Krugman on Chinese currency – Is China a currency manipulator?

Having only covered competitive currency devaluations yesterday it is interesting to see this video today in which CNBC correspondent Bernard Lo raises this topic, the USA is introducing legislation that may label China a currency manipulator. Paul Krugman is partly on the fence, an artificially weak Yuan actually hurts the rest of Asia by giving an over concentration of investment in China on a cost basis because other nations cannot replicate their model of currency manipulation.

Perhaps the main point is that this is becoming a mainstream piece of news, it was only a peripheral concept last year, but without a structural rebalance the world will not recover and that means surplus nations spending some money, to be fair they see their situation as having done the right thing, and that is true, prudence pays, but when you take the accountancy approach you can’t expect exports to otheres if you yourself won’t spend any money.

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Competitive Currency Devaluations

I have been talking for some time about a ‘rip off’ that the US will attempt to make against China, that it could take a belligerent form (default) or a traditional and less likely to cause a war option (devaluation of the dollar). It seems to be playing out and going for option two.

Competitive currency devaluations are alive and well in the world, why? Well, in early 09′ I wrote about it on the Paddy Power Trader blog:

“One way of paying bond holders back (but not ‘rewarding’ them) is via a devalued currency with an inflationary environment thrown in, in fact the big robbery of this century is going to be (as it was in the past as per the 1870s first, and then via Presidential Executive Order 6102 in the 1930’s) a dollar based one, the only way the US can pay its debts is to essentially rip off the debt holders, domestically that won’t be so bad, but internationally it …

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Gold: Trading over $1,300

“Contradictions do not exist. Whenever you think that you are facing a contradiction, check your premises. You will find that one of them is wrong”, Francisco D’Anconia to Dagny Taggart in ‘Atlas Shrugged’.

I see it as one of two possibilities, either the dollar is in secular decline in value or gold is a bubble. Either opinion has valid arguments, what are your thoughts?

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