Weaker Dollar, Stronger Yuan May Hurt The United States And Help China In The Long Run!

I’m no expert in economic matters, but I just want to use my own personal logic to make sense of a few things that are currently happening.  People are seeing that the Dollar is weakening as we speak, and the Yuan is growing stronger as we speak.  Some people say weaker Dollar is a good thing because export will become more profitable.  Furthermore, when export becomes profitable, it also drives up the manufacturing sector at home.  That’s the theory for some people, but I feel that it’s way more complicated than this.

Since the United States isn’t a world manufacture hub — China is holding this title — the United States’ exports won’t matter as much unless the United States becomes the world manufacture hub.  Sure, with weaker Dollar, the United States’ exports will become more competitive than before.  The question is, will a little gain in competitiveness in exports spur the manufacturing sector at home?  Meanwhile, weaker Dollar will make the United States’ imports a lot more expensive.

I think the United States currently imports a lot more than exports.  The United States’ import is at $2.25 trillion and the export is at $1.45 trillion for the year of 2016, according to Wikipedia.  If the United States’ exports continue to slack even with the weak Dollar and the imports continue to grow, the United States could face an even stronger trade deficit.  For an example, manufacturer companies in the United States may have to import more expensive materials from the outside to manufacture products at home for selling across the world and at home.  This may not make the products at home cheaper for homegrown consumers.  Furthermore, this will increase the trade deficit in manufacturing sector if not enough products within the United States get to export to balance out the import costs.

Weak Dollar will increase less buying power for the Americans who go abroad for vacation, business, and so forth.  Weak Dollar can make purchases of products from foreign companies through online websites or offline imports more expensive for the American consumers.  For an example, I could be buying a music plugin from an online website which belongs to a French company, and with a weak Dollar, I could be paying more for this software.

I guess good things and bad things do exist even when the Dollar is weak or strong.  Nonetheless, the most interesting question is can the United States fare better when the Dollar is weaker or stronger.  In my opinion, weaker Dollar can help spur export a bit, but if the United States’ exports don’t carry the whole United States’ overall, long-term economy, then the weaker Dollar will be a very bad thing!

What about China?  If the United States enters a trade war against China, China can increase import tariff costs for the products from the United States.  This could hurt the United States’ export market because weaker Dollar would be neutralized by this move from China.  Furthermore, China can also buy up weak Dollar on the cheap to make Yuan stronger if this would serve China’s agenda.  Of course, stronger Yuan for China could make China’s exports look expensive.  Still, from what I’ve heard, China is trying to spur demands at home to create a bigger home consumer market so China won’t be relying on too much from the export market.  If this is the case, then cheap Dollar would be beneficial for China in a big way!

Stronger Yuan would allow Chinese who are going abroad to get more bang for the buck.  Meanwhile, Chinese imports would become cheaper, and so China won’t have to spend so much money to import stuff.  As China’s export market isn’t doing so bad and the imports get cheaper, stronger Yuan allows China to continue to reform her consumption market.  Foreign companies would love to enter China’s bigger homegrown consumption market because China has 1.4 billion headcounts and growing.  As China becomes an ever more important factor for foreign companies due to the size of Chinese population and market, China can begin to dictate tastes, styles, fashions, and so forth worldwide.  Chinese culture will become ever more influential if Chinese market becomes the most important market in the world.

With a weaker Dollar and stronger Yuan, entering a trade war against China might be very bad for the United States!  China can sanction the United States’ companies, entities, and so much more to crash the United States economy.  Of course, a trade war would be bad for China too, because the United States’ imports from China do matter to China a lot.  Nonetheless, as China doesn’t rely on the export market so much, a trade war between the United States and China won’t deter Chinese economic reform plan.  After all, China wants to grow the homegrown consumption market!  While growing a homegrown consumption market to rely less on the export market, China relies on the cheaper import market to balance out the reduction of Chinese exports.  Weaker Dollar and stronger Yuan will allow China to transit from the export market to a service market, also to move to a higher value-added export market — all in all – making this transition in a smoother fashion.

