Bailout Watch 350: Europe's Subsidy Schizophrenia

@SkiD888: Bertel: Where does Ronnie mention currency rates in his post? He doesn't, and there's the problem. He makes sweeping accusations of currency manipulation "to the advantage of Chinese and Japanese companies," where a simple look at currency charts would tell just the opposite. As others have pointed out, the Yen and Yuan are high, not low. A low Yuan or Yen would be to the advantage of Chinese and Japanese companies, a high currency (as we have it now) is to their detriment. Capisce?

@CarnotCycle: It’s a testament to the economic disaster of the credit markets that their currencies are appreciating despite their best efforts at eating almost a trillion bucks of more Treasury paper in the past six-months. Actually, it’s a testament also to how cheap the dollar is without these kinds of actions by foreign central banks to keep the buck propped up. Understanding how foreign currencies work is hard. Predicting them is an exercise in futility. In the U.S., there is very little understanding of the workings and nuances of the foreign currency market. Hence, it is very easy to sell the American public on "currency manipulation" if a foreign currency doesn't go the way special interest groups would like to have them to go. You hear very little about "currency manipulation" out of Europe, where people grew up with foreign currencies and the vagaries of exchange rates. The ironic thing is that the people who make the most noise about currency manipulation actually demand currency manipulation. The Yen is a freely traded currency. The only way to "manipulate" the rate is to buy or sell the currency by the central bank. Also called "central bank intervention." The Chinese Yuan is pegged against a basket of currencies. It goes up and down with those currencies. What the Chinese Central Bank can do is change the weight of currencies in the basket. Some may call that currency manipulation. Some call it setting foreign exchange policy. The dollar lost value until July 2008, and the Yuan gained accordingly. When the dollar rose, the yuan should have lost value. It did not. There are many, amongst them Morgan Stanley, who say that the Yuan has been quietly pegged again against the weak dollar of July 08. It had been done so under pressure from the US government. In December, Paulson urged the Chinese to stick with it, job losses be damned: http://www.ft.com/cms/s/0/e8b30672-c2d5-11dd-a5ae-000077b07658.html The US government demanded from China to "manipulate their currency." China obliged, worried of a trade war. Only people who have no concept of how currencies work can accuse Japan or China of manipulating their currencies to the advantage of their companies. The Japanese central bank did nothing (so far) and the Chinese "manipulated" their currency to the distinct disadvantage of their companies. Whatever "manipulation" there was in China (changing the weight of the basket to mostly dollars) was done at the behest of the U.S. government.

One of the myriad unintended consequences of America’s bailout bonanza is the prospect of an international trade war. Though the WTO moves slowly, the European Union often takes a firm line on American subsidy regimes. And a report in Automotive News Europe [sub] indicates that the EU is prepared to take a firm line on automotive subsidies, as it has in the past with steel and agricultural protective measures. “Europe cannot just look on if someone offers subsidies and market forces are dispensed with,” declares German Chancellor Angela Merkel. ======================= Marsh Find the latest news about Depression, Bipolar Disorder and Schizophrenia. Discuss Mood Disorders topics with members of the Health Community. Manic Depression News and Discussion Forum