protection racket". But seriously, do we in the United States have the responsibility to protect global commerce at the expense of our own standard of living. If those are the choices, I have very little doubt what the American electorate will choose.

The move away from the dollar is inevitable, but will occur gradually. I think this is positive in the long run. Having the entire world's economy based on a single national current allows undue influence of that country's government on the whole world economy. A decentralized basket of currencies will make it harder for any one single government to have power over the whole world economy. As competition is good in business, it is good for governments as well (see http://athousandnations.com/ for a better explanation). At the very least, all of this talk of ditching the dollar will put pressure on the government to abandon or at least reduce the emphasis on Keynesian fiscal stimulus, which does not work anyway.

There is no evidence that a US government which is less war loving would threaten our security. Let alone that it would greatly improve our economy.

Pyrrho, I am so glad to see you back on the board. I've been wonder....

And I agree, all this inflationary talk ignores the rest of the world. I seems to assume that everyone else has their economic act together and only the US is flailing and it's all Obama's fault....which is ridiculous. It perfectly suits the Limbaughs of the air waves who are quick to forget who got made this mess in the first place.

I am glad to see all these intelligent voices back on this blog.
Thank you from a member of the ignorant masses...

Wow, as if on cue, Mish has posted this:

The Chinese central banks' printing and respective Chinese bank lending make us look like amateurs. Chinese central bank assets and the money supply are up 25-26% annualized YTD...

Meanwhile, back in the US, total bank credit is contracting while M2 is up 5% annualized YTD.

I hope we can put to rest the idea that the Chinese are managing their currency better than we are ours.

Pyrrho, what does this signal for Communist China? Hyperinflation? Admittedly, Red China has the present economic capacity to withstand a 25% money supply increase annualized YTD. But if it continues??