The Economist: How China runs the world economy

[Nederland]

http://www.economist.com/finance/displayStory.cfm?Story_id=4223552

(requires a subscription)

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Last week's 2.1% revaluation of the yuan is trivial and unlikely to dent America's trade deficit. More important is the breaking of the yuan's formal link to the dollar and the shift to a so-called “managed float” against a basket of currencies. In theory, this allows considerable scope for a further rise in the yuan against the dollar, though it is unclear by how much the Chinese authorities will allow the yuan to climb.

Even if last week's adjustment was timid, it could mark an important turning point. It is certainly a step in the right direction for China itself, as greater currency flexibility will give it more room to use monetary policy to steer the economy. More interesting are the implications for the world economy. This might be the beginning of the end of what has been dubbed a revived Bretton Woods system of fixed exchange rates between China (and other Asian economies) and America.

Under this arrangement, China has provided cheap finance to America's consumers and its government by buying Treasury bonds. If the switch to a currency basket causes China to reduce its new purchases of dollar assets, then American bond yields could rise. America's China bashers, who demand a further revaluation of 25% or more, should therefore be careful. Such a large-scale revaluation would surely push bond yields higher and badly hurt America's economy. Indeed, if the yuan's adjustment has any real impact on America's trade deficit, it will not be through the revaluation itself, but because higher bond yields squeeze domestic demand.

America's trade deficit is due mainly to excessive spending and inadequate saving, not to unfair Chinese competition. If China has contributed to America's deficit it is not through its undervalued exchange rate, but by holding down bond yields and so fuelling excessive household borrowing and spending. From this point of view, global monetary policy is now made in Beijing, not Washington.

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[Selatius]

1. The 21st century appears to be the century for China

[oscar111]

2. how do neocons call the 21st "the american century"?

i have long been puzzled.. in the light of the huge chinese economy, how do they forsee us dominating the world?

Not to mention the rising Indian economy. How do we compete and dominate such a world?

neocon export of jobs seems to doom us even faster.

[Old and In the Way]

3. How? Because they are delusional.

Their project for a new American Century will be about 9 decades shorter than they dreamt, primarilly because of their mismanagement.

[FreedomAngel82]

4. Remember

the neocons are backwards. In reality it's China. They just want their base to think they are the shit so they can continue to cater to the businesses and make their pockets richer. In reality they don't care at all. China owns our asses and will for years to come. They'll probably own the whole world but maybe not Canada in several years. Lots of technology is made there. I don't know how many items in this house that says "made in China" on it. It'd take me so long to count. My mother has ONE outfit that says "Made in the USA." She usually cuts off the tags on her clothes but she didn't this one. Kind of sad really.

[Selatius]

5. In dreams.

I remember reading somewhere Hitler in his last days was commanding units to positions in order to defend the city of Berlin and the 1000-year Reich, but those around him noted the units had been destroyed in battle long ago. He had withdrawn from the reality of the situation.

But a man can dream, can't he? In a way, these neocons have withdrawn from the reality of the situation the US faces. We're drowning in a mountain of debt to foreign creditors, and the world is threatening to switch to the Euro if things keep on its current course. Our name has been destroyed in the world, and Iraq threatens to destroy a good chunk of the US military as an effective fighting force.

But it doesn't matter. These guys are now fabulously wealthy. They have their piece of the cake now. "Damn the rest!" they appear to be saying to us.

[Nederland]

7. We'll see

Right now, China has merely done the easy things that create growth--the loosening of certain economic controls. The real test will be when it comes time for them to rid themselves of the system of cronyism and patronage that enables the communist party to maintain political control of the country.

[CHIMO]

6. A Wall Streeters Piece

Yuan float a move towards new currency zone
By Jude Wanniski

To those of us who have followed the mysterious world of floating currencies and exchange rates since President Nixon cut the dollar loose from its gold anchor in 1971, the Bush administration’s pressure on China to break the yuan’s 11-year link to the dollar is one of the most interesting political issues of the year.

After several months of increasingly shrill complaints from members of Congress about the flood of cheap imports from China and the US trade deficit, China has now taken a major step to complete control over the yuan (renminbi or RMB).

Where it had no control of its national currency during the years it totally accepted the Federal Reserve’s management of the dollar through the link, at 8.28 to the dollar, it has now broken free.

China’s first step was to appreciate the yuan to 8.11 to the dollar; but that from now on will move in one direction or another depending upon its relationship to a basket of currencies of its major trading partners.

http://english.aljazeera.net/NR/exeres/DD4E54C1-FF0E-4DA7-B5C3-4363A933EC73.htm

Perhaps the last of the end of Bretton Woods. So now Nations have no control over their entity. So now what...?