Question: Can anyone please recommend a good book or journal article or anything that goes into significant depth and explains currency exchange and international monetary systems?
I am looking for something that explains things like why the Chinese buy US Treasuries and the consequences of currency fluctuations, etc. Also something that explains why the Yen is increasing in value relative to the USD when Japan's Central Bank has an easy money policy and the governments fiscal issues are a nightmare. Case of least bad?
I've read The Boom and the Bust by Brenner, which discusses the Plaza Accord and Reverse Plaza Accord, but I need to read more on understanding situations where Central Bank X buys County Y's Bonds, then Z happens to the currencies. I don't even get why the Japanese would even agree to depreciate its currency against the USD as they did in 1985, and why the US depreciated its currency against the Yen in 1995.
Doesn't such a currency exchange system promote more speculation around the world than would have been the case under the gold system?
Also, for example, Peter Schiff constantly says that he doesn't understand why China keeps buying US Treasuries or doesn't sell them. But isn't the reason China buys US Treasuries to create demand for the USD thereby proping it up to maintain the peg and promote its own export base?
Please, help! Thanks!
Sorry - but I don't know of any precise books to recommend. I am just commenting on your final paragraph about Peter Schiff.
Schiff was just speaking figuratively when he says he doesn't understand why China keeps buying Treasuries. He knows the reasons are what you stated. But the thing Peter is referring to is - China doesn't need to buy them. They would be better off longterm not pegging their currency to the dollar anymore. China doesn't need to export. They could consume domestically instead what they produce.
I think the reasons China doesn't do this are twofold. First, there would be a painful transition shortterm from an exporting nation to a consumer nation. And that transition could conceivably cause unrest (something China is always fearful of) as a lot of people would lose jobs in the export sector. Secondly, the exporters are by and large in cahoots with the gov't - so the gov't doesn't want to hurt their friends.
That being said, the transitiion will happen eventually in China as Bernanke will give them no choice - since he will continue to print and print and print. And the longer they wait - the more China stands to lose in the shortterm.
(That's why Schff cannot understand why China doesn't take the short term pain for the long term gain of a stronger currency.)
No book or article to recommend t this time, but regarding why China keeps buying US Treasuries or doesn't sell them my hypothesis follows:
China’s Innovative Beggar-thy-neighbor Strategy!
China’s beggar-thy-neighbor strategy is not a competitive devaluation of its currency, which would only cheapen its exports and make exports into China more expensive, but an over-valuation of the currencies of one or more of its trading partners. This negatively affects all the trade of the pegged trading partner(s), not just trade with China. U.S. Dollar over-valuation was 8 times as damaging to the U.S. recovery as what the media refers to as “China keeping it currency undervalued”.
The United States’ trade gap is the proverbial “leak-in the-dike” with its de-simulative effect on our recovery. In November 2003, Warren Buffett in his Fortune, Squanderville versus Thriftvillearticle recommended that America adopt a balanced trade model. The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable. Media coverage that China has kept it currency undervalued is a gross understatement, it has actually been keeping the U.S. dollar over-valued; which adversely affects all U.S. trade with ALL U.S. trading partners, not just trade with China. Until action is taken on Buffett’s or a similar balanced trade model, America will continue to squander time, treasure and talent in pursuit of an illusionary recovery.
A link to my submission for the record for the September 15, 2010 Hearing on China’s Exchange Rate Policy, follows:
An Inflation-Neutral Balanced Trade System (BTS), inspired by Warren Buffett’s 2003 Import Certificate Plan is introduced at the top of page 4 of the Pdf.
Egg: You nailed it.
Dotsconnector: Thou hast missed the boat. Read Egg's post and be enlightened.
The key error is forgetting that when China keeps her money low compared to ze dollar, that means the Walmart shelves for 300 million Americans are full of inexpensive Chinese goodies.
US exporters are not harmed by a highly rated dollar. German money is very highly rated, and they are exporting like mad. And it's because they make good stuff at a good price, unlike here, where govt regulations and taxes and unions have made that impossible.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
Germany is not without government regulations, taxes and unions, but the United States, unlike most industrialized countries, has no consumption/ value added tax (V.A.T.). Also, unlike Japanese industrialists, few American business leaders have been willing to embrace the empowerment that resulted in Japan’s post-WWII economic miracle pioneered by W. Edwards Deming, an American statistician.
China is willing to sustain short term pain for the long term gain (the hollowing-out of industry after industry in other countries) to obtain global monopolies in multiple industries and then do what all monopolists do gouge the consumer.
The Bloomberg April 2007 article China's Power Erodes Free-Trade Support in Developing Nations, mentions local industries, even in developing countries are being forced out of business:
The Wall Street Journal November 2008 article China Defends Price Fixing by Vitamin Makers is testimony that China believes it is immune from price-fixinglaws:
Because China is a communist country it is able to dictate to its business firms. When dictating increase prices, China contends that its price fixing actions are exempt from prosecution in foreign courts under the doctrine of sovereign immunity, just like OPEC. If the doctrine of sovereign immunity was upheld, once a communist country’s business firms obtained monopolistic market share, much higher prices could be changed on exports creating a “perfect storm” for U.S. consumers. Where the doctrine of sovereign immunity is not available, higher prices would normally be obtained through rising exchange rates, which in China’s case would make all their exports more expensive, make U. S. exports to China less expensive and make China’s holding of U.S. financial assets worth less. An ability to play the sovereign immunity card would provide China the best of all worlds and America the worst of all worlds.
The closing two questions to a 2010 Consumers Union Activist Summit presentation were regarding quality/safety issues, multiple-industries monopoliesand a potential “perfect storm” for U.S. consumers”. This presentation can be found at:
Click the (CU Summit 2010: Eric Schlosser link) and start at 40:30.