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With $21 Trillion, China's Savers Are Set to Change the World
Posted: Fri Jun 26, 2015 12:52 pm
by Xan
http://www.bloomberg.com/news/articles/ ... -the-world
What do the various views of money think about this? What effect does it have on the rest of the world for there to be a lot of savings pent up in one country in that own country's fiat currency?
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Fri Jun 26, 2015 6:49 pm
by Reub
Japan redux?
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Fri Jun 26, 2015 8:57 pm
by MediumTex
It seems like it would set the stage for a series of bubbles in various assets as the money moves around looking for higher returns.
Sooner or later, it seems like there must be a dramatic appreciation in the value of Chinese currency, which will reduce China's advantages as an exporter, but it will allow all of those Chinese savers to go to Disneyland very cheaply.
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Sun Jun 28, 2015 5:41 pm
by MachineGhost
Disinflationary domestically.
Inflationary internationally, especially here in the U.S. in equities and real estate.
I predict we will hear a lot of ignorant nonsense about the inflation we allegedly exported overseas coming back home to roost.
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Sun Jun 28, 2015 6:05 pm
by Pointedstick
MachineGhost wrote:
Disinflationary domestically.
Inflationary internationally, especially here in the U.S. in equities and real estate.
That part is already happening. Check out the new players (and prices) in the real estate markets of coastal Californian cities. It's also inflationary for college tuition as these people send their children and their money en masse to mysteriously cash-strapped American universities.
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Sun Jun 28, 2015 7:07 pm
by Libertarian666
Pointedstick wrote:
MachineGhost wrote:
Disinflationary domestically.
Inflationary internationally, especially here in the U.S. in equities and real estate.
According to one observer, "Vancouver [real estate] has reached peak insanity", due to Chinese money coming in and buying up everything in sight.
That part is already happening. Check out the new players (and prices) in the real estate markets of coastal Californian cities. It's also inflationary for college tuition as these people send their children and their money en masse to mysteriously cash-strapped American universities.
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Mon Jun 29, 2015 7:49 pm
by Xan
In order to buy Vancouver real estate or American education, don't the Chinese first have to sell yuan in order to buy dollars? And then use those dollars to buy the property or services?
In that case, at the macro level, wouldn't that have no effect on inflation? Yes, there's more demand for things that dollars are chasing (inflationary), but there's also more demand for dollars (deflationary). Certainly there could be effects on particular things (like West Coast property and education), but overall, won't the inflationary effect be zero?
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Mon Jun 29, 2015 8:52 pm
by Libertarian666
Xan wrote:
In order to buy Vancouver real estate or American education, don't the Chinese first have to sell yuan in order to buy dollars? And then use those dollars to buy the property or services?
In that case, at the macro level, wouldn't that have no effect on inflation? Yes, there's more demand for things that dollars are chasing (inflationary), but there's also more demand for dollars (deflationary). Certainly there could be effects on particular things (like West Coast property and education), but overall, won't the inflationary effect be zero?
That would be true if there were a fixed amount of each currency. Obviously that is not true, and my understanding is that the Chinese government is doing everything possible to prevent their currency from appreciating against the US dollar, which means printing money like there is no tomorrow.
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Mon Jun 29, 2015 9:23 pm
by Xan
But Chinese money printing can only affect the number of dollars they get per yuan. To buy a million dollar property in Vancouver, they first must buy a million dollars, regardless of how many yuan it takes to do that.
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Tue Jun 30, 2015 8:12 am
by Libertarian666
Xan wrote:
But Chinese money printing can only affect the number of dollars they get per yuan. To buy a million dollar property in Vancouver, they first must buy a million dollars, regardless of how many yuan it takes to do that.
Right. But when people are bidding up the price of houses, that isn't inflation; it's a housing bubble. You don't absolutely need money printing to have a housing bubble, although it certainly helps.
