Prompt blog #10 Recognizing Truth

I found a report from the NYT told readers that:

"Beijing has few options other than to continue to purchase United States Treasury bonds, Chinese officials are clearly concerned that China’s substantial holdings of American debt, worth at least $1.1 trillion, is being devalued."

         Based the knowledge which I learnt from the EC 202 and the information I searched online, I known that the NYT misrepresents China’s options and Accounting Identities.

         Both parts of the information which I copy above are wrong. Beijing has choice to stop buying dollars from its exporters. The reason that the government accumulates dollars and other foreign currencies is that it buys the currency from the companies who are exporting to United States and other countries.

         Beijing has choice not to buy the currency. This knowledge is associate with the knowledge I post before. If Beijing stop buying the currency, this would force exporters to sell their dollars in international currency markets which would increase the exchange rate – lower the value of the dollar. And this would help to make the international trade become more balance between the United States and other countries. “This is adjustment process that is supposed to take place in a system of flexible exchange rates.”

         The second part of the statement which make me confused is that “”Chinese officials are clearly concerned that China’s substantial holdings of American debt ... is being devalued." Reporter thought this is wrong is because Chinese officials should know that it will be devalued. “The only plausible route through which the trade deficit in the United States will be brought into balance is through a large reduction in the value of the dollar.”(Para. 4) So this is mean that everyone who has taken an intro economics class should know this, so China’s top economic officials must understand this fact. So they will make clever judgement that maintain their export market in United States is worth the expected loss on their dollar holding.

         The reason I shared this news is because it is very close to the knowledge which I took in the class. However, there second part is still some part of this is difficult for me to understand. Wish I would have deep understanding about this news after the end of this semester.

Citation:

http://cepr.net/blogs/beat-the-press/the-nyt-misrepresents-chinas-options-and-accounting-identities

Open blog #10 China and “Currency Manipulation”

Open blog #10   China and “Currency Manipulation”

         “We don’t win at trade, China, everybody, Japan, Mexico, Vietnam, India, name the country. Anybody we do business with beats us. We don’t win at trade.” – Donald Trump

         The main reason for me to focus on this sentence is because I am an international student from China, and also this has connection with my daily life – exchange rate! So I want to know more about this news.

         In the news, Donald Trump has referred to China as America’s “number one abuser” in international trade. “Through manipulation of the yuan, the Chinese government has been able to tip the trade balance in their direction by imposing a de facto tariff on all imported goods.” (From EC 202 note)

         Manipulation of the yuan is mean Chinese government keep its exchange rate $/yuan, “undervalued,” making Chinese goods less expensive for Americans and American goods more expensive for Chinese, contributing to trade surplus for China. This is mean that American want more yuan to buy Chinese goods than Chinese want dollar to buy American goods. In other words, Chinese had a trade surplus – positive net demand for yuan.

As I mention in the last week’s blog post, net export equal to net capital output, this change in the net export must be matched by NCO for China. I mean Chinese buying more American assets than Americans buy Chinese. For Chinese to keep exchange rate low, Chinese must increase their net capital output, such as US government bonds or simply US dollars. This inference make sense because Chinese government really do this kind of thing in the real world. In the early 2000s China did this, accumulating lots of US bonds and dollars

From the EC class, professor told us that however since 2010, the yuan has appreciated relative to the dollar and other currencies. The IMF says the yuan is no longer undervalued. Which is mean that, as a Chinese international student, I can exchange more dollar in the same amount of yuan. But after that Chinese have been selling some of their dollar reserves, so if anything trying to keep the yuan from falling

This is same with the situation right now and like a disaster for the international student from China. Because since I study in the United Stated, the exchange rate is keep increasing which is mean that yuan is depreciate. This is mean that tuition is more expensive for me to study in the United Stated then is before. It time for me to find a part-time job and earn some pocket money so that decrease the economic pressure in my family.

Citation: EC 202's notebook

Synthesis Essay

Economy is a very special subject. You cannot test hypothesis by doing the experiment in the laboratory just like chemistry or physical. Also you cannot test a principle by do the research questionnaire survey like psychology. Economy is growing through the history. After Depression, economist will have questions like what caused the depression; how can government recover the economy after that? Economist gain the new hypothesis through the question they have. What happened if we increase the unemployment insurance? What was the consequent for a government’s policy? How can we increase the national GDP? What should we do to make everybody better off? However, how they solve the question? The answer is – data, the compass in the economy.

Economist don’t “create” definition. They use data to “summary” the definition. When they collected data about import and export, economist found there always a difference between exports and imports. When it is smaller than zero, country suffers from “deficit”. To be the opposite situation, when it is greater than zero, country undergoing “surplus”. Country faces different problem under those two difference situation. So to be more convince, economist summary those difference as the definition “Net export”. This cause a creation for a new definition—net capital outflow.

(More information about “net export” please click here:

http://notjustaccounting.blogspot.com/2016/04/open-blog-9-nsonx.html)

To understand deeper about “net export”, Economist tried to analysis problem in different way. For the previous one, they think the amount of purchasing goods as variation quantity, like how many goods that other country buy from domestic (export) or how many good that domestic buy from other country (import). They analysis the situation by using the loose of the domestic fund which is spent in purchasing the foreign assets. From the data they collected, they also found another special relationship between export and import – net capital output.

(More information about “net capital output” please click here:

http://notjustaccounting.blogspot.com/2016/04/open-blog-9-nsonx.html )

Those are not the only example. Economist also summary some other definition by analysis the data they collected. Because of the development of the economy, the price of the goods is variety through the different generation. After collected so many data, they want to figure out a method to compare the price in different year so that they found a new definition “CPI” can do the research more easily. Under this definition, economist found more diverse economist environment like “deflation” and “inflation”.

(More information about “inflation” please click here:

http://notjustaccounting.blogspot.com/2016/02/open-blog-3-inflation-and-cpi.html)

We use data to see an economy situation more clearly. First, as I post before in the prompt blog #6, people always think economist have different opinions. To figure out whether this is true or not, researcher did a survey to some economists. They asked economists’ opinion about some basic proposition, and collected the percentage of economists who agree. As the result, most percentage of economists agree the main principle about the economy.

(More information about this research please click here:

http://notjustaccounting.blogspot.com/p/normal-0-7.html)

       Also, Trump’s opinion about the unemployment rate is also a good example. Trump claimed that the unemployment rate which was published by the U.S. government is unbelievable and the real data alcutally should up to 20 to 40 percent. Should we believe it or not? We should compare with number that showed from the Bureau of Labor Statistics, a unit of the United States Department of Labor. With the help from the government, they collect date with more patient and the date they collected are more accurately. And from the picture which I showed on the prompt blog #4, we known that the data from the BLS is more professional than the Trump’s, so we should not believe Trump.

(More information about this please click here:

http://notjustaccounting.blogspot.com/p/two-sources-i-want-to-share-and.html)

       When we wonder about is GDP a useful measure, we use data to help us again. As a table I showed on the open blog #2, after we put the GDP and other three measures of the quality of life (life expectancy, average years of schooling and satisfied with water quality) for twelve major countries, it is easy to found that the country which has high GDP, has a higher life equality than the country which has lower GDP.

 

(More information about GDP:

http://notjustaccounting.blogspot.com/2016/02/open-blog-2-is-gdp-useful-measure.html)

Without data, economist cannot summary new definition. They would never know what is net export, net capital output or the relationship between this two definitions. They cannot see and analysis the situation more clearly and with intellect. They will confused by Trump’s opinion and even feel uncertain about themselves. In the end, they cannot make clearer decision to make everybody better off.