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  • From: bob ford <bobford79 AT yahoo.com>
  • To: homestead AT lists.ibiblio.org
  • Subject: [Homestead] More really bad economic news
  • Date: Thu, 4 Dec 2008 15:41:55 -0800 (PST)

I'm surprised this is not getting more attention in the media today. All of
the Eurpoean countries have been , along with us, cutting rates , devaluing
currencies. Now, China is starting to do the same. They were not supposed
to do this. Watch for a currency contest to the bottom, if we can't make
them change their minds.. For a short while, 'goods' should be the sale of a
lifetime. If you have been saving to buy anything big, wait just a bit;
maybe even postpone Christmas gift buying, if you do that (I quit,
personally, a number of years back).................

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1930s beggar-thy-neighbour fears as China devalues

China has begun to devalue the yuan for the first time in over a decade,
raising fears that it will set off a 1930s-style race to the bottom and tip
the global economy into an even deeper slump.

By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 10:39AM GMT 04 Dec 2008


The central bank has shifted the central peg of its dollar band twice this
week in a calculated move that suggests Beijing aims to offset the
precipitous slide in Chinese manufacturing by trying to gain further export
share abroad.

The futures markets are pricing in a 6pc devaluation over the next year.
"This is clearly a big shift in policy and we are now on alert," said Simon
Derrick, currency chief at the Bank of New York Mellon.

The move follows a Politburo speech by President Hu Jintao warning that China
is "losing competitive edge in the world market".

China has allowed a crawling 20pc revaluation over the past three years. Any
reversal risks setting off conflict with the incoming team of President-Elect
Barack Obama in Washington. Mr Obama called China a "currency manipulator"
during the campaign, a term that carries penalties under US trade law.

Outgoing US Treasury Secretary Hank Paulson is viewed as a "friend of China".
He called for a stronger yuan this week before embarking on a visit to
Beijing, but the plea was couched in friendly terms. This soft-peddling may
soon change.

Hans Redeker, currency head at BNP Paribas, said China's policy switch could
set off a dangerous chain of events. "If they play this beggar-thy-neighbour
game, it will cause a deflationary shock for the whole world," he said.

It makes sense for countries with current account deficits such as the UK, US
or Turkey to let their currencies fall, but China has the world's biggest
trade surplus.

Michael Pettis, a professor at Beijing University, said it was "very
worrying" that a pro-devalulation bloc seemed to be gaining the upper hand in
the Communist Party. "I really do believe that we are on the brink of a very
ugly period for trade relations," he said.

China has relied on exports to North America and Europe as its growth engine,
making it acutely vulnerable to the contraction in global demand. Mr Pettis
said this recalls the role played by the US in the 1920s, a parallel fraught
with danger. "In the 1930s the US foolishly tried to dump capacity abroad,
but the furious reaction of trading partners caused the strategy to misfire.
China already seems to be in the process of engineering its own
Smoot-Hawley," he said, referring to the infamous US Tariff Act in 1930.

China showed restraint during the Asian crisis in 1998, holding the line
against domino devaluations across the region. It may yet hold the line this
time.

However, this crisis is more serious. The manufacturing sector has seen the
steepest decline since the records began, with devastation sweeping the
textile, furniture and toy sectors. Civil unrest has begun to rock the
Guangdong and Longnan regions.

Beijing has slashed rates and unveiled a fiscal stimulus of 14pc of GDP, but
most of the spending comes in the form of instructions to local governments
to spend more – but without giving them the money. Does China really intend
to step in to prop up global demand? The jury is out.




http://www.telegraph.co.uk/finance/economics/3546471/Chinese-economy-1930s-beggar-thy-neighbour-fears-as-China-devalues.html






  • [Homestead] More really bad economic news, bob ford, 12/04/2008

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