- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Going forward, it's hard to tell - they might want to do import substitution with some or all of those goods. But I have the impression that the picture is pretty clear so far as the past couple of decades are concerned.
What I am saying is that, in contrast to the years past, relative price might not be that important a consideration because there is a big difference between quartal and long term planning.
Surely corporate survival strategies will ultimately depend on these long term considerations?
I am not sure that this is so - but if it were, it would be very interesting. I was just in a meeting today that would suggest that it is certainly being thought about. You can't be me, I'm taken
The amortization of investment in vital social assets can often take a generation or more. This has been missing in recent strategic planning. For instance, the results of educational policies can take a generation before becoming apparent.
In the quartal view, the US system of elite education produces results. In the long term it produces yes-people and stagnation.
The ongoing crisis might be seen as a forest fire that will allow new species to flourish... You can't be me, I'm taken
If what you sell is so good that everybody will buy it even at twice the price, that's all well and fine for you... But the Chinese companies who are going to buy the stuff might still want the price to be reasonable.
And the Chinese central bank doesn't have to make a profit off its dollar holdings. Chinese industry, OTOH, has to make a profit off its trade with the rest of the world. So in that context, it might make sense for the BoC to take a hit on the returns on their $-assets if that enables China to grow its industrial base faster, by reducing ForEx risk for Chinese companies trading with the €-zone.
Yes, that's right, if the Chinese buy dollars, the dollar goes up, and other people will sell their dollars to invest or buy goods in other currencies, so the dollar will, ceteris paribus as the conomists say, stay roughly at the same level compared other currencies. Except compared to the renminbi, because the Chinese make sure there is a net flow outwards. So if people buy renminbi, the Chinese will simply sell more of them.
The point is that the Chinese are not trying to push up just the dollar, they are trying to keep the renminbi low compared to everything, and they just use the dollar as a target. I don't think there is any way how the Chinese could push up the dollar but not the Euro, given the ease with which capital moves between those.
Your point that this makes German imports more expensive is also correct. This is exactly the point of the whole exercise: to discourage the Chinese industry and public from buying foreign goods, unless there is absolutely no Chinese alternative possible. That's why Germany stands out: it's one of the few countries where the Chinese still buy goods even at elevated prices.
If they were to float their coin, they would buy a lot more in other countries, including even more from Germany. In that case they would be richer in the short run, but it would be harder for their internal industry to compete.
