I understand the logic that yuan’s appreciation will make imports expensive for US and also possibly affect the forward rates. My question is, what is the likely magnitude of appreciation to the US and US consumer? If you think of it, most of the things that US buys from China are basic items. How much can yuan appreciate that a consumer will hesitate to buy a new juicer from Walmart because now it costs 14.99 instead of 12.99? And even if it does appreciate most companies are going to pass on the costs to customers, effectively making imports on basic consumer items more expensive. You cannot stop using basic necessities. Yuan obviously cannot appreciate close to the dollar value, so it doesn’t help the US manufacturers either. Also, if yuan appreciates doesn’t the market value of US debt decrease? So how is it in the best interest of US to let yuan appreciate?
Ignore my last question: Also, if yuan appreciates doesn’t the market value of US debt decrease?
I am not sure why the market value of US debt decreases if the yuan increases. I can invent a few lines of reasoning that might connect it (higher Yuan means people shift from US debt to Yuan-denominated debt to capture the extra yield; fewer chinese buyers of US debt (though the ones that remain could afford more)). Generally, the more links in your causal chain, the more likely that something unexpected will muck up the logic. Can you walk us through your reasoning a bit?
I am not sure why the market value of US debt decreases if the yuan increases. I can invent a few lines of reasoning that might connect it (higher Yuan means people shift from US debt to Yuan-denominated debt to capture the extra yield; fewer chinese buyers of US debt (though the ones that remain could afford more)). Generally, the more links in your causal chain, the more likely that something unexpected will muck up the logic. Can you walk us through your reasoning a bit?
achilles Wrote: ------------------------------------------------------- > My question is, what is the likely magnitude of > appreciation to the US and US consumer? If you > think of it, most of the things that US buys from > China are basic items. How much can yuan > appreciate that a consumer will hesitate to buy a > new juicer from Walmart because now it costs 14.99 > instead of 12.99? As China gets more expensive I think these types of retailers are shifting to cheaper countries such as Vietnam
@bchadwick… I wasn’t thinking straight with the last question. That’s why I said, ignore it. @philip… However, the question still remains, how is it in the best interest of US or US consumer? Either we owe to China or Vietnam. Potato…Patato.
If Yuan appreciates, imported goods become more expensive, inflation goes up, Fed follows suit and raises interest rate => MV of US debt goes down.