On the international trade front, it goes something like this: Euro increase, EU imports from China increase, EU exports to China decrease
Euro increase, EU imports from USA increase slightly, EU exports to USA decrease slightly
USD decrease, USA imports from China decrease, USA exports to China increase
So China is moving-by very measured degrees-small amounts of purchasing power from the US to the EU, without changing any of the domestic policies involved in moving its own currency.
This works for the EU because it safeguards the political and economic infrastructure of the Euro-zone.
This works for the USA because it modestly revives its flailing exports, while safeguarding the USD.
And this is desirable to China because now they can equalize some demand between their two main customers, and more importantly ensure an environment of global socio-economic stability.
That doesn't mean the recession is over by any means, it just means that the Chinese have negated the possibility of another massive financial crises, and given the world's policy makers a framework to operate within as they decide how to repair their own regional economies.
Thoughts?
Before and after, the official reserve transactions are creating ¥RMB to buy FX reserves, but the mix of FX reserves bought has been shifted.
The volumes are still smaller than in the middle of the Noughties, since the trade surplus is smaller, so a notional equilibrium exchange rate is closer to the pegged rate, so less intervention is required to maintain the peg ... the discount is not as steep as it was in the middle of the noughties. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Furthermore, it strengthens the case for more stimulus as bond vigilantes will be countered by China. I hope they are listening in Washington, London and Berlin... Peak oil is not an energy crisis. It is a liquid fuel crisis.
EU exports to China decrease
One would think so, but I am not sure. I am under the impression that a lot of EU exports to China either is precision-machinery or luxury items, neither of which is very price sensitive. In fact luxury items can sell better if the price goes up, as it then becomes more, eh, luxurious. A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
