Damage from debt default may be irrevocable: Geithner

[touzi]

My 2 cents worth.

Geithner is just playing with politics to get the Republicans to concede.

USA has lots more to gain if she prints more money.
Print more money ---> Dollar devalues ---> Boosts Export ---> Gain competitve edge against the Chinese.

The US has always been trying to get the Chinese to appreciate her Yuan so that the playing field will be "level". However the Chinese has been unwilling. If the Chinese will not do it, why not I do the reverse and devalue my own currency to make the field more level. The Chinese will eventually have to concede.

The best part about this plan is that there is virtually no consequence in doing so. I find it hard to believe that the Chinese will want their biggest customer to go bankrupt.

How does this thing work? RMB is pegged to the USD, so how will USD devalue against RMB? For currencies that are not pegged, it will make them less competitive against China.

[Thriftville]

How does this thing work? RMB is pegged to the USD, so how will USD devalue against RMB? For currencies that are not pegged, it will make them less competitive against China.

I think China need to raise the exchange rate at some point of time. The artificially low exchange rate is done by china central bank buying US treasury. At some point of time, if the china reduce buying treasury, the RMB will hike against USD.

[natnavi]

My 2 cents worth.

Geithner is just playing with politics to get the Republicans to concede.

USA has lots more to gain if she prints more money.
Print more money ---> Dollar devalues ---> Boosts Export ---> Gain competitve edge against the Chinese.

The US has always been trying to get the Chinese to appreciate her Yuan so that the playing field will be "level". However the Chinese has been unwilling. If the Chinese will not do it, why not I do the reverse and devalue my own currency to make the field more level. The Chinese will eventually have to concede.

The best part about this plan is that there is virtually no consequence in doing so. I find it hard to believe that the Chinese will want their biggest customer to go bankrupt.

How does this thing work? RMB is pegged to the USD, so how will USD devalue against RMB? For currencies that are not pegged, it will make them less competitive against China.

Hi Touzi,

I did not know that the RMB is still pegged to the USD. I thought they have removed the pegged. Please enlighten me. Thanks. I know that they have a history of pegging and then unpegging to the USD.

[touzi]

Hi Touzi,

I did not know that the RMB is still pegged to the USD. I thought they have removed the pegged. Please enlighten me. Thanks. I know that they have a history of pegging and then unpegging to the USD.

You are right, it has been unpegged. However it is only allowed to trade within a narrow band. What I don't understand is why is this a game that is totally controlled by China? It seems that the US cannot do anything to devalue its own currency. Is this the curse of being the international currency? Any expert?

[kazukirai]

What I don't understand is why is this a game that is totally controlled by China? It seems that the US cannot do anything to devalue its own currency. Is this the curse of being the international currency? Any expert?

Actually the USD has been depreciating...

Relative to the CNY (here)

Relative to the basket of international currencies making up the Dollar Index (here)

[corydorus]

i thought US has been printing in QE. USD can depreciate faster but this will be very very bad for businesses. The fear is what will happen next is International trade will starts to massively detach from USD. US Power will change overnight. I am not so sure about D-Day scenario to world economy but highly possible as we will lose an engine.

US cannot maintain all those pensions especially army personnels, medical subsidies, government employees pay as they are likely cost more than their own economy can generate. Their generation of americans will turn very poor overnight.


Cory

[natnavi]

i thought US has been printing in QE. USD can depreciate faster but this will be very very bad for businesses. The fear is what will happen next is International trade will starts to massively detach from USD. US Power will change overnight. I am not so sure about D-Day scenario to world economy but highly possible as we will lose an engine.

US cannot maintain all those pensions especially army personnels, medical subsidies, government employees pay as they are likely cost more than their own economy can generate. Their generation of americans will turn very poor overnight.


Cory

Other than printing money, there is actually two ways to get more money. 1) Reduce expense or 2) Increase income.

So far the Repulicans have been supporting idea 1, while the Democrats have been supporting idea 2.

Personally, I favor idea #2. This is because I think that the rich in the US are being taxed at a much lower rate than the poor. This does not make any sense at all. Why should the poor be tax at a higher rate, and still have to pay for higher medical bills (when the susideries are removed).

In this article, the writer seems to fail to mention the 2nd idea as a way to repay their debt obligations. I sense a tinge bit of biasnes in the article.

[hyom]

The US reliance on debt is like a drug addict's reliance on drugs. He claims that he has to keep on taking drugs because the withdrawal symptoms will kill him. This may be true in the 2008 financial crisis but this argument cannot be used every time. If not now, then when? Eventually, the drug addict will be killed by the drugs if he does not kick off the bad habit.

Can you imagine a drug addict telling you that the solution to my drugs problem is more drugs? He is simply making excuses for his lack of will to take the pain to wean off the harmful habit. Unfortunately, this drug addict is a mighty superpower and nobody is in a position to discipline him. Sigh ... chances are that he will continue to consume drugs.