Question for Economists or those who understand it.
- Thread starter SosaUK
- Start date
It makes your exports more affordable to foreign countries. It also makes imports more expensive so the people in your country are less likely to buy foreign stuff.
So it's done to put you in a better position on the world market, or it's done to piss off another country for diplomatic reasons
So it's done to put you in a better position on the world market, or it's done to piss off another country for diplomatic reasons
The lesser the dough is, the cheaper the ho is.
- Ben Bernanke
- Ben Bernanke
Okay, so I think China just did this? Are they trying to piss us off? Serious question.
Oh you know that's right.
No China is doing it because they are in deep **** financially
Don't disagree with anything said here. Biggest downside is that if your currency is weaker you probably have to pay higher interest rates so financing your debt is more expensive.
Cujo - what's your ECO background? I have a MS in econ and have taught part-time since I was in grad school in the mid-90s.
Cujo - what's your ECO background? I have a MS in econ and have taught part-time since I was in grad school in the mid-90s.
Debt servicing is a negative under devalued currency. If you borrow $100 bucks from me except I use sprockets as my currency and today $1=1 sprocket, but tomorrow $2=1 sprocket, you owe me.twice as much interest and debt. China devalueing their currency does a few things. It makes their goods relatively cheaper on the world market which is why many things are made there (good for them). It makes foreign goods more expensive which increases the amount of Chinese goods Chinese people buy. This can be good and bad probably net neutral in the short run, but stifles innovation in the long run. China is a net loaner instead of debtor so it hurts them here as well since countries have to pay less to pay them back in their own currency.
On a side note I think China is entering their great depression. I think they will need to really change a lot of their fiscal and monetary policy to continue to grow.
On a side note I think China is entering their great depression. I think they will need to really change a lot of their fiscal and monetary policy to continue to grow.
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And in your scenario your $1,000 bond at 10 % no longer pays 100 sprockets per year, not it only pays 50, you'll have to increase your interest rates to keep your debt attractive (both to foreign investors and to keep domestic investors from going abroad).
I'm going to try this and if wrong correct me ... I got a "C" in Econ 101...
British money vs American Money = for every $1 American you have it's worth (say) 1.5 British pounds....
So,1000 British pounds is going to be 1500 American dollars after the conversion....
If you're a Brit that 1000 pounds will buy you more of the same thing here, than back home in the UK (in theory)... So where do you buy?
The answer is China......... (they made their currency cheap to sell more ****)
Amirirght?
British money vs American Money = for every $1 American you have it's worth (say) 1.5 British pounds....
So,1000 British pounds is going to be 1500 American dollars after the conversion....
If you're a Brit that 1000 pounds will buy you more of the same thing here, than back home in the UK (in theory)... So where do you buy?
The answer is China......... (they made their currency cheap to sell more ****)
Amirirght?
You're right, but in an open economy nothing like this can last. You have to keep leveraging different things harder and harder to keep an economy where you want it. Eventually all that leverage creates too much pressure somewhere and the system breaks causing massive economic unrest. The US economy broke in the Great Depression, during the 70's due to inflation and huge interest rates, and in 2007 due to credit default. I believe our next crisis will be government default. Every single bit of financial theory and thus all asset and equity pricing is based on the concept of a risk free interest rate represented by the US Treasury Bond. If they are shown to be risky assets due to the possibility of default then the system that everything is valuated upon is wrong.