"They're not enemies, but frenemies."
November 10, 2010 5:05 PM   Subscribe

Complex China-U.S. currency issue explained in bizarre news animation. "Need a primer on the issues? Check out our US-Sino Currency Rap Battle, featuring Chinese president Hu Jintao and American president Barack Obama. China has mad stacks of US Treasury debt and fears America will inflate its way out the hole by weakening the greenback further. The US, on the other hand, says China is keeping its currency artificially undervalued to protect its exports. It's a battle for the ages. And everything you need to know about US-Sino trade relations can be learned right here."
posted by Fizz (27 comments total) 22 users marked this as a favorite

I forgot to tag [SLYT], my apologies.
posted by Fizz at 5:06 PM on November 10, 2010

Watching Uncle Sam duke it out with a panda reminded me of this old Playstation fighting game a friend of mine had (an Asian bootleg he'd jury-rigged his North American PS to be able to play) where there were all sorts of completely random combatants: FLOWER VS. LADDER...FIGHT!!!
posted by The Card Cheat at 5:08 PM on November 10, 2010 [2 favorites]

I am now hoping that there is some bootleg DVD of Schoolhouse Rap 2010, featuring videos produced by NMA World Edition.
posted by filthy light thief at 5:23 PM on November 10, 2010

Oh man, NMA comes through again. For a few months now I've been slowly working on a MeFi post about Next Media Animation, who they are, how they fit into the Taiwanese media system, and a smattering of their best videos. But I don't have any local knowledge of Taiwan and I can't read Chinese, so I'm not the guy to write it. A Chinese media expert I know gave me a lot of interesting context of how this stuff plays in Taiwan that made it sound really interesting.

But since I'm here: marijuana legalization results, Tea Party Express explained, Sarah Palin putting Obama in a chokehold. I love the way they "explain" American politics to their Taiwanese audience. I also love their trope of zooming in on a TV screen showing the new scene.
posted by Nelson at 5:26 PM on November 10, 2010 [13 favorites]

These animations make me happy to be alive.
posted by The Whelk at 5:37 PM on November 10, 2010

Nelson. Those are AMAZING.
posted by six-or-six-thirty at 5:38 PM on November 10, 2010

This is the first one I've heard done in English. Are they starting to branch out? Or did they just figure since it's rap it needs to be in English?

Also, Hearing Timothy Geither rap with a Chinese accent was pretty entertaining.
posted by delmoi at 5:49 PM on November 10, 2010

Holy Shit, Nelson, that Palin Obama video is GOLD!
posted by dbiedny at 5:51 PM on November 10, 2010

You can't talk about NMA without noting their classic Leno vs. Conan video, possibly their first to really break big on the internet (?). It's pretty dry until 1:05 when all hell breaks loose.
posted by mhum at 6:03 PM on November 10, 2010

Well if I'm going to be favourite whoring with NMA links, here's Jersey Shore explained, also Google becoming evil.

My Chinese media informant tells me that NMA's audience is primarily in Taiwan but they're aware of and have appreciated the international exposure their videos have gotten. Some of the videos have English subtitles (Conan O'Brien returns to TV), but I think the rap video is the first I've heard in English.
posted by Nelson at 6:22 PM on November 10, 2010

Holy crap is that a Man In The High Castle reference in the legalization results video?
posted by The Whelk at 6:22 PM on November 10, 2010

posted by The Whelk at 6:28 PM on November 10, 2010

Hu Jintao ain't nothing ta fuck wit.
posted by Joe Beese at 6:42 PM on November 10, 2010

Atomic Playboy
posted by clavdivs at 6:47 PM on November 10, 2010

hu jintao one round
posted by clavdivs at 6:48 PM on November 10, 2010

Since we are on the verge of deflation, we should inflate our way out. Krugman has more.
posted by Ironmouth at 6:49 PM on November 10, 2010

6.457 seconds. one round.

'Jim Rogers Has Never Been Right About Anything'
posted by clavdivs at 6:57 PM on November 10, 2010

i've found my new favorite website.
posted by TrialByMedia at 7:17 PM on November 10, 2010

Tea Party Express explained

odd, some of the teapots on the signs are brown bettys.
posted by clavdivs at 7:41 PM on November 10, 2010

Next Media Animation, I love you. Be mine forever.

Also, didn't they used to get randomly played on Adult Swim? I seem to remember seeing some of their shorts, with no context at all, in the commercial breaks. I also suspect that they animated Xavier: Renegade Angel.
posted by heathkit at 8:54 PM on November 10, 2010

Wired did a good profile of NMA a few months back.

