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Euro Creator Mundell Blasts CNY Depegging, Says May Erode Stability In Global And Chinese Economies
This is just getting far too surreal: Robert Mundell, the "intellectual" creator of the currently most despised monetary experiment in the history of the world, i.e., the euro, told reporters in Hong Kong, that "China’s pledge to return to a more flexible exchange-rate policy may erode stability in the global and Chinese economies." According to Bloomberg "keeping the yuan pegged to the dollar has been “a great source of stability” for China and the world, the Columbia University professor told reporters in Hong Kong today before giving a speech." Presumably, we should believe Mundell- he knows all about "monetary stability" - just look at Europe to see what happens when you have a monetary union without a political one. It is precisely the inability to adjust relative monetary strength between Europe's countries, thereby providing only a fiscal mechanism to adjust busted economies, that has led the continent to the brink of insolvency and illiquidity. Yet somehow Mundell suggests that "exchange-rate swings were a cause of the global financial crisis." Which in turn leads us to just one question - how long before America's universities stop teaching economics and expose it for the sham science it is and always has been, and out its professors, as nothing more than hollow charlatans preaching a gospel of Keynesian lies.
More from Bloomberg:
Keeping the yuan pegged to the dollar has been “a great source of stability” for China and the world, the Columbia University professor told reporters in Hong Kong today before giving a speech. While U.S. President Barack Obama welcomed the move, “he is not an economist,” Mundell said.
Mundell, credited as the intellectual “father” of the euro, has previously called for the European currency to be fixed against the dollar, saying exchange-rate swings were a cause of the global financial crisis.
The central bank’s announcement followed pressure from trading partners including the U.S., where lawmakers threaten legislation that could penalize Chinese imports. An under-valued yuan, or renminbi, gives the nation an unfair advantage in trade, they argue.
The central bank’s announcement followed pressure from trading partners including the U.S., where lawmakers threaten legislation that could penalize Chinese imports. An under-valued yuan, or renminbi, gives the nation an unfair advantage in trade, they argue.
“It’s wrong for the U.S. to force China to destabilize the renminbi, I myself don’t think it’s a good idea,” Mundell said. He called the Chinese move “political.”
The yuan has traded at about 6.83 per dollar since July 2008, a policy that the central bank indicated is no longer necessary after the Chinese economy cemented its recovery.
In a question-and-answer document published yesterday, the People’s Bank of China said that a floating exchange rate will help the nation to restructure its economy, curb inflation and asset bubbles, and reduce trade imbalances.
Since Central Bankers all fall under the "economist" umbrella, as it is all too clear even to the remaining money printers out there that the days of extend and pretend are over, and everything is just empty rhetoric to assuage the masses, and assorted political puppets, as the terminal winddown accelerates. We look forward to, and gladly will be entertained, by many more such hours in which the economist and bankers of the world increasingly turn on each other as the last days of Keynesianism arrive.
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The US and Europe essentially believe that through this mechanism they will get China to pay for the rebuilding of the Western economy. Unfortunately, Chinese firms operate with razor thin margins. How can an economy with futurely bankrupt firms and futurely unemployed workers provide the markets needes for all the spare capacity from even larger economies?
Western politicians are deperately gripping at every straw before actually conceding the need for a generalized debt default.
Depends on how you look at it.
An undervalued Yuan makes Chinese exports cheaper than they should be vis a vis profit margins aren't what they could be.
Of course, if these products are more expensive, they might not sell as many.
Economics isn't the dismal science for nothing.
China might also consume resources more easily, cutting the West.
From a country which provided goods at the West to keep their society fluid, it might turn to a country who consumes more relatively to the share of the West.
I dont give much time before the US and some others come up and blame China as the problem.
The US and China are both the problem.
In pursuing its Mercantalist policies, China has been screwing its own entreprenuers by making them take less than they could be getting.
The U.S has been taking advantage of this policy to live beyond its means.
Maybe but up to now, only one side has been forced to admit his fault. Does not smell good for China.
Yes, the Chinese treasury habit may be going to rehab(setting the stage for the butt-fugliest one world currency: a basket of yuan, $, oil, gold, and highly-enriched yellowcake).