In conclusion, I think China can make the best out of either weaker or stronger Dollar, and the United States — as long as the country stays less competitive — won’t be able to have the upper hand if a trade war occurs between China and the United States.  Meanwhile, China can use stronger Yuan to buy cheap debts from United States’ weak Dollar to prop up China Yuan’s strength.  This, in turn, will actually help China transits from a manufacturing to a service economy.  As the low value-added market goes away in China, China has to accelerate the reform of the manufacturing sector at home so Chinese future export market will be more about high value-added products.  Anyhow, if the United States isn’t going to be able to use the opportunity of a weaker Dollar to reform her economy somehow to make the United States’ economy more competitive against rivals such as China, in the long run other rivals will use the weaker Dollar as the opportunity to make their own economies a lot stronger.

Advertisements

United States’ Stock Market Plunged Triple Digits In Past Two Days, Fears Are In The Driver Seat

I don’t play stock anymore, because I’m suck at it.  United States’ stock market plunged a thousand points, more or less, since last Friday and this Monday, and the whole market looks incredibly shaky now.  Nonetheless, I remembered how we complained the market was so unregulated in 2008 or so in which contributed to subprime crisis that spilled into the whole market, but now we are complaining that the market is being controlled by China which may contribute to the plunging of stock markets around the world.  I’m wondering, which method is the correct method to let the market runs wild?

If you have followed the news, China’s stock market has been hammered very badly by selling, and so people suggest that the fear in China’s stock market has spread to the United States and elsewhere.  This certainly has some truth, I think.  After all, if people invest in China as the stock market there is plunging, it’s understandable that they may sell in the United States to recover some physical assets such as Dollar.  Nonetheless, this may not be true since nobody would know how China’s stock market gone wrong would really affect the United States.  It’s curious to me to see China’s stock market is affecting the United States’ stock market too.

There is another argument which proposes that China’s Yuan devaluation contributes to the stock market plunge in the United States, because United States’ corporations and companies would be less competitive in China, elsewhere, and at home, thus contributing to the selling of shares in the United States’ stock market.  Nonetheless, nobody would know how much fear would be driven by Yuan devaluation.  Thus, it is curious to me to see people are selling shares in the United States as China devalued Yuan down to 4%, more or less.

Of course, people may think Yuan devaluation would not allow the FED to raise interest rate, and so it would be super bad to see the FED may raise interest rate.  I think this may have some effects on how people manage their shares in the United States’ stock market.  Nonetheless, the general public isn’t too sure about when the FED would raise interest rate, but the FED had said that they want to raise interest rate.  Perhaps I’m missing on reading several news articles or so, because I didn’t see the FED had come out to calm the stock market down in term of relieving the fear of interest rate raising.

The stock markets around the world are evermore interconnected somehow, and I don’t really know how one country’s stock market could affect another, but I guess it’s all about the economic conditions that drive the fears, speculations, and so on.  We are living in an interesting decade as not only economic conditions are the fears but we also have around the world, small scale conflicts that may spill into much bigger conflicts kind of fear.  Furthermore, we have oil prices which has plunged below $40 per barrel.  The near term outlooks of the stock market and world economy are not really that optimistic.  I guess we will see more actions coming soon in coming days.

Can Higher Wages Grow An Economy?

Around the world, China is increasing her presence as we speak.  As China grows her global presence in geopolitics and world economy, competitive countries such as the United States have to worry about the future in which China will have more influence in all things global.  If China is going to be too dominant and overtaking the United States in the influence of global affairs, the United States may have to find ways to cooperate with China.  If the future isn’t about the cooperation of the two biggest countries in the world in term of economics and raw power, then the future is certainly going to be very grim.  How grim?  Perhaps in such a grim situation, the grimmest outcome might be of a zero sum game.

I can’t imagine the kind of hell that a zero sum game is going to be waged by the two most powerful countries in the world in a nuclear age. The implication of such a zero sum game in our time is definitely scary.  If the United States and China are going to have a hot war in the future, both United States and China will force other countries to take side.  This means we might have a new world war if the two most powerful countries in the world are going to have a hot war.  Any sane person in my opinion would not want to witness a hot war between any two most powerful countries in the world, and so I think it’s very important for us humans to push for more cooperations to weed out the warmongers among us.  In order for one society to cooperate with another, we need to understand each other.  This means, the people in the United States need to understand more about China, and the people in China need to understand more about the United States.  I believe more cooperations between the two giants of the world can only bring more peace and prosperity to the rest of the world.  Most importantly, the cooperations between the two giants can also raise the quality of life for the people who are living in both countries (i.e., China and the United States).