And everyone's seen their take on Antennagate, right?
posted by 7-7 at 8:57 PM on November 10, 2010 [1 favorite]

And now to the Currency Cat.
posted by atrazine at 12:01 AM on November 11, 2010

Their one on the recent Australian election is gold. The Opposition leader in Speedos wearing a blinged-out cross around his neck as he wades out of the ocean then fires a rifle at refugees had me in tears of laughter.
posted by harriet vane at 1:51 AM on November 11, 2010

I just think this stuff is so darned funny. The bong smoking bear from the "Marijuana Legalization" video is pretty classic...
posted by ph00dz at 5:24 AM on November 11, 2010

I want to high-five a panda so badly now.
posted by r_nebblesworthII at 7:50 AM on November 11, 2010

heathkit: Also, didn't they used to get randomly played on Adult Swim?

They sure did. Search YouTube for Adult Swim News. They covered such stories like the drive to make Admiral Ackbar the Ole Miss mascot and Kevin Smith getting bounced from that flight. Some of them aired on Adult Swim with the Chinese voice-over for maximum WTF-ness.
posted by mhum at 9:00 AM on November 11, 2010

Eat your heart out Matt Taibbi - "This is without a doubt the funniest video ever made about the Fed, quantitative easing, and Ben Bernanke. Make sure you're in a place where you can laugh freely, and press play."

Bill Fleckenstein on QE2 - "Awesome interview. Fleckenstein's mullet looks great and Betty Liu shines in her fully ignorant glory. But my favorite is Barton Biggs, who comes across as a sociopath. 'Sure it may lead to collapse, but that is a couple of years out, and our investors pay us to worry about the next few months.' Good thinking."

QE2 and the Titanic - "China reported an October trade surplus of $27 billion Wednesday. This is a very big number and not one likely to soothe anger directed at China. It will be very hard for China credibly to argue that it is trying to contribute to global growth while pulling in more and more foreign demand."

Will trade action bring back American jobs? - "Trade disputes will be resolved through more tariffs and currency interventions. No one out there, it seems, is willing to do more than wish the imbalances away. Actually to take the painful rebalancing steps is still not on anyone’s agenda."

Will the Fed Scale Up QE2? - "Bottom Line: One can tell a seemingly optimistic story - the threat of the double dip is behind us, setting the stage for a nice return to potential growth. But that story holds the dark side of persistent, pernicious low levels of labor utilization. Still, I think now the Federal Reserve would have chosen the optimistic narrative had it not been for the obvious slowdown midyear. Which suggests to me they are not eager to do more, especially if growth settles back in at trend. Reinforcing that belief is the Warsh speech, which makes a strong case that further monetary policy is increasingly ineffectual and very risky. But even more important, he makes clear a belief that only Congress and the Administration have the tools to restore growth. I imagine if that view is, or becomes, a widespread opinion among policymakers, we have seen the last gasp of quantitative easing. They have abated the financial crisis, serving as the lender of last resort, and flooded the economy with cash. They have done what they can. The rest is up to the fiscal authorities."

QEII follow-up: why do people hate the idea? - "I believe the price of gold is high because of 'financial-existential risk,' not because of inflation per se. The U.S. dollar and debt are no longer unambiguously safe and is there any real solution to the triple menace of highly leveraged banks, moral hazard, and financial strategies of extreme negative skewness?"

Tyler Cowen's curious curiosity - "There's no need to be curious Tyler; we know how much good QE2 did, about 0.5%/year more inflation over 5 years. Yes, we don't know how much that will raise RGDP growth, but only because of the bizarre anomaly that the US government has never bothered to create an NGDP future market. "

Is there a zero bound? The 'mysterious' world of negative nominal interest rates - "Could the Federal Reserve set the nominal federal funds rate and the nominal discount rate in negative territory? Yes... There is no operational constraint that prevents the Board from setting a discount rate at -1%, -10% or even -100%, it just needs to announce tomorrow that this is what it is and that is it. The federal funds rate is slightly more complicated but not that much. To set a negative fed fund rate, the Fed just has to do overnight repos on securities at a premium... So IF the Federal Reserve thinks that it makes sense to set its policy rates in negative territory, it can do it. Not tomorrow, not with the help of others; now, and at its discretion. And it could do so not by injecting any excess reserves, but just by operating in a way it has been operating since 1914."