But the average Joe would still like to have their 'always low wages' at Wal-Mart placed on the shoulders of the people hustling Chinese crap from baking warehouses in Fontana, CA into Wal-Mart trucks for some nameless temp agency so they can't <gasp> unionize and demand...better wages and crap made here, in the US, by Americans, to load onto Wal-Mart trucks.
Brett, you're assuming that the yuan will appreciate. It is more likely to depreciate given all the internal issues China has.
Good point.
The effects on their domestic demand (and bubble, as in popping) will be most important to them as they attempt to walk on fresh foal legs for the first time without the assistance of their recently rohynpnoid sugar daddy.
Can you see any decoupling from China for the US that doesn't end in war?
What else can they do with an all but enslaved workforce of millions, if they're gig as oompa-loompas falls through at the People's Chocolate Factory?
"Which in turn leads us to just one question - how long before America's universities stop teaching economics and expose it for the sham science it is and always has been, and out its professors, as nothing more than hollow charlatans preaching a gospel of Keynesian lies."
Not until the current military-industrial-government-university complex fails.
I wonder if the problem with economics is precisely due to its "physics envy". Physics has the twin pillars of general relativity and quantum mechanics, which are both dressed-up in mathematics that only a tiny minority of the worlds brightest minds is capable of understanding. So economics decided it wanted to sport some of those fancy duds as well, and also have Nobel prizes, etc. But, unfortunately, economics still has dirt under its fingernails from the potato fields, bad teeth, hellacious halitosis, and a few too many "y'alls" to be taken seriously by their physics brethren (visualize Taraxias). Even some of us lesser folk can tell the difference. The worst part is when economics attempts to have an underlying theory, such as Keynsianism. That's really pushing the envelope of physics envy.
I say, just give it up, Economics. Content yourself with analysing data, but don't ever think you're going to rival your big brother Physics by constructing an underlying theory. That's for the big boys.
Some economists do understand the difference between a discipline having "Human Action" as its field of study, and one that studies inanimate objects/forces. And one, at least, brilliantly used his nobel speech to call attention to that difference.
http://nobelprize.org/nobel_prizes/economics/laureates/1974/hayek-lectur...
"The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men's fatal striving to control society - a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals."
Absolutely damn right. Thank you Stevm30!!!
+100... you beat me to it!
I would rather have the folks in Beijing running my economy than Timmy, Benny and Goldman Sucks
Start swimming west from the Santa Monica pier. Watch out for Israeli subs.
I think Rosie mentioned that financial innovation accounted for a pretty significant percent of US GDP over the years (mortgage issuance, home buying, securitization, trading, etc). So, given we are probably NOT going to get back to those days anytime soon.. what's going to fill that void to help US GDP grow in the coming years? Is Obama's 'double US exports' on track? Are they making anything in the US?
I fail to see how Chinese demand helps an unemployed person in Nebraska save their house or pay off their debts.
i have similar questions... i dont see how this is good for anyone but the chinese, whose purchasing power increases... and i dont see the chinese using this new purchasing power to double up on kfc... they will likely buy more gold and silver, like they government has been encouraging them to do. in the meantime, it puts more price pressure on goods sold here... it is not likely that the american consumer is going to see a marginal price increase on crap sold in walmart and decide to go buy something made in the US. this will just put even walmart crap out of the reach of the drowning american consumer... so why the rally in equities???
If they were about to buy only more gold and silver, it would be a limited impact...
As to be good for China, I dont think so. In little time, some people in the West will come up with the problem was not the Huan but China.
People in the western world wont take their responsibilities and will start to look for scapegoats.
Dude these U's are making a killing out of "sham science" [USD100,000+ for any degree]
[In free market, we trust]
One thing is very clear - the markets around the world are using this, and lack of any substantial bad news, to run everything higher. US is shaping up to be quite a big gainer tomorrow with no real data on tap.
damn this meltup will change the wave count
I was hoping for a zig zag collapse
maybe the market won't collpase now
what a joke
"It is precisely the inability to adjust relative monetary strength between Europe's countries, thereby providing only a fiscal mechanism to adjust busted economies, that has led the continent to the brink of insolvency and illiquidity."
