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Wednesday, August 12, 2015

China Devalues Yuan, Global Stocks Fall


As China drops its currency 3.5% in two days the US dollar goes up, making American exports more expensive and of course, Chinese exports cheaper.
Global Stocks Fall Further After China Devalues Yuan
It also means that all those deals China made with countries around the world, at least those in which China agreed to trade on Yuans, just got 3.5% cheaper for China.
Currencies close to Asian markets dropped in price, meanwhile the Euro rose 1.4% against the USD. Gold and Silver just went up as well.
What’s the biggest concern? That we could see a “currency war”, in which countries are forced to drop the value of their currency to keep exports more competitive. In the case of USA, the likely outcome will be that more USD will be pumped into the market, creating inflation which will drop the value of the US to more competitive levels against the Yuan. While this would work in terms of US exports, it will also mean that a) there will be more inflation within America, hitting poor people hardest b) anything not made in China imported to America will probably be more expensive c) inflation combined with higher import prices may affect standards of living for a sector of the population.
FerFAL
Fernando “FerFAL” Aguirre is the author of “The Modern Survival Manual: Surviving the Economic Collapse” and “Bugging Out and Relocating: When Staying is not an Option”.

2 comments:

Totalinvestor said...


"That we could see a “currency war”, in which countries are forced to drop the value of their currency to keep exports more competitive. In the case of USA, the likely outcome will be that more USD will be pumped into the market, creating inflation which will drop the value of the US to more competitive levels against the Yuan. "

Not quite.
Foreign countries devaluing their currencies will cause world assets to flow to the US dollar making it go up. A higher US Dollar will lead to a hard downturn in the US economy starting before year end. Other economies will follow downward as they will have a more difficult time selling in the US market. This will lead to more deflation worldwide. Gold and Silver will not help (they trade inversely to the $US) and they have not seen the final bottom.

Don Williams said...

What will happen is a policy choice -- in which China and the EU have a vote as well as the US government.

The value of the dollar and US inflation/deflation depends upon many factors, one of which is the investment appeal of the US RELATIVE to the investment appeal of other nations.

Whether one wins or loses in poker depends upon what the other players do -- and poker games vary from genteel low stakes games among friends in which no one gets hurt to cutthroat games in which massive cheating occurs and suckers suffer severe losses.

As far as trade wars are concerned, the USA has 11 aircraft carriers last time I checked and China has none.