Tonight's interest: Chinese banking.
Driving back from the football game tonight, China pops up in my head. I watched this show on Wal-mart's impact on the American economy last night and much of it dealt with China's manufacturing abilities.
The key point was that China is able to keep their stuff so gosh-darn cheap by artificially keeping their currency's value low (I saw estimates tonight saying 40% undervalue). That sets of Vegas-style lights in my head. If it were truely that undervalued, you could shove your money in a bank and hope that it corrected within roughly 7.5 years. And that's just sitting in a bank. What if you bought a CD or bond that could actually earn money while sitting? You know to offset they're horrible inflation (yeah, big hole in my plan)...
Of course, if I'm thinking of this, there are people much smarter than me putting this into practice, right? You bet. And it has the Chinese Central Bank scared. They've cut interest rates twice this year (and these people tend not to mess with rates) in an effort to reduce the appeal of foreign investment. The influx of money was threatening to finance bad business ventures which were likely to default on loans. Interestingly, the cut in rates has created a surge of lending to apartment builders/renters and home buyers (through additional policy shifts). Could this be the time when the Chinese stop saving nearly half of their income (compared with the current American savings rate, which is NEGATIVE) and start spending a little?
It is also worth mentioning that now being a member of the WTO, China is subject to a little more pressure to unpeg its currency, as that is a violation of the rules.
I'm not sure why I think all of this stuff is interesting, but I bet it is because money is such a weird concept to me. If you think about it, it has no intrinsic value. It only has value because everybody agrees it does. Furthermore, it has different values to different people. My recent fascination is that those values change, and by moving money between the systems, you can artificially inflate the value. When you bring it back into the original monitary system, you end up with more than you started with, if you're lucky. And the best part of this whole thing is that it doesn't hurt anybody. In fact, you would be providing capital... benefitting everyone. Weird stuff.
Oh yeah - website I've been looking at tonight (check the pub dates - some are old):
Financial Dictionary - Undervalued Currency
Fox news on china's undervalued currency (old)
NY Times on China's Central Bank
Compound Interest Calculator
Historic S&P annualized returns
The key point was that China is able to keep their stuff so gosh-darn cheap by artificially keeping their currency's value low (I saw estimates tonight saying 40% undervalue). That sets of Vegas-style lights in my head. If it were truely that undervalued, you could shove your money in a bank and hope that it corrected within roughly 7.5 years. And that's just sitting in a bank. What if you bought a CD or bond that could actually earn money while sitting? You know to offset they're horrible inflation (yeah, big hole in my plan)...
Of course, if I'm thinking of this, there are people much smarter than me putting this into practice, right? You bet. And it has the Chinese Central Bank scared. They've cut interest rates twice this year (and these people tend not to mess with rates) in an effort to reduce the appeal of foreign investment. The influx of money was threatening to finance bad business ventures which were likely to default on loans. Interestingly, the cut in rates has created a surge of lending to apartment builders/renters and home buyers (through additional policy shifts). Could this be the time when the Chinese stop saving nearly half of their income (compared with the current American savings rate, which is NEGATIVE) and start spending a little?
It is also worth mentioning that now being a member of the WTO, China is subject to a little more pressure to unpeg its currency, as that is a violation of the rules.
I'm not sure why I think all of this stuff is interesting, but I bet it is because money is such a weird concept to me. If you think about it, it has no intrinsic value. It only has value because everybody agrees it does. Furthermore, it has different values to different people. My recent fascination is that those values change, and by moving money between the systems, you can artificially inflate the value. When you bring it back into the original monitary system, you end up with more than you started with, if you're lucky. And the best part of this whole thing is that it doesn't hurt anybody. In fact, you would be providing capital... benefitting everyone. Weird stuff.
Oh yeah - website I've been looking at tonight (check the pub dates - some are old):
Financial Dictionary - Undervalued Currency
Fox news on china's undervalued currency (old)
NY Times on China's Central Bank
Compound Interest Calculator
Historic S&P annualized returns