Certainly that is a problem now that the problems of insolvency and illiquidity are here. However, it was the reckless banking sector that brought on the crisis, not the euro per se.
Maybe. But economic crisis is inevitable in any economy, and the euro, with its design flaw, is ill equipped to handle the crisis.
Oh... China's move is political, but of course the Fed and ECB are purely acting for the best greater good economic interests with no influence from the governments. They should stop teaching the economics they do today of rational markets and econometrics with fixed variables.
""...most despised monetary experiment in the history of the world, i.e., the euro..."
That´s true in only two countries: US, UK. Interestingly none of them use euro as their currency, which tells a lot about their hate.
"Economists" in major universities serve a function similar to that of the Catholic Church in universities during the Middle Ages.
Economics is not based on experiment or logic, but is Faith-based
[H]ow long before America's universities stop teaching economics and expose it for the sham science it is and always has been, and out its professors, as nothing more than hollow charlatans preaching a gospel of Keynesian lies.
TD, you are platinum, baby.
H]ow long before America's universities stop teaching economics and expose it for the sham science it is and always has been, and out its professors, as nothing more than hollow charlatans preaching a gospel of Keynesian lies.
maybe after another couple of lost decades
but even the n they will not get it
we didn't stimulate enough and Krugman will say it was the result of tighteni ng by the europeans
I doubt history will tell the truth such is the ignorance
I would make keynesianism a cult or even a terrorist organization
they have done more damge to the world than anyone else
All of this relates back to "making what people will buy...at the right price"....
The inputs to production are out of balance.
The US inputs:
Legal largesse
Labor
Taxes
Securities and exchange costs
All are way too high....
If the US wants the middle class to have a future...
The sharp reduction of these costs is exactly what has to happen....
Any other type of "change" will be more taxing and cosmetic.
Has anyone considered that perhaps China will allow the Yuan to appreciate so that it can hord more gold on the cheap?
They are super disillusioned with the dollar and now frustrated with the euro. Where else to put your surplus after saturated industrial commodity acquisition?
Yes, along with more oil, coal, iron, copper, cotton, food........
The Yuan will go up, not down and allowing it to do so will also help the Chinese at home handle their own inflation problems, which we have been exporting to them for a decade and now they will re-export to us as they start buying up everything they can with their higher valued Yuan.
Why should these China statements be viewed as a surprise ? Nothing in China’s recent history, suggests that a major appreciation in the nominal TWI is imminent. The timing of this move should seen as a belated political concession in advance of a G20 meeting that was promising to get difficult for the Chinese. The gesture will probably succeed near term in that Beijing will now be lauded as a responsible global citizen. Meanwhile, imminent risks of escalating protectionism will also likely recede. Agree though that over the medium term, unless China is really committed to ending its mercantilist stance, the currency issue will resurface.
Like the 'physics envy' comment of Escapeclaws. Physics is to Economics, as Fundamentals are to Technicals, ie: committed fundamental analysts will always look down their nose at chart readers. Bless 'em. None so dumb as a value player who doubles down because its cheap, regardless of the trend they are trying to buck...
Cage Match: Hugh Hendry disposes of yet another *paper* tiger.
Why has everyone assumed a yuan rise?
The REALITY is that china couldn't defend the peg as there weren't enough dollars coming in!
THEY ARE GOING TO BUY THE EURO. Do not expect 30 years of mercantilism and export-addiction to end here. Expect it to continue by establishing a de facto trading band with its most significant currency export zone, the EU.
The CNY/USD is going to become less significant in this mix. The peg combined with the EUR/USD cross was killing them. They are/were pegged to the wrong currency for *now* as opposed to 15 years ago.
Interesting theory, but why would a float protect them from appreciation against the euro? The euro region is the region under pressure right now.
EURO buying support i've mentioned over the past few weeks has resulted in a bullish basing pattern on the daily chart. The important weekly chart remains bearish though.
http://stockmarket618.wordpress.com/about
The only bullish pattern I can detect in all your posts is the increasing rate of your spamming of every ZeroHedge thread. Please take it elsewhere.