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This sounds like another rehash of the savings glut theory...

But the interesting thing is when Martin Wolf says (in his Why China's exchange rate policy concerns us)

We can make four obvious replies to Mr Wen. First, whatever the Chinese may feel, the degree of protectionism directed at their exports has been astonishingly small, given the depth of the recession. Second, the policy of keeping the exchange rate down is equivalent to an export subsidy and tariff, at a uniform rate - in other words, to protectionism. Third, having accumulated $2,273bn in foreign currency reserves by September, China has kept its exchange rate down, to a degree unmatched in world economic history. Finally, China has, as a result, distorted its own economy and that of the rest of the world. Its real exchange rate is, for example, no higher than in early 1998 and has depreciated by 12 per cent over the past seven months, even though China has the world's fastest-growing economy and largest current account surplus.
he seems to be contradicting his own data. He includes the following chart:

which is a continuation of the one I posted a while ago:

The Yuan has appreciated to just under 7 to the dollar, and then stayed put for a year or two. When Wolf says it has "depreciated by 12 per cent" in real terms over the part 7 months, what is he referring to? His chart overlays the yuan exchange rate with JP Morgan's "trade-weighted index" and if the yuan had stayed pegged to the trade-weighted index it would have had to depreciate. Am I misunderstanding the meaning of the trade-weighted index?

Recent comment threads about the Savings Glut theory include:

I'll take the following quote from these threads:
The concern behind Pettis' article is that regardless of whether the savings glut theory is correct it may be harder for China to reconfigure its economy for internal consumption than it is for the US to stop consuming on credit.


En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Fri Dec 11th, 2009 at 05:44:24 AM EST
[ Parent ]
So if you look at the share of GDP graph, and compare it to the world population percentage then China still has an undersized economy? And is the UK and Western Europe intentionally kept seperate to keep US superiority since the 1940s and so prove europe to be doomed?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Dec 11th, 2009 at 11:07:51 AM EST
[ Parent ]
This sounds like another rehash of the savings glut theory...

Savings glut, savings smut. That is like trying to figure out "Who hit Johnnie". I could give a FF. Savings glut and Wall Street profiteering from job export are just the two sides of the same coin. But to me the ones for the USA to be concerned about are those in the USA who organized and are still profiting from the arrangements that have led to the current sorry state of affairs. Further, the power to do this, but not the will, lies in US hands.  

Personally, I believe that some, probably many of those who profited by shipping all of the manufacturing to China knew what the impact on US employment would be--trading $20/hr jobs for $8/hr jobs--and that that was just fine with them. And I expect that belief to be substantiated in time, perhaps even in my lifetime, if we manage to retain any vestage of "free speech."

The policy needs to be rolled back regardless of who it hurts. "Let justice be done or let the Heavens fall!" Justice aside, as it usually is, the system is unstable and HAS to be unwound or it will soon blow up. Unwind or blow-up are really our choices.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Dec 11th, 2009 at 12:08:25 PM EST
[ Parent ]
ARGeezer:
Savings glut, savings smut. That is like trying to figure out "Who hit Johnnie". I could give a FF.
I couldn't agree more.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Fri Dec 11th, 2009 at 12:16:09 PM EST
[ Parent ]

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