Sunday, January 8, 2012

Currency imbalances

I saw this in the comments section at Zero Hedge by JimBowie1958 and thought it was a very simple explanation of why the Chinese do not let their currancy float to a natural exchange rate.

Undervalued Yuan
The Yuan buys half what the USD buys inside China, so the Chicoms keeping the peg at around 7 Yuan to each USD is causing an imbalance that labor arbitrage can make alot of wealth on.
Say you take $1000 and convert it into 7000 Yuan. You then spend it on commodities so you can then make 700 widgets in China at a cost of 10 Yuan each. That 10 Yuan made $5 worth of widgets, and then you sell the widgets at cost and have $3500 to pocket. You take that $3500 and repeat the cycle making money hand over fist.

That is why Wallmart is so successful; they are playing the labor arbitrage game that the Chicoms make possible by undervaluing the Yuan by a 2:7 ratio.
The key is that the Chinese will sell you more stuff than your dollars are actually worth.  Japanese have done this for years.


usman salim said...

Inshallah ppl will realize. I know some Chinese brothers in the US. Muslims are going thru a bit. It is just a matter of being patient and showing understanding. A person is a person, no mater what religion, color, or race.

russell1200 said...

I think you meant to comment on the previous post (Chinese Muslim tensions), but your point is well taken.