Re: <nettime> Dollar Shift: Chinese Pockets Filled as Americans Emptied

[Stefan Heidenreich <stefan.heidenreich@rz.hu-berlin.de>]

dear Felix,
let me try to summarize some ongoing debates on the issue.

On Dec22nd Bloomberg claimed to have knowledge through a leak that 
China's reserves shrank the first time in 5 years.
http://www.bloomberg.com/apps/news?pid=20601089&sid=atlPtgBgI.9Q&refer=china
China's reports on its currency reserves seem to be very intransparent 
and come only every 3 months. Brad Setser, one of the bloggers who 
regularly comment on the chinese economy, doubted the reliability of 
these numbers.
http://blogs.cfr.org/setser/2008/12/23/so-what-is-going-on-with-chinas-reserves/
Bcs as the Chinese trade surplus is still growing, reserves need to grow 
in order to keep the Yuan pegged to the Dollar. The most interesting 
piece on that was done by Michael Pettis:
http://mpettis.com/2008/12/no-f-ing-way-these-numbers-are-awful/
Where he discusses also the prospects of policy reactions during the 
unfolding crisis. He adresses it as an overcapacity problem, requiring 
adjustment on the Chinese side. Whilst the Chines central bank tries to 
blame the Americans for overconsumption.

One should look at the unequal couple China / US not only in terms of 
debtor/producer and creditor/consumer but also from a different angle. 
Main interests in both countries were perfectly well served throughout 
the last years. The capitalists in the US made a bargain by profiting 
from wage arbitrage, selling stuff to their increasingly indebted 
consumers. China has run an incredible development programme, rushing a 
process of industrialisation and modernization within the 20 years. The 
credit to the US served for something like an inverse development aid 
programme, directed at China's own economy. The trade inequality, the 
overproduction, the dollar peg - all were necessary ingredients, welcome 
on both sides.

Now both find themselves in a dead end. Any overreaction could spoil the 
whole system - and risks to devaluate the dollar and thereby all the 
chinese dollar-notated reserves.
Pettis also hints at the fact, that within the chinese government there 
is neither a consensus nor the ability to react quickly. Changes process 
slowly there.
http://mpettis.com/2008/12/can-parochial-concerns-undermine-the-global-adjustment-it-has-before/

It is important to note that the inequalities correspond to differences 
of the both systems. Whilst in China business is still largely run under 
close state control, in the US the state has been run increasingly as 
business (not necessarily serving the interests of the country's 
citizens). One of the most interesting aspects of it all is to observe 
it as a conflict of two systems. Not that I would call one a democracy 
and the other one not. Both are econo-cracies, but with differently 
chosen actors.
So the question remains, at which point the crisis reaches an intensity 
enforcing the inequality to be adressed. In the best case shortly after 
Obama takes over we could enter a reverse process of growing state 
expenses in the US, a controlled depreciation of the dollar, and on the 
other side an unpegging of the yuan with a reorientation towards asian 
currencies. So maybe things need not to 'break' at all, but will adjust 
slowly.

S


Felix Stalder schrieb:
> [This is the last third of a NYT article about an issue I understand less
> and less. Why are the Chinese continuing to buy US debt particularly now
> that the yield is effectively zero? The short term logic is understandable
> and well explained below. To keep the system going.  But what about the
> long term? Contrary to what this article suggests, I doubt that this is
> going to last forever. But how is this going to break? Through massive
> inflation and much higher interest rates? This is all puzzling to me, even
> if I suspect this is a key piece of the puzzle. Felix]
> 
> http://www.nytimes.com/2008/12/26/world/asia/26addiction.html?pagewanted=3
> 


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