Yuan falls to 11-year low (opens in new tab)

China's currency controls actually made the problem worse--a lot of non-Chinese companies immediately backed off on Chinese investments (i.e., factories, etc.) as soon as the controls were introduced.

c.f.: the Impossible Trinity

https://en.wikipedia.org/wiki/Impossible_trinity

The short answer is china doesn’t have a lot of options. It’s not clear what leverage they can find, I’m guessing they just don’t want to seem weak and give in. Trade is so unfair the US has practically nothing to lose.

China is actually keeping its currency from devaluating right now(trump is playing the media) If all controls are lifted the currency will plummet. Many friends in china have expressed their desire to get out a portion of their cash, and surely nobody is thinking about investing.

China is creating controlled inflation - they are basically printing new yuans. That might seem like a bad idea, but China is using newly created currency to buy US treasury bonds (actually buying US debt). China is basically creating a huge leverage on US and on the same time it gives USA cheap debt to buy it's own products, and weak Yuan also causes their exports to be even cheaper.

On May 2019 china had 1.11 trillion USD bonds. And at any point china may decide to sell it off - which will crash USD.

For many years the value of the Chinese exports to the USA have been much greater than it's USA imports.

This large trade surplus basically means China earns a lot of USD and it uses those US dollars to buy US T-Bonds.

So for T-Bonds the USD/Yaun exchange rate does not come into the picture.

But that low USD/Yaun exchange rate does help to keep Chinese exports cheap and that then helps to protect their trade surplus.

I didn't read their comment as "preventing Chinese citizens from leaving to work in other countries" but rather "preventing factories in China from closing and moving to other countries". The workers wouldn't be going with the factories, the workers would just be unemployed.

I think the person meant the work, not the workers.

The purpose of this isn't to fuck with foreign economies, or to kill jobs in America, or any of that other nonesense.

The purpose of this is to serve as a tax on Chinese exporting companies. They get paid in USD, but they have to pay their suppliers and workers in Yuan. They are being robbed by their own government, because they are exchanging USD for Yuan at a disadvantageous rate.

I don't understand why people who don't live in China give two cares about their currency manipulation.

I understand how exchange rates work. What I’m confused about is claim that this is an eleven year low.

The article claims an exchange rate of 7.0391 CNY to 1 USD is an eleven year low, yet the 52 week range is 6.6704, and the five year low is below 6.2976. Typically, these charts show closes rather than intraday ranges, which further ads confusion about the claim.

So perhaps the CCP is actually trying to keep American goods and services out of China while delivering Chinese goods and services to the US. Sort of a way of cementing their trade imbalance in defiance to Trump.

The crazy thing is that the US is pricing its treasuries between Greece and Italy.

In other words, the US could pay much less for debt if it wanted to.

https://tradingeconomics.com/bonds

No other developed country is paying anything near that amount. That is drawing a large inflow of capital into long-term treasuries, which in my view, is the true cause for the recent inversion.

>To be crystal clear, this relative safety on the world stage means the USD is in demand as a "flight to safety". Same can be said about Treasuries, which is why domestic economic analysis doesn't necessarily align with the recession indicator of an inverted yield curve. The world could be going into recession. It's also worth noting that Gold has been rallying in USD terms, which tells us it's even safer.

In other words, this is 1997 as opposed to 2007-2008.

I think the US continues to be buoyed by it's reserve currency status, if say oil started to be priced in euros the US might find itself with a currency like everyone else's and giant debts, the dollar would crash (which would be good for US exports)

> And, if you look at inflation-adjusted metrics, that growth is very minor.

Baloney. Take a look at a graph of US federal deficit as a percentage of GDP. In 2018 the deficit was 3.8% of GDP, in 2019 it's expected to be 5.1%. If those were the values during a recession, that would be understandable, but during what is supposed to be a "great, amazing" economy, those structurally high values is what scares people.

With near record low interest rates, after a decade long economic growth cycle, we are back to running $ trillion and growing deficits each year, at the peak of the cycle. In a few years, assuming current rates and no recession, interest on the debt will exceed military spending [0]. Imagine what happens when we do have a recession and much bigger deficits.

Mandatory spending items will at some point soon crowd out all other spending. This comes at a time when, over the last 4 or 5 years, foreign creditors have stopped financing our deficit by buying ever growing quantities of US treasuries. So, for the first time in decades, US domestic private sector will be tasked with financing their own spending.

It is about to matter very soon, as baby boomers retire en masse. The endless talk of government spending leading to inflation didn't manifest (except in asset prices) because foreigners recycled their surpluses into treasuries. That this has mostly stopped will change the dynamic. The Fed will need to monetize the debt (resume QE) because there is simply too much treasury issuance, and growing, to be funded by US domestic sector alone, either in taxes or buying bonds.

If you look up last couple years US debt issuance has been bought up mostly by private sector, while central banks are buying gold. Recipe for it being the bond bull market peak and that debt being paid back in nominal but lower real terms = inflation. The only way to retire the massive and growing federal debt. Call it MMT or whatever you want, but it's coming. The loser will be the $.

[0] https://nationalinterest.org/blog/buzz/2025-us-interest-paym...

When people refer to US government they mean Federal.

And the concern is that the Federal government has structurally degraded its budget such that it is running larger and larger deficits.

And unfortunately when you give away money as tax cuts it's often politically impossible to reverse it.

That's interesting, where can I see a chart of that?

Local and State in the US can't run deficits. They can put out bonds to fund projects but thats it. Its only the US federal government that can run deficits.