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## Hypothetical: China's Economy Collapses

Mundane & Pointless Stuff I Must Share: The Off Topic Forum

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Username17
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Post by Username17 » Mon Nov 29, 2010 11:46 am

Quantitative Easing is not a plan pointed at strengthening the dollar. It´s a very weird system by which the Federal Reserve buys longer term, riskier debt, which in turn frees up safer debt for the private market and alleviates the glut of money seeking safer investments. Ideally this leads to more money being available to invest in actual buisiness ventures and shit. It all sounds like voodoo to me, but there it is. The Federal Reserve changes their holding strategy and somehow there is more investment money to hire people with. It is in no way a plan to bolster the value of the dollar.
China´s currency manipulation is another issue, and one that will not go away easily or cheaply. Basically it´s a Mercantilist strategy that works on three pillars:

- If you have a Euro or a Dollar in China, the government will give you more than it is worth in Yuan. This encourages people to sell goods outside the country and horde foreign currency.
- If you need a Euro or Dollar in China, the government will charge you a premium to buy them with Yuan. This discourages people in the country from buying goods from foreigners.
- The country has strong capital controls, so you can´t get Yuan other ways, nor can you buy Chinese land or factories without a shakedown from the government, nor can you take money out of the country.

What this adds up to is the fact that China has very poor domestic demand and a huge trade imbalance. They are heaping up stacks of foreign currency like they were the Ming Dynasty and dollars were made of gold.
So yeah, if there´s some real pushback and Chinese goods become uncompetitive via tariffs or blockade or competitive currency manipulation, then the whole Chinese system will have to change radically. It remains to be seen if it is actually agile enough to do that.
And yes, the weird Chinese money system is a big part of the hugely skewed results you get looking in different places. If you ask how many dollars you can buy with the Yuan-denominated GDP of China, you get a very different answer than if you ask what the Purchase Parity of China´s GDP is.
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Doom
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Post by Doom » Mon Nov 29, 2010 4:27 pm

This is true; I find when buying things in China that those things come in really neat boxes.
More importantly, the things I buy in China cost less than what it cost to buy the really neat box in the US.

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> Frank Trollman wrote:A government is also immortal ...On the plus side, once the United Kingdom is no longer united, the United States of America will be the oldest country in the world. USA!

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