Daylight Savings Time and the non-neutrality of money - "[Last] weekend the government will tell us all to put our watches back one hour. They want us all to do everything one hour later. It's hard to understand how it will work. Do they think we will all forget we've set our watches one hour slow? What's more, they can't even force us to change our watches. But I know it will work... A purely nominal change (whether we say than solar noon is called "12.00" or "13.00") will have a big real effect. Even though we all know that it's just a nominal change... Why does money have real effects? It's just bits of paper. It's not real... Metrification was a nominal change that had negligible real effects, as far as I know. Daylight Savings Time is a nominal change that has real effects... And maybe all monetary changes are like metrification in the long run. But some monetary changes are like Daylight savings Time, and have real effects, at least in the short run. If we understood Daylight Savings Time better, and how it works, we might understand monetary policy better."

'Quantitative Mining' Debasing Gold - "As we all know, Gold (atomic symbol AU) is a barbaric relic — and the only 'True' currency in the world is Silver (atomic symbol AG). That's right, Silver. Proof of this is how poorly Gold has performed priced in Silver. It's obvious from the chart below that Gold has no intrinsic value. Forget QE, the Gold Miners are doing QM Quantitative Mining. These irresponsible Miners are 'printing gold' by scraping it out of the ground as fast as they can. They are debasing it as a store of value, and are no better than central bankers with their fiat currencies and printing presses."

Inflation? Not According to a Billion Prices - "Those of you who regularly complain/mock/kvetch about the BLS methodology for measuring CPI prices — and I am as guilty as anyone else — should check out the 'Billion Prices Project @ MIT.' The idea behind the Billion Prices Project is that we can track inflation by collecting prices from hundreds of online retailers around the world on a daily basis... the MIT approach has tracked the official price data fairly well."

Is there a long-run deflationary trend right now? - "In a wide variety of areas, ranging from ethnic food vs. fine dining to blogs vs. books to the art world (Outsider Art is often more visceral and enduring) to clothing, there is a common realization going on: cheap stuff is often better than the more expensive stuff. Furthermore, information technology allows you to reframe your consumption, countersignal your personal image, and reaffiliate with others, and their social movements, in ways which increase the status value of the lower priced goods... a famous, mainstream, and somewhat upper-class "Nordstrom" label is worth less than before."

Inflation Fears and Measures of Expected Inflation - "If the expectations hypothesis of the term structure (EHTS) holds, then these movements imply that as of 11/8, the average inflation rate over the next five years will be a breathtaking 1.6%! ... Expected average inflation over the next five years is still below the rates implied over the entire 2004-2007 period."

Don't flip out over QEII (repeating myself) - "The TIPS market is forecasting in the range of two percent inflation and it's gone up -- what -- sixty basis points since August? That's hardly the end of the Republic. During the Reagan recovery, inflation never fell below four percent. I've thought through "trigger models" of rapidly escalating inflation, but they don't scare me much. The Fed simply needs to be ready to unload its heavy balance sheet without delay."

The Fed is right to turn on the tap - "Is the US really on the same road as the Weimar Republic? In a word, no..."
Boiled down, the criticisms of the Fed come down to two: its policies are leading to hyperinflation; and they are 'beggar my neighbour', in consequence, if not intention.

The first of these criticisms is not just wrong, but weird. The essence of the contemporary monetary system is creation of money, out of nothing, by private banks' often foolish lending. Why is such privatisation of a public function right and proper, but action by the central bank, to meet pressing public need, a road to catastrophe? When banks will not lend and the broad money supply is barely growing, that is just what it should be doing.

The hysterics then add that it is impossible to shrink the Fed's balance sheet fast enough to prevent excessive monetary expansion. That is also nonsense. If the economy took off, nothing would be easier. Indeed, the Fed explained precisely what it would do in its monetary report to Congress last July. If the worst came to the worst, it could just raise reserve requirements. Since many of its critics believe in 100 per cent reserve banking, why should they object to a move in that direction?

Now turn to the argument that the Fed is deliberately weakening the dollar. Any moderately aware person knows that the Fed’s mandate does not include the external value of the dollar. Those governments that have piled up an extra $6,8000bn in foreign reserves since January 2000, much of it in dollars, are consenting adults. Not only did no one ask China, the foremost example, to add the huge sum of $2,400bn to its reserves, but many strongly asked it not to do so.
Commodity inflation "My view has been that the Fed needs to prevent a repeat of Japan's deflationary experience of the 1990s, but that it also needs to watch commodity prices as an early indicator that it's gone far enough in that objective. In terms of concrete advice, I would worry about the potential for the policy to do more harm than good if it results in the price of oil moving above $90 a barrel. And we're uncomfortably close to that point already."

To Hell Through QE - "People like Geithner would argue that China should raise its currency to force American companies to move production back to the US. I suppose that that is how the whole RMB appreciation idea may work. But, at what exchange rate would the American companies want to do it? American wages are ten times China's. Should China increase its currency value ten times?"
What is right isn't important for now. What is politically expedient is. Americans want a quick cure for their country's economic difficulties and want to devalue the dollar to achieve it. If it could force China to increase its currency value, then the Yen, Euro, and all the others would go up in tandem. The US, one fourth of the global economy, could export its way out of its problem.

