No refund for you even if you don't understand what I am saying!

We live in magical times.  When we want something, all we need to do is go to a store and hand them colorful paper and walk away with that product.  Or, we slide a plastic and that product is all ours.  Better yet, we look at a magical screen while sitting comfortably on our beds, choose what we want, type in something, and a few hours to few days later, that arrives on our front steps from god-knows-where, .  It is one crazy world, if you were to stop and think about it.

What a contrast to the world that I have experienced in my own life, back when I was a child, which seems like it was only yesterday.  I can still picture in my mind visiting with the grandmother.  Early in the morning the "thayir" (yogurt) woman comes knocking.  I offer to help out.  Grandmother doesn't give me money to pay for it, but gives me rice to hand over to the thayir-woman.

Of course, we now refer to that as a barter system.  But, I can't help thinking that the thayir-woman didn't see any reason to receive in exchange a piece of paper--currency.  She preferred something that was tangible, something that was going to be immediately useful.

We have come a long way since those thayir-woman days.

Currency is all over the news now.  Over in Europe, the Greece-Euro dra(ch)ma continues.  Keep going east, and there is all that news and commentary over China's devaluation of its currency.

Paul Krugman had linked to this analysis, which I thought might make my life better.  I read the following:

There is, however, a more fundamental reason for the devaluation. China has been violating the impossible trinity. This notion says a country can only do on a sustained basis two of three potentially desired objectives: maintain a fixed exchange rate, exercise discretionary monetary policy, and allow free capital flows. If a country tries all three objectives then economic imbalances will build and eventually give way to some kind of painful adjustment.

It made me think it might be time for me to get that lobotomy that I have been putting off!

I was reminded of a play that we read back in high school.  It was called "The Refund."  The setup in this farce is a chance encounter that two old high schoolmates have decades after graduation.  The protagonist, Wasserkopf, says:

Here I was walking along the street, fired from my last job, and wondering how I could get hold of some cash, because I was quite broke. I met Leaderer. I said, ‘How goes it, Leaderer?’ ‘Fine!’ he says. ‘I’ve got to hurry to the broker’s to collect the money I made speculating in foreign exchange.’ ‘What’s foreign exchange?’ I said. He says ‘I haven’t got the time to tell you now, but, according to the paper, Hungarian money is down seventy points, and I’ve made the difference. Don’t you understand?’ Well, I didn’t understand. I said, ‘How do you make money if money goes down?’ and he says, ‘Wasserkopf, if you don’t know that, you don’t know a damn thing. Go to the school and get your tuition fees back.’ Then he hurried away and left me standing there, and I said to myself, ‘Why shouldn’t I do that?’ He’s right, now that I’ve thought it over. 

Of course, the principal and teachers make sure he does not get a refund, by explaining that his bizarre answers are all correct.  Reading all that news and commentary, I too feel like I want a refund of all my school fees.  I can't seem to understand any damn thing anymore.  It is not only with the currency, for that matter.  The fact that nobody can explain why The Donald is setting the terms of political debate means that we all deserve a free prefrontal lobotomy! ;)

I suppose everyday life will only get more and complicated as we move into the future.  The days of the thayir-woman and the easy to understand barter, are over.  Maybe we rush around because we don't want to stop and think about all these.  If we paused, we might sign up for a lobotomy!  Oh well, I have some grocery shopping to do and maybe I will buy yogurt too. ;)

Mr Obama goes to visit his creditors

Ouch!  Those headline writers in the UK and elsewhere can be brutal .... The title of this post is the editorial in Financial Times.
This editorial is one of the many that point out that we--the world--is in for trouble if the US dollar continues to be the world's currency, if the US continues with its what-me-worry approach, and if China continues to peg its currency to the dollar.

generalised concern about currencies; an as yet incomplete reversal of the strengthening of the dollar during the crisis; and a determination by the Chinese authorities to avoid appreciation against the dollar since the serious crisis began.

What is more intriguing to me is something Dan Drezner wrote about some time ago, where he noted:

It's the rest of the world -- articularly Europe and the Pacific Rim -- that are getting royally screwed by China's policy.  These countries are seeing their currencies appreciating against both the dollar and the renminbi, which means their products are less competitive in the U.S. market compared to domestic production and Chinese exports.

The more time goes by, the more I am convinced that my rather nutty conclusion--it seemed like that then--might not be as nutty after all:

Sometimes I wonder whether China's interest in the US dollar, and keeping its yuan tied to the dollar, is to essentially bankrupt the rest of the world and the US so that it can ultimately prevail as the global power.

China, America, and tensions

We forget that before 9/11, which was fateful in many ways all across the world, the US-China relations were absolutely tense.  Remember the military incident on China's Hainan Island?  PBS' Frontline had a fantastic piece on the importance of this a couple of years ago.  That was in April 2001--only a couple of months into Bush's presidency.  It seemed like the decade would be one of economic, political, and military confrontation with China.

Everything changed only a few months later, on September 11th.  In the nearly seven years since the Hainan Island incident, China has become one money-generating machine from which America borrowed like crazy.  Taiwan, which was the reason why that Hainan incident happened, became a far less important issue compared to Al-Qaeda, Iraq, Afghanistan, Pakistan, Iran, North Korea.

Now, all these geopolitical issues have not gone away.  But, we seem to be starting the new presidential administration with a warning shot to China.  Only, this time it is not at all about Taiwan, but about China's economic policies.  

The Washington Post reports:

As Timothy F. Geithner moved closer yesterday to confirmation as Treasury secretary, he signaled a more confrontational approach toward China, bluntly stating that the new administration thinks Beijing is "manipulating" its currency and it will act "aggressively" using "all the diplomatic avenues" to change China's currency practices.

James Fallows, who has written extensively on China, is not at all happy with this memo to China.  He writes:

we've got a situation where a journalist (moi-meme) is listening to a renowned expert and wondering, Can he possibly believe that things are as simple and bald as what he's just said?

The expert in question is our old friend Timothy Geithner, who when he was not being grilled about his tax problems today was saying (in his written answer to questions) that China is"manipulating" its currency. Oh my. Where do we start with this.

- That the Chinese government manages the value of the RMB against the US dollar and other currencies is not an accusation but an observation of universally-accepted plain fact. Until about three years ago, the RMB's value was flat-out pegged against that of the dollar, at a rate of just over 8:1.  Was that "manipulation"? Yes, in the same sense that the yen was for years "manipulated" at a steady rate against the dollar, or perhaps in the sense that the US "manipulates" its national borders by controlling them. 

Fallows goes on to list many more wonderful points, before concluding:

I lack the energy to go any further down this list, and this is enough to make the point. These are just a tiny few of the factors that go into any US government consideration of how the RMB/dollar relationship affects the economies of both countries. And to boil it down to the bald assertion that "China is manipulating its currency" ignores, vulgarizes, and misconstrues a lot more than it clarifies. 

Hey, it seems to be a strange new year (year of the ox) greeting from the US!