From a front-page New York Times article about turmoil in the stock market in China and the rest of the world:
China's currency, the renminbi, continued to be a sore spot on Thursday, as the country's central bank moved to help stabilize the situation.
The Chinese government, which closely controls the renminbi, has been allowing the value of the currency to decline steadily. It is a difficult process to manage, especially as companies and individuals send money out of the country at a rapid rate...."People are worried about whether they are using currency depreciation to stimulate growth," said Steven Sun, head of China strategy and Hong Kong and China equity research at HSBC. "At the end of the day, the question is, do they have control? Everyone is asking that question."
The currency problems risk setting off a chain reaction.
As the renminbi, also known as the yuan, keeps sliding day after day, traders start to expect ever greater declines. The falling currency can then propel further stock losses in China.
That, in turn, can ripple through to the global markets. A surprise currency devaluation in August helped prompt a sell-off around the world.
"It's getting into a stage where it is self-fulfilling — the weaker the yuan gets, the more selling there will be," said Hao Hong, the chief market strategist at Bank of Communications International.
This is a problem with fiat currency, that is, currency not backed by anything other than the central bank or government that issues it. It's prone to sudden losses of confidence and value, which tend to be self-reinforcing. Could it happen here to the U.S. dollar?
Another point worth mentioning in connection with the problems in China and the effect on the American markets and growth expectations is that it points to a problem with Trumpism. One point Donald Trump has been making is essentially that the world economy is a zero-sum game, and that if China is doing well, it's at America's expense. An alternative view is that we're in a closely related global economy, and that if China has trouble, it hurts American companies that export there. On that view, Americans should take no pleasure in China's economic troubles.
And one final point: It also points to a problem with Clintonism. One point Hillary Clinton has been making is that America should invest more heavily — i.e., spend more money that is either taxed from Americans or borrowed from China and future generations —on both infrastructure and alternative energy. Look at all the great high-speed railroads and beautiful airports and solar panel manufacturers in China, this story goes, giving those investments credit for China's growth and raising the prospect that if America doesn't follow suit, our country will be surpassed by China. Well, all the billion-dollar airports and solar-powered bullet trains in China aren't going to help if no one has any idea what their money will be worth tomorrow or this afternoon or six months from now.
("The Fiat Yuan" was the headline of an August 11, 2015 New York Sun editorial.)