i think i need a lesson in how all this works...
Inflation is one thing... but then I came accross this article in the Australian... I don't understand most of it...excerpts below...
http://www.theaustralian.news.com.au/common/story_page/0,5744,16742518^12250,00.html
The weakness of US economic policy is its inability to curb its budget deficit, its reliance upon China to finance its debt and the fact that on present exchange rates a return of US protectionism is inevitable. Everybody knows the imbalance of US current account deficit/China current account surplus must be corrected; the question is how.
Macfarlane argues that the imbalance should be assessed from the Asian side. He says the origin of China's surplus strategy lies in the East Asian financial crisis; it has built up foreign exchange reserves as an "insurance" to withstand another crisis. Hence the counter-intuitive situation of the main developing nation lending to the richest developed nation.
Macfarlane's message to China is that, ultimately, a surplus may be "more difficult" to sustain than a deficit because of its monetary consequences and that China should move into further exchange rate appreciation not to help America but to help itself.
Garnaut says: "The least damaging method of adjustment is for the US to reduce its budget deficit because that would help to correct the imbalance while easing pressure on US and global interest rates. The alternative is for East Asia to appreciate its currencies but that has the painful incidental effect of raising US and global interest rates.
"However, because the imbalances are higher this year a substantial response is now needed. In the absence of policy action by either nation, the markets will shape their own solution - speculative capital inflow into China is likely to leave China with no good alternative to currency appreciation."
The widest lens, as usual, was opened by Paul Keating. In his August 3 speech in Singapore, Keating lamented China's "survival of the fittest" mercantilist policies, hoarding balance of payments surpluses to protect its economic and political status quo. He pointed out that to the extent China's economic success was measured in record reserves it meant the broad mass of the Chinese people were not growing as wealthy as they would otherwise.
"The currency will inevitably come under pressure for a revaluation," Keating said. "And if a series of discreet currency shifts, even large ones, did not satisfy the markets' lust for snappy profits or its expectation for value equilibrium, the authorities could be pressed into an earlier than expected float of the currency with all the attendant problems and, might I say, benefits."
As Keating conceded, it is not the conventional view. He argued, however, that "a mature set of institutions is China's best insurance against capricious behaviour by external organisations, whether it be the IMF or for that matter, private ones." Bob Zoellick, taking the long view on this partnership, would agree.
Is that why Tech/A you talk about the climate of low interest rates witnessing now a thing of the past?
Can someone please explain the article above and what it means? Why does East Asia appreciating its currencies mean that US and global interest rates will rise?