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Monday, April 10, 2017

Donald Quixote de La Casa Blanca

Steve Bannon read so many chivalric romances to  "Alonso" Trump that the non-reader lost his sanity and decided to set out to revive chivalry, undo wrongs, and bring justice to the world, under the name Donald Quixote de La Casa Blanca.

Mexicans have beaten down the wall. Muslims are sneaking in as tourists and hiding in the hi-tech forest of PhDs. Women armed with accusations are everywhere. Cities are filled with drug addicts that look like James Brown. What's an authoritarian dreamer to do?

Oh yes, the Chinese, Donald Quixote first disarmed the Chinese President with a compliment about his singing ability. Next, he attacked currency manipulation.

"Trump finds his niche: fixing problems that no longer exist
By Matt O'Brien April 10 at 5:00 AM

President Trump has finally found an economic issue that's not too complicated for him to do something about. That's stopping China from manipulating its currency that it hasn't been manipulating for the past two years. 
Trump and Chinese premier Xi Jinping's met for the first time last week, following an election that featured more than the usual amount of China bashing. Indeed, ahead of the meeting, Trump himself promised that their tête-à-tête at Mar-a-Lago was going to be “very difficult” since we could “no longer have massive trade deficits and job losses” with them. 
The only snag, as Trump's own Treasury Department could tell him, is that that trade deficit isn't the result of economic chicanery, but rather economic forces. China, you see, isn't holding its currency down anymore to subsidize its exports. In fact, it's doing the opposite: furiously spending down its at-one-point $4 trillion war chest of reserves to try to keep its currency from falling too fast. 
But let's back up a minute. How does a country manipulate its currency, and why has China at least taken a break from it? Well, there's one big thing to keep in mind. It isn't enough to push your exchange rate down. You have to push your inflation rate down as well. That's because China's exporters wouldn't get much of a leg up on their foreign competition if their currency getting cheaper made their wages get more expensive. In other words, you can't just print money to make your money go down in value, but do so without letting inflation get out of control. And therein lies the rub. 
Here's how to do it. Say you're a Chinese company that sells a lot to the United States. As lucrative as that might be, you're getting paid in dollars when you have to pay people yourself with yuan. Now, what would normally happen is you'd just turn those dollars into yuan. And as you, along with your other fellow big buyers of yuan, made that change, your combined demand would drive up the yuan's value. But from the government's perspective, that stronger currency is a problem, as it would put economically important (and politically connected) exporters in a weaker position in international markets. 
So what actually happened is that Beijing stepped in. Beijing told businesses that it was the only one they could sell dollars to, and then printed the yuan to buy those dollars with. The idea being that all these freshly-minted yuan would be enough to counteract the upward pressure on the currency. 
And that brings us to the second part. Now that it has created so many yuan, how does the Chinese government keep them from getting out into the economy and creating inflation? The question answers itself: it doesn't let them get out into the economy. It simply tells the banks — because where else are you going to put your yuan? — that they need to hold more money in reserve. And voilà, it's as if all the money that's been printed hasn't been. It just harmlessly sits in a bank vault where it can't push up prices or wages. 
It's this combination of an artificially low currency and a legitimately low inflation rate that constituted manipulation. It let China make things cheaply and sell them even more cheaply so that they could gain as much market share as possible overseas. Which, of course, is just another way of saying that they unfairly undercut their competition, and, in the process, made it more attractive for multinationals to move their manufacturing plants from the Rust Belt to the Pearl River Delta." 
https://www.washingtonpost.com/news/wonk/wp/2017/04/10/trump-has-found-his-niche-fixing-problems-that-havent-existed-for-10-years/?utm_term=.133cda61744c&wpisrc=nl_wonk&wpmm=1


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