In the video right after the break, professor Yasheng Huang gives a lecture on how capitalism has been developing in China, contributing to the huge growth of the Chinese economy that we’re seeing today.  I think his lecture is profound. In the lecture, he honestly points out hidden problems that are existing and may exist within China.  This means being a big country such as United States or China doesn’t mean big challenges are not there.  In fact, I think the bigger the country the bigger the problems are going to come out of the woodwork.

In the video, professor Yasheng Huang insists that personal income dictates the real wealth of a country.  He mentions how desperate a banker can become if regular people cannot afford to spend or buy house.  By this he implicates that the regular folks are the healthy roots that hold the strong economy together.  If regular folks cannot afford to spend on necessary things and housing, then businesses and housing construction have to slow down.  This means the bank institutions become poorer as people won’t have money to spend and deposit and businesses won’t have money to pay back loans and whatnot.  The real economy will decline if the everyday people cannot afford to spend on important things such as housing.

Personally, I partly agree with professor Yasheng Huang on the point that everyday folks with higher wages can grow the economy.  Nonetheless, I think professor Yasheng Huang needs to also lecture on how inflation can play a pivotal role in dictating the real strength of the personal income.  Inflation is very important in my opinion, because personal income can either be grander or weaker depends on the inflation.  For an example, one dollar can purchase a cart of lollipops yesterday but can only buy one lollipop today has great effect on how people spend their personal income to grow an economy.  In fact, I think a growing economy is the result of many positive economics factors, and the optimization of the balance of personal income and inflation is one of those very important, positive economics factors.  This is why I think China is not only wanting to grow her economy in quality and quantity, but she also wants to control her inflation in a way that it makes sense for everyday people in China.

Since we’re living in a global market, inflation can be exported and imported.  This means inflation policy in influential countries such as the United States can have great implication for the inflation in China.  Currency war is one of the tools that a country can use to import and export inflation.  If the United States imports inflation by weakening her currency exchange rate to promote export competitiveness, she can induce high inflation in China for China has accumulated United State’s treasury bonds over a trillion of dollars.  Simply put, if United States weakens her currency can induce China to mimic the United States’ inflation policy to keep China’s export market and United States’ treasury bond value up.

Nonetheless, weakening one own country’s currency to induce higher inflation means to weakening the personal income of everyday people.  I think currency war is going to hurt the everyday people a lot more in the end.  I know China knows this, and this is why we’re seeing China is gradually moving away from accumulating more treasury bonds from the United States.  Nonetheless, by doing this China can push the United States into hyperinflation as the dollars cannot find a home abroad.  More dollars will rush back to the United States, pushing the inflation to the unstoppable rate.  If this to happen, the United States economy will crumble as the everyday folks will not be able to utilize the dollar for purchasing whatever at a hyperinflation exchange rate.  Of course, the United States can reduce the inflation rate by buying up the treasury bonds herself and introduce higher interest rate, but this will make her already huge national debt harder to manage.  As right now, according to usgovernmentdebt.us website, United States’ national debt is at $18,176,295,505,000.  It’s a very hard situation for the United States to be in.

But can we really blame China?  China is also wanting to balance her inflation at a sensible rate that can help induce her own economic strength!  I don’t think there is an easy solution to the ever struggle between countries’ inflation import and export.  I guess in the end, it’s the local economy strength that helps a country to weather the inflation storm.  To fight insensible inflation rate, I guess a country needs to have strong employment and high personal income wages.  In the end, I think professor Yasheng Huang is onto something here, because I agree with professor on the importance of higher wages for everyday people.  Professor Yasheng Huang also emphasizes on the importance of building human capitals, but I guess you have to watch the video for the details as I’m going to end my blog post here.

Contrarian View To Free Market

One would argue central planning could not foster a good economy in a long term basis, because the overall economy is too complex for central planning to be efficient and correct.  Nonetheless, such an argument is based on ideology and not on relative circumstances.  I would argue that even with pure or mix market (with some central planning) orientation of economy, mistakes can be piled as high as the mountain, consequently outweighing the benefits of the efficiency of the free market.

With this notion, I argue that central planning isn’t better or worse than pure or mix market orientated economy.  I think in pure or mix market orientated economy, policy can be rolled out in boldest way and yet the benefits might still have an upper hand against the odd of ill fortune.  With central planning, boldest policy might topple the central planning economy with lightning speed.