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Tue Jun 30, 2015 8:33 am
by Xan
Libertarian666 wrote:
Xan wrote:
But Chinese money printing can only affect the number of dollars they get per yuan. To buy a million dollar property in Vancouver, they first must buy a million dollars, regardless of how many yuan it takes to do that.
Right. But when people are bidding up the price of houses, that isn't inflation; it's a housing bubble. You don't absolutely need money printing to have a housing bubble, although it certainly helps.
Oh certainly it could cause bubbles in particular areas. I guess I'm pointing out that all this Chinese money isn't as big a deal, at a macro level, as it might seem.
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Tue Jun 30, 2015 10:55 am
by MachineGhost
Xan wrote:
In that case, at the macro level, wouldn't that have no effect on inflation? Yes, there's more demand for things that dollars are chasing (inflationary), but there's also more demand for dollars (deflationary). Certainly there could be effects on particular things (like West Coast property and education), but overall, won't the inflationary effect be zero?
More demand for dollars is inflationary. All excess demand vs supply for anything is inflationary.
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Tue Jun 30, 2015 11:11 am
by Xan
More demand for dollars is inflationary in terms of yuan. In terms of dollars, it's deflationary. My dollar is worth more the more it's coveted.
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Tue Jun 30, 2015 11:25 am
by MachineGhost
Xan wrote:
More demand for dollars is inflationary in terms of yuan. In terms of dollars, it's deflationary. My dollar is worth more the more it's coveted.
A dollar only increases in value when other dollars are destroyed (deflation). Swapping currencies is neutral to value.
If there's more demand for dollars relative to supply, then the nominal price will inflate. You can see this in any currency chart. The price goes up.
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Tue Jun 30, 2015 11:31 am
by Xan
No... A dollar can increase in value when demand for it goes up. Just like anything else.
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Tue Jun 30, 2015 11:33 am
by MachineGhost
Xan wrote:
No... A dollar can increase in value when demand for it goes up. Just like anything else.
Price != value.
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Tue Jun 30, 2015 12:35 pm
by Xan
If the Chinese are buying up dollars, so there are fewer dollars circulating, why wouldn't that be deflationary?
And in this case, they're buying those dollars to buy other things with dollars, with the net result being zero.
Re: With $21 Trillion, China's Savers Are Set to Change the World
Posted: Tue Jun 30, 2015 12:51 pm
by MachineGhost
Xan wrote:
If the Chinese are buying up dollars, so there are fewer dollars circulating, why wouldn't that be deflationary?
And in this case, they're buying those dollars to buy other things with dollars, with the net result being zero.
If they are buying literal currency, there's no shortage as the Fed just directs the U.S. Treasury to print up more currency for disbursement back to its member banks that need it.
But the forex market doesn't work on actual currency. It works on notional values, leverage and privately created money which is only limited by a bank's willingness not to lend it.
So I can't see that there's ever a fixed quantity of dollars in a debt-based monetary system, so increased demand is not deflationary unless actual dollars were being literally destroyed by debt defaults and writedowns.
But if they're buying dollars that didn't exist before their need to first sell the yuan to acquire those dollars, then it expanded the money supply otherwise it would be neutral. If they borrow dollars to acquire real estate at 20% down then it is the former; if they convert via forex to buy real estate for 100% cash then its likely the latter. Either method is immaterial insofar as there being inflation in whatever they are purchasing. All demand is technically inflationary; its capacity constraints that constrict supply and will cause prices to rise to help reverse the shortage.
Where it gets tricky is that inflation/deflation of a dollar itself is very value relative to other foreign dollars. Price going either way can have no relation to its true value. Having commodities priced in dollars worldwide has been a very convenient form of a relatively fixed value measurement.
Also, inflation is not the same thing as devaluation, though hard money types narrowly define the former only to be the latter.
What happens on the yuan side of the equation very much depends on the demand for yuan. Short of the yuan being literally destroyed, someone ALWAYS has to hold the unwanted yuan at the end of the day.