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June Figures give a Glimpse of a World with Less Currency Manipulation
Jesse Richman, 8/11/2013

In late June, Howard Richman posted an insightful analysis of shifts in bond prices which connected these shifts to fiscal tightening in China as regional banks faced a credit squeeze (http://www.idealtaxes.com/post3676.shtml). Howard concluded that the move to repatriate billions invested in U.S. bonds had led to significant changes in bond prices.

A side effect was that these sales worked counter to the effects of the Chinese currency manipulation (which works by buying U.S. bonds to keep the dollar high relative to China's currency.  Of course the effects of this manipulation ripple through not only China's currency's valuation relative to the dollar, but the valuation of the dollar relative to many other currencies around the world.  Take those effects away, and U.S. exports become more competitive globally.

The recently released June trade deficit figures relfect the consequences.  From the Financial Times:

"America’s trade gap declined by a huge 22.4 per cent to $34.2bn last month from $44.1bn in May, commerce department data showed. Economists surveyed by Bloomberg had forecast only a small decrease to $43bn." http://www.ft.com/intl/cms/s/0/6c07b454-fe9b-11e2-b9b0-00144feabdc0.html#ixzz2bhwGW3V8

Because China more or less accidentally took it's foot off of the currency manipulation lever in June, the trade deficit declined substantially.  The Financial Times article ends with a good quote from Alliance for American Manufacturing president Scott Paul: 

“Imagine what US job and GDP growth would look like with a more balanced trade account. We wouldn’t be in the midst of a jobs crisis.”

Well put.  But even more important is the WAY we got to the June numbers.  They demonstrate, once again, the importance of currency manipulations, and the key role these manipulations play in distorting trade.   

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