But the others won't follow this program. China cannot move up its currency value too much or it would trigger hot money outflow, collapsing its property market and the banking system along with it. China is between a rock and a hard place. It is trying to achieve a soft landing of its property market by incremental tightening steps while the currency appreciation expectation keeps the hot money from leaving. This combination may support a multiyear gradual adjustment, giving the banking system time to raise capital...

It seems that nobody wants to appreciate. Most major economies will do something to keep their currencies down. That is checkmate for the US. Without the devaluation benefit on rising exports, QE just leads to inflation, first through rising oil prices. The American people are suffering from declining housing prices and high unemployment. If the gasoline price doubles, the country may not be stable. How would the elite react? Probably more of the same.

The world is heading towards high inflation and political instability. It's only a matter of time before there is another global crisis. The first sign would be a collapsing treasury market. The Fed is controlling the yield curve through its QE program. But, it is irrational for other investors to play this game. The only reason to stay in is that the Fed won't let the market fall. But, the underlying value is evaporating with rising money supply and the inflationary consequences. When all the investors realize this, they will run for the exits and the Fed won't be able to stop the stampede. If it prints enough money to take over the whole market, the people with freshly minted dollars would surely want to convert their money into other assets. The dollar would collapse too.

The world seems on course for another crisis in 2012. The same people who caused the last crisis are still in charge. They'll get us into another. Iceland is sending its former prime minister to court for causing the banking crisis. A worse fate awaits the people who are causing the next crisis.
Raghu Rajan: The Big Blink - "World growth is likely to remain subdued over the next few years, with industrial countries struggling to repair household and government balance sheets, and emerging markets weaning themselves off of industrial-country demand. As this clean-up from the Great Recession continues, one thing is clear: the source of global demand in the future will be the billions of consumers in Africa, China, and India. But it will take time to activate that demand..."
Over the next decade, growth in this kind of developing-country demand will help offset the slow growth of demand in industrial countries. But the process cannot be rushed. Unfortunately, with high levels of unemployment in industrial countries, policymakers want to do something – anything – to increase growth fast. The aggressive policies that they are following, however, could jeopardize the process of adjustment...

Emerging markets are worried because they believe that the Fed's ultra-aggressive monetary policy will have little effect in expanding US domestic demand. Instead, it will shift demand towards US producers, much as direct foreign-exchange intervention would. In other words, quantitative easing seems to be as effective a method of depreciating the dollar as selling it in currency markets would be.

Because they know that it will take time for domestic demand to pick up, emerging markets are unwilling to risk a collapse in exports to the US by allowing their currencies to strengthen against the dollar too quickly. They are resisting appreciation through foreign-exchange intervention and capital controls. As a result, we might not see steady growth of demand in emerging markets. Instead, excess liquidity and fresh asset bubbles could emerge in the world’s financial and housing markets, impeding, if not torpedoing, growth.

In the ongoing showdown over currencies, who will blink first? The US (and other industrial countries) could argue that it has high levels of unemployment and should be free to adopt policies that boost growth, even at the expense of growth in emerging markets. These countries, in turn, could argue that even very poor US households are much better off than the average emerging-market household.

Rather than bickering about who has the stronger case, it would be better if all sides compromised – if everyone blinked simultaneously. The US should dial back its aggressive monetary policy, focusing on repairing its own economy's structural problems, while emerging markets should respond by allowing their exchange rates to appreciate steadily, thereby facilitating the growth of domestic demand. Is it too much to hope that the G-20 can achieve such a commonsensical compromise?
The coming right-wing front on monetary policy - "I was interested in the Audit the Federal Reserve amendment... But I understood it as the first step in promoting a more transparent, accountable Federal Reserve that is less dominated by the interests of regional bankers and the financial sector, not as a first step toward abolishing it. What a bizarre time for monetary policy and the conservative right... I do wonder how this battle inside the right will play out over the next few years, years in which the Federal Reserve actually being able to hit its inflation target would make the difference between the prospects of a generation being economically productive or a generation lost to hysteresis and isolated from functioning labor and economic markets."

Fed-Bashing Three Ways - "The thought process behind the anger at the Fed isn't uniform. If Dante had nine circles of hell, then the Fed has three circles of doubters. The first circle is critical of the Fed's current policies. The second circle thinks that the Fed has been a menace for a long time. The third circle wants to seriously curtail or even get rid of the Fed."

