Big news was made today as China announced plans to loosen pegs on its currency versus the Dollar. This was conveniently announced ahead of the G20 summit of global leaders later this week. I've previously mentioned that I anticipated some economic announcements ahead of the summit in attempts to stabilize global economies.
As with most everything China does, this likely has motivations to benefit China on an economic and political basis. Sometimes it appears that they are playing a very long-term game of chess in order to conquer the world economy, while the USA and other western economies are playing short-term checkers.
Is a free-floating Chinese yuan a good thing for the world? As a free trader, I say yes long-term, definitely. However, this particular move today when examined closer isn't anything approaching that. For an in-depth look at the move today, take a look at this article.
How does this affect the American economy? Well if the Yuan gains value versus the Dollar, then it makes the price of so many things more expensive to Americans, which hurts our buying power and causes potential inflation. Take a look at how many things in stores such as Wal-Mart and Home Depot are made in China. Nowadays, everything from Food to Drywall comes from the Asian giant.
On the flip side, many are crowing that our American-made products will now be cheaper for the massive number of consumers in China to purchase -- which will benefit our exporting companies and economy. This may be true to some degree, but remember that China doesn't play fair when it comes to trade ... and China's policies always look out for China first.
On a side note, history may be a bit of a guide when it comes to this. Remember when Japan was the emerging Asian economic giant in the 1980s and accused of protectionism, unfair trade and devaluing its currency to dump goods in the USA? Well, China is rapidly on the path to being a "mega-Japan" in terms of influence and economic power. However, they don't have the demographic and natural resource weaknesses that Japan did -- but they do have their own massive problems with corruption and bureaucracy that must be fixed.
We welcome your thoughts, opinions, and facts on this topic, please reply in the comments below.
As with most everything China does, this likely has motivations to benefit China on an economic and political basis. Sometimes it appears that they are playing a very long-term game of chess in order to conquer the world economy, while the USA and other western economies are playing short-term checkers.
Is a free-floating Chinese yuan a good thing for the world? As a free trader, I say yes long-term, definitely. However, this particular move today when examined closer isn't anything approaching that. For an in-depth look at the move today, take a look at this article.
How does this affect the American economy? Well if the Yuan gains value versus the Dollar, then it makes the price of so many things more expensive to Americans, which hurts our buying power and causes potential inflation. Take a look at how many things in stores such as Wal-Mart and Home Depot are made in China. Nowadays, everything from Food to Drywall comes from the Asian giant.
On the flip side, many are crowing that our American-made products will now be cheaper for the massive number of consumers in China to purchase -- which will benefit our exporting companies and economy. This may be true to some degree, but remember that China doesn't play fair when it comes to trade ... and China's policies always look out for China first.
On a side note, history may be a bit of a guide when it comes to this. Remember when Japan was the emerging Asian economic giant in the 1980s and accused of protectionism, unfair trade and devaluing its currency to dump goods in the USA? Well, China is rapidly on the path to being a "mega-Japan" in terms of influence and economic power. However, they don't have the demographic and natural resource weaknesses that Japan did -- but they do have their own massive problems with corruption and bureaucracy that must be fixed.
We welcome your thoughts, opinions, and facts on this topic, please reply in the comments below.