Walmart CEO says "serious" inflation ahead...

[Viva Las Espuelas]

Excuse me.....class kinetic-military-action-fare.

[RandomGuy]

You honestly think that the US was the only country running deficits? Emerging countries under valuing their currencies, creating trade deficits and financing those deficits by loaning those developed countries money while they kick started their emerging economies (creating short term dis-inflation in developed countries) obviously couldn't last forever. Theres a couple billion "new" consumers in China and India now competing for goods.

There is quite a bit of evidence that suggests that the Chinese are not holding their currency that much cheaper relative to the dollar than it would be otherwise.

Chinese inflation has been ramping up quite markedly in the last couple of years, as the OP noted for a couple of reasons. That would have the effect of making the dollar stronger over time, as producer prices in China start affecting trade balances, requiring less and less intervention by the Chinese government.

If you like, I can probably present a few links to articles that support this.

I think inflation in China will do more to "re-balance" our trade with them than you might think.

[RandomGuy]

To be fair, there is still some anecdotal evidence that suggests the yuan is undervalued:


(July 2010 economist.com)

ASK Western policymakers how they intend to squeeze growth from their sluggish economies and most pin their hopes on higher exports. That makes exchange rates an especially sensitive topic. A weaker currency improves the compe iveness of a country by making exports cheaper. It also encourages domestic consumers to switch from expensive imports to domestic goods. The Economist’s exchange-rate scorecard, the Big Mac index, shows that currencies continue to be cheap in the developing world but overvalued in Europe.

The index is a lighthearted attempt to gauge how far currencies are from their fair value. It is based on the theory of purchasing-power parity (PPP), which argues that in the long run exchange rates should move to equalise the price of an identical basket of goods between two countries. Our basket consists of a single item, a Big Mac hamburger, produced in nearly 120 countries. The fair-value benchmark is the exchange rate that leaves burgers costing the same in America as elsewhere.

Asia remains the cheapest place to enjoy a burger. China’s recent decision to increase the “flexibility” of the yuan has not made much difference yet. A Big Mac costs $1.95 in China at current exchange rates, against $3.73 in America. Our index suggests that a fair-value rate would be 3.54 yuan to the dollar, compared with the current rate of 6.78. In other words the yuan is undervalued by 48%.

Other Asian currencies such as the Thai baht and the South Korean won are also undervalued. The Brazilian real is one of the few emerging-market currencies that is trading well above its Big Mac benchmark. With interest rates high—the policy rate now stands at 10.75%—Brazil has attracted lots of attention from yield-hungry investors. Burgernomics suggests that the real is overvalued by 31
.....

[CosmicCowboy]

There is quite a bit of evidence that suggests that the Chinese are not holding their currency that much cheaper relative to the dollar than it would be otherwise.

Chinese inflation has been ramping up quite markedly in the last couple of years, as the OP noted for a couple of reasons. That would have the effect of making the dollar stronger over time, as producer prices in China start affecting trade balances, requiring less and less intervention by the Chinese government.

If you like, I can probably present a few links to articles that support this.

I think inflation in China will do more to "re-balance" our trade with them than you might think.

Inflation is definitely happening in China and their cost to produce goods is definitely rising. Recent labor strikes for higher wages at auto plants is one leading indicator. This will have a direct cause/effect on inflation in the US. At the same time, I don't see our balance of trade shifting anytime soon...It is still WAY CHEAPER to produce goods in China than the US.

[Agloco]

I suspect that the dollar is overvalued, but I'm no economic expert. Can someone fill me in on how that connects with inflation (if it does), and why my debt is devalued in that scenario?

Dumb questions probably, but my math skills don't work unless voodoo operators and strange symbols are involved.

[CosmicCowboy]

The US Dollar has been over valued because when the world economy crashed US treasuries were the safety net of choice and they are denominated in dollars. This dynamic is changing as the US keeps monetizing debt and investors quit buying treasuries.