Without the invisible hand of the market, central planning mistakes might be just too large for policy makers to realize and reverse the mistakes in time.  Nonetheless, there is no such thing as pure market orientated economy, because government has and forever will play a governance role for the economy — government rolls out policies for economy in a free market oriented economy still.

The difference between free market orientated and central planning economies is that the market orientated economy allows price discovery to be more certain.  In a central planning economy, the tendency of policy makers to fix prices is too great, thus price discovery cannot be so certain.  Without proper price discovery function, the economy might not be able to function properly.

With central planning economy, one cannot be too bold in rolling out policies, instead one must be testing the water temperature at a careful pace for each economic policy rollout.  You can also say it’s like feeling the stones when crossing a violent stream.  Nonetheless, I think a pure central planning economy is very ugly, because all it takes is one big, boldest mistake to ruin the whole mighty economy.

In conclusion, I think whether central planning is better or worse off than market orientated economies, with proper speed of rolling out proper thoughtful policies, both central planning and market orientated economies can be done right.  After all, there is no such thing as pure free market.  If there is a pure free market, then there are no governance and rules — chaos will ensue!  Vice versa, pure central planning economy requires no big, boldest mistake at all — a very hard thing to do!

Stanford Seminar’s YouTube Video On Bitcoin

Bitcoin is a new phenomenon for currency in general, and so people will definitely have all sorts of beliefs about it.  Obviously, some people have already thought that Bitcoin is a newest hoax yet that is out to get peoples’ money.  Some other people think Bitcoin is like a hybrid of ponzi and pyramid schemes where the ones who played with Bitcoin first would be the only ones that got all the profits and benefits, the ones who come in now are going to go broke as they will lose their money.  Some other people though think Bitcoin has the potential of becoming the global currency where there are pockets of regulations in corresponding governments, but the Bitcoin’s true values will lie with the people (hence how some people proclaim that Bitcoin is paupers’ money or poor peoples’ money).  Regardless of peoples’ different views on Bitcoin, in the end we have to wonder will Bitcoin be around for another 100 years?

My honest thought on Bitcoin is that I’m not sure Bitcoin could be around for another 100 years since someone might be able to break its’ encryption algorithm which is there to protect Bitcoin’s inherent values.  Nonetheless, I do think that paupers’ money in the electronic/digital form will be around for another 100 years and beyond unless the people of the world in whatever timeframe, beyond now, decide that they rather do business and communicate through media that aren’t Internet/digital things.  Imagine how the world will change radically when paupers’ money suddenly become the reality, because money will be changed hand much easier and globally.  Just like how the Internet had transformed commerce, information, business, retailing and whatever else that the Internet has had and will be transforming next; paupers’ money will probably transform many things on such a manner and scale.

Anyhow, I thought I would share with you guys a Stanford seminar’s YouTube video on Bitcoin.  In this video, a BTC China Bitcoin exchange’s CEO, Bobby C. Lee, shares his thoughts and beliefs on Bitcoin and the future of Bitcoin.  Anyhow, check it out right after the break!

Can The United States Reverse Her Dire Economic Conditions By Building Up Tomorrow Infrastructures?

In the video right after the break, Mr. H. “Woody” Brock speaks a lot about how United States can get back on track to a more productive future.  I think he makes a lot of sense in the video.  In the video he argues that nowadays United States cannot upset the bond market, because United States relies on the bond market to generate money.  With a benign bond market, the cost of borrowing money will not be high (low interest rate) and the borrowing won’t be hard to do so.  Nonetheless, when the bond market begins to doubt that the United States can ever pay back the debts, that is when the cost of borrowing money will be really high and devastated to the future of the country.  Mr. H. “Woody” Brock argues that since the United States has to borrow more money to keep things in order, she has no choice but to be smarter about how she would go about and use the borrowed money.  If using the borrowed money unproductively, the economy will continue to get worse and the borrow cost will go higher until everything gets unsustainable.  He argues that if the country uses the money that she borrows from the foreign entities or entities within wisely, one example would be spending on fixing and building infrastructures that the country needs most, job creation might not be such a tough challenge.  When jobs get created, he infers that there might be hope for the country in dealing with her massive deficits.

Afterthought:  The things that Mr. H. “Woody” Brock suggest in the video might not be the things that definitely get United States out of the world of hurt, but the things he talks of are of common sense.  I think Mr. H. “Woody” Brock might be right about what United States needs to do to reverse some of her economic bad lucks.  Then again, what do I know?