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Treasury declines to brand China a currency manipulator

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Reposted from CNN Money

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Treasury declines to brand China a currency manipulator

James O’Toole | November 27, 2012 | CNN Money

NEW YORK (CNNMoney) — The Treasury Department said Tuesday that China’s currency remains undervalued, but stopped short of branding the country a currency manipulator.

In its semi-annual report on international exchange rates, the Treasury Department said Chinese authorities “have substantially reduced the level of official intervention in exchange markets” since last year, and have “taken a series of steps to liberalize controls on capital movements.”

Critics blame Beijing for holding down the value of its currency, the renminbi, in order to boost China’s competitiveness in international trade at the expense of other countries.

Republican presidential candidate Mitt Romney vowed during the campaign to brand China a currency manipulator, a potential step towards trade sanctions. The Obama administration, however, has avoided this designation.

The Treasury Department said in its report Tuesday that the renminbi has appreciated by 12.6% against the dollar when adjusted for inflation since June 2010. Nevertheless, it added that the renminbi “remains significantly undervalued, and further appreciation… against the dollar and other major currencies is warranted.”

Treasury said that for China to secure sustainable growth going forward, it needs to increase domestic consumption. Additional renminbi appreciation is a “critical part of this process,” the report said, as a stronger currency increases the purchasing power of Chinese households.

The oft-delayed report was originally scheduled to be published last month.

6 Responses to “Treasury declines to brand China a currency manipulator”

  1. Will Wilkin says:

    “Treasury said that for China to secure sustainable growth going forward, it needs to increase domestic consumption. Additional renminbi appreciation is a “critical part of this process,” the report said, as a stronger currency increases the purchasing power of Chinese households.”

    Take our advice, China, we in the US government know and want what is best for everybody in the whole world, and we have served our own people so well with extended unemployment benefits and 40+ million on food stamps so we could donate our manufacturing jobs to poor countries, you should be thanking us for sacrificing the long-term prosperity of American society for you! Now take our advice on how to secure sustainable growth….

  2. Mo says:

    The problem of trade with China is not that they peg their exchange rate to the dollar but that they grant unlimited lines of credit created out of thin air to their exporters that allow them to sell products below cost of competitors and that they have high tariffs on imports that compete with products made by their State owned enterprises. The reason China can subsidize their exporters is because they have high savings.

    The US on the other hand has had artificially low real interest rates for over the last 10 years to induce consumption of products made overseas by the multinationals and to fund wars. If the US had stable savings then less foreign made products would be bought and commodity input prices would be more stable thus allowing the US structure of production to be more domestically oriented towards manufacturing and infrastructure investments.

  3. Dan DiFabio says:

    Judging by the Treasury Department’s lack of action in relation to China,you would think that Hu Jintao is the President of the United States not Barack Obama. Tim “Government Sachs” Geitner is always going to save the day for the Communist Chinese and multi-national corporations;because he does not comprehend the seriousness of our trade deficit,and because his pockets have been lined by Wall Street.

  4. Maggie says:

    China has “high savings”? How much can you save on 50 cents an hour or whatever? Maybe higher wages might increase their domestic consumption of their own production, and the same goes for the U.S. side of the equation. They are using our 300 billion/year trade deficit to subsidize whatever they are subsidizing: exports, infrastructure, military buildup, coal burning pollution, etc. Is China buying our debt for the wonderfully stinking interest rate or out of the goodness of their hearts? Maybe there is another agenda like buying dollar assets has something to do with the manipulation process to help prop up their toxic counterfeit export market. And our Fed and Treasury is only too happy to participate in the mutual Ponzi scheme. The “too big to fail” gang wins and everybody else loses.

    • Mo says:

      Maggie it’s essentially a forced savings. Workers in China generally do save a regular portion of their income because there is no safety net. The forced savings comes about because the gov’t funds their export subsidies and infrastructure spending by inflation which results in a reduction of their workers purchasing power and whoever has money saved in the bank. If their wasn’t stable savings anywhere in their economy then their funding export and other subsidies would be extremely inflationary which would thus not make the country a stable place to invest in.

      The 300 billion a year trade deficit is related to globalization which is not free trade but the creation of US dollars out of thin air that can be used to buy real goods and services around the globe. Washington seems only interested in policing world trade not competing and reducing barriers equally. In order to compete, savings would have to be higher. But with artifically low interest rates intended to induce consumption of products made overseas by the multinationals and to fund wars, savings has been low. When consumption is up and savings low prices rise.

      If you look at the period from 2001-2010 when millions of manufacturing jobs were lost; it was a period of artifically low real interest rates, there was increased federal spending for wars, commodity prices like oil rose over 300%, overall US savings declined, personal savings went negative and the Yuan appreciated by 20%. Even with the Yuan appreciating 20% the trade deficit with China still got worse.

      • Tom T. says:

        Mo, I think you have this mostly right. For the Chinese, it is a forced savings. Some of it is due to the valuation of the Chinese currency and some is, as you say, the Chinese using their captured dollars via a non floating currency to fund exports and create billionaires out of their plutocrats that are all in the “party”. Uncertainty in China makes what consumers they have more wary of the risks of spending and not saving, even for the low pay workers. The billionaires just have nothing else to do but use their assets to control more of the country’s economy. There is only so much you need to live. Almost anyone can live a dream life by spending only a million a year and even more so in China. The rest is used to capture more of the economy through investments.

        A floating currency would undo much of this but as you say, China uses its captured dollars to “buy” jobs in the world economy.

        Currency manipulation is real but it is only one of the factors, as you have stated.

        Personal savings declining in the U.S. and trade deficits go hand in hand. The U.S. government can pick up the spending that consumers who earn less spend through deficit spending but it is in many ways like a Ponzi Scheme that is unsustainable. The U.S. is debt spending and the Fed is toying with monetizing of the debt (the U.S.’s way of manipulating the currency).

        The bad thing about all of this is the perverse incentives that are created. It gives more power to the government, less to the majority of the people of the U.S. and more power to the plutocrats who know how to continue their pillaging of the average person or the U.S. economy for their self interests. This along with the industrial military complex is siphoning off the purchasing power of the average person in the U.S. I call out the military industrial complex because it really has the same effects of the policies the plutocrats have been able to employ. With the military industrial complex there is a sense that the national interests are involved while with the plutocrats, it is just their self interests taking precedence over the nation’s interests.

        As to your point over commodities, the rush to them came primarily after the bursting of the last economic bubble. Corn prices have been more correlated to their energy value because of our national ethaonal policy, not just supply demand for the commodity of corn (other commodities have increased because of the substitution of much of their production for corn and supply shocks due to weather variability). Gold is pretty much speculative as a unit of value outside of currencies.

        The bottom line is that our policy makers have created the current employment and wage crisis with their policies, one of the major one being our trade policy. Others include anti-trust policy (pretty much non existent) and a corporatist (known by others as fascist) or plutocratic centric policies (with the same effect as it has on Chinese billionaires).

        Tom T.

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