Night of the Living Fed - "If I were a benevolent dictator, I would strip the Fed of its obligation to worry about the economy and ask it to limit its meddling to attempting to manage inflation. Better yet, I would limit its activities to making sure that the economy had a suitable amount of liquidity to function normally. Further, I would force it to swear off manipulating asset prices through artificially low rates and asymmetric promises of help in tough times – the Greenspan/Bernanke put. It would be a better, simpler, and less dangerous world, although one much less exciting for us students of bubbles. Only by hammering away at its giant past mistakes as well as its dangerous current policy can we hope to generate enough awareness by 2014: Bernanke’s next scheduled reappointment hearing."

Robert Zoellick suggests using gold as an international standard reference - "The G20 should complement this growth recovery programme with a plan to build a co-operative monetary system that reflects emerging economic conditions. This new system is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation and then an open capital account. The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today."

Could the world go back to the gold standard? - “[G]old reserves are distributed quite erratically around the world. So some currencies would have to experience inflation and others severe deflation... In short, we cannot and will not go back to the gold standard. As L.P. Hartley wrote, 'The past is a foreign country: they do things differently there.' We cannot live in the 19th century. It is foolish to pretend that we can."

Gold digging at the World Bank - "In monetary policy, pegging the monetary base to gold would be a (very impractical) way to target prices. But the gold price is hardly the most useful price to fix. Unlike a broad price index, it is unrepresentative of the economy. Buffeted as its price is by private demand and supply, gold’s stabilising properties are also largely mythical. Could a gold standard help international currency co-ordination? In theory it could, if states were willing to accept the restrictions on national monetary policy and the current account adjustments that a gold standard entails. But if such political will can be found, there are better anchors than gold; until then, gold will not work. Mr Zoellick points out that “markets are using gold as an alternative monetary asset”. But there is no sign that confidence in central banks is about to collapse: bond prices show that inflation expectations remain well-anchored. The challenge is to find tools that countries will agree to use to rebalance the world economy."

A golden opportunity for monetary reform - "The proposal for 4 per cent caps on current account surpluses and deficits by Tim Geithner, the US Treasury secretary, is a nod towards the Keynes plan, but without sanctions, or understanding of why countries such as China feel the need to accumulate such large reserves in the first place."
This was addressed by Keynes’s proposal for capital controls (to guard against capital flight) and, more imaginatively, to create a new international reserve asset that he called "bancor" (short for "bank money"), which would replace gold as the ultimate reserve asset of the system. Gold would remain as a reference point for the value of bancor, thus limiting the capacity of the ICB to create credit – which seems similar to Mr Zoellick’s idea. Keynes's famous description of the gold standard as a "barbarous relic" does not quite capture his opinion of the metal, which he thought would be useful as a constitutional monarch but disastrous as a despot.

It was not to be: the Keynes plan was vetoed by the US at Bretton Woods in 1944 and the mighty dollar took bancor’s place as the world’s main reserve asset. Today, the difficulties in moving to an international currency reserve system are formidable. But the rationale for the Chinese proposal is clear: collective insurance is cheaper than self-insurance.
Keynes, Global Imbalances, and International Monetary Reform, Today - "Moving decisively towards promoting the use of SDRs would reduce the need for countries to run current account surpluses to accumulate dollar reserves. Concomitantly, it would also help to reduce the 'exorbitant privilege' of reserve-issuers and distribute the seignorage from reserve creation more equitably, promote a more symmetric adjustment mechanism, make the IMF a more genuine lender of last resort and reduce the risk of instability caused by switches between reserve currencies. Of course the appeal of the SDR would be materially enhanced if it were transformed into an asset that can be held by the private sector, not central banks alone... And it would open the road to a bargain with China... Just as the first Bretton Woods system rested on a 'grand bargain' between the US and Britain, so a new Bretton Woods would require an agreement between the leading surplus and the leading deficit country. The challenge to the statesmanship of the US and China is to strike one."

How China Is like 19th Century America - "China could stumble but keep climbing upward, much like the U.S. did about a century and a half ago. We find today's China less reminiscent of Japan in the 1980s than it is of the U.S. in the 1850s."

Beijing's elevated aspirations - "At the root of the anxieties is the worry that a self-confident China, which recently overtook Japan as the second-largest economy in the world, wants to translate its economic power into greater political and military influence. Beijing's massive stimulus plan helped Asia to ride out the global financial crisis with relative ease and its sustained economic dynamism is of big benefit to other countries in the region. But the recent tensions serve as a warning that the rise of China could become harder to accommodate politically." [1,2,3,4,5]
posted by kliuless at 3:33 PM on November 13, 2010 [2 favorites]

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