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Just Making Do

Today, the Federal Reserve announced that they would continue their open-ended bond-buying program (to the tune of $85 billion per month) in an effort to stimulate economic growth. Since we are well into the third iteration of “quantitative easing” (read: money printing), it’s worth taking a look at the track record so far. It’s not pretty. Today’s ADP Employment Report estimates that the private sector created a mere 119,000 jobs last month, which was below expectations of 150,000 jobs created (which would be only slightly less disappointing). Meanwhile, with GDP growth averaging less than 1.5% over the last two quarters and a real unemployment rate of 13.8%, the government is preparing to change the way it calculates GDP to boost its numbers (adding such things as the capital value of books and movies and counting Research and Development as a “service”). Last quarter, only 38% of S&P 500 companies topped revenue forecasts.

There have also been some interesting price movements of late. If you listen to ol’ Ben, you’ll hear that there’s currently very little in the way of inflation and that the FED is currently doing is best to stimulate some inflation (for reasons known only to Bernanke). However, if you look at the data, you get a slightly different story. If you look at prices from the beginning of the recession to the present, a very interesting pattern emerges. The CPI (minus food and energy prices, as measured by the government) is moving relatively consistently (ever upward, it should be noted), but food and energy are behaving a little differently. Gas prices are all over the map, but they do seem to have settled into a relatively stable pattern, with prices never rising and falling between 110-140% of their 2007 levels. For anyone with a car, that is a fairly significant price increase (at 10% or more), particularly if you’ve had your wages cut. Food prices are following a more consistent upward trajectory, with prices currently about 15% higher than their 2007 levels and rising a good deal faster than the overall CPI (which is about 10% higher than its 2007 level).

This is all very curious. From 2007 to the present, wages and compensation (non-farm) have basically been flat. During the same time period, prices have risen 10%, while food and gas prices have risen much faster. The movement in food and gas prices is particularly significant since such expenses (along with things like housing) are non-optional in the typical family’s budget. So, if gas and food prices (in addition to the prices captured by the CPI) rise faster than wages, the average person is going to see his discretionary income drop every year. This means he has less money for things like vacations, or a new car, or gifts for his friends/family, etc. This all calls into the question the wisdom of the FED’s current policy of relatively significant price increases and its intended policy of really significant price increases. It would explain why GDP growth has been so muted. Essentially, once people are finished paying for groceries, rent, and gas to get to work, they don’t have much money left over for anything else. So, they and the broader economy just amble along.

Is Chinese Currency Manipulation a Bad Thing?

One of the most striking features of the last two Presidential Debates was the rather strident, bipartisan China-bashing. While it’s relatively easy (and quite popular) to bash the Yellow Man for his purported economic misdeeds, I think the topic requires thoughtful consideration and a little more attention than either candidate appears to be giving it.

Currency manipulation came up a lot in the debate. Apparently, the Chinese are deliberately under-valuing their currency (shocking, I know). First, I think it’s useful to gain a basic understanding of how the Chinese yuan operates. For the last 20 years or so (the exact date eludes me), the Chinese government has maintained what is known as a “peg” on the US Dollar. So, as the dollar appreciates in value (becomes “stronger”), so does the yuan. As the dollar depreciates (“weakens”), the yuan also depreciates. This ensures a fixed exchange rate between the yuan and the dollar and theoretically eliminates some of the currency risk between the US and China. So, if an American wants to invest in China (or a Chinese in America), he can be reasonably sure that the value of his currency holdings won’t change over time and, in theory, this makes it easier to conduct business in both countries. This is in contrast to something like the Euro, which maintains a floating exchange rate. So, the value of the Euro via the Dollar changes daily. The Chinese government sets the value of the peg (currently set at about 6.3 yuan to the Dollar) and actively trades in the currency markets to maintain that value. Every now and then the government may opt to change the spot of the peg (they are currently allowing for some appreciation), but this is the only time you see any real change in the value of the yuan. Pegs are nothing new and nothing unique to Communist governments. The US Dollar was pegged to gold until Nixon severed the peg in the 1970’s. So, that’s how the yuan works.


The yuan is generally believed to be valued at about 20% less than what it would be were the government to allow the value to float. This is the heart of the currency manipulation concerns. So, what does this mean? All else being equal, something priced in yuan whould be cheaper than something priced in dollars. But of course, everything else isn’t equal. People like to claim that China’s economic competitiveness is due largely to its intervention in the currency markets. However, there are other domestic factors that make China a hot-bed for manufacturing and industrial growth. One of the largest is labor costs. A recent report by the Bureau of Labor Statistics indicates that when compared to the United States, labor costs in China are 97% lower. In other words, if an employer pays an American $10/hour to do a job (make iPhones or something), he can pay a Chinese worker $0.30/hour to do the same job. Clearly, the employer is going to produce his goods in China. With such extreme differences in labor costs, a little currency manipulation isn’t going to change the equation much. There are other factors that make China a desirable place for businesses to set up shop (i.e. its rather lax attitude towards regulation and enforcement among others), but I think labor costs are key. With such low labor costs, even if the yuan traded at a “fair” valuation, China would still be the cheaper place to do business.

This then raises the question, what is the effect of the manipulation of the yuan on the average consumer? The answer is that the consumer gets a discount every time he walks into Wal-Mart, courtesy of the People’s Republic. So, on the consumer side, he can buy more things (things made in China, that is) for less money. Not too much to complain about there. Labor, of course, will complain about Chinese price advantages driving jobs overseas, but the fact of the matter is that those jobs were probably headed overseas anyway. Technically, I suppose this is a form of government welfare, with the PRC indirectly subsidizing American purchases of Chinese products. Conservatives generally take issue with any form of government subsidy, but is it really my place to complain if a foreign government wants to give me a subsidy? Really, instead of getting all over China for undervaluing their currency, we should be thanking them.

It looks impressive until you realize she’s only holding about $150.

Let’s also not pass over the sheer hypocrisy of the China-bashers. When the Chairman of the Federal Reserve is promising to pump $85 billion per month into the money supply indefinitely (thereby devaluing the dollar), it’s a little brazen for the federal government to get its nose out of joint over China’s effectively doing the same thing. Indeed, while the yuan has appreciated about 24% against the dollar since 2005, the Federal Reserve has spent the last four years printing off as many dollars as they can. The peg will help mitigate some of the effect of this unprecedented currency-printing on trade between the US and China, but for other American trading partners (Europe, for instance), the FED is effectively slashing the value of the dollar.

So, Chinese manipulation of the yuan isn’t quite so bad as people make it out to be. In all likelihood, it works out to be a kind of economic “stimulus” (if I may dare to use the word). It makes Chinese products a little bit cheaper, which allows consumers and businesses to buy more goods for less money. While there are some legitimate concerns about job losses, such concerns are overblown in light of China’s sharply lower labor costs and the FED’s Quantitative Easing program (look up Competitive Devaluation). There are some areas of legitimate concern in Sino-American relations. Threatening China with a trade war over its currency manipulation is a little ridiculous.

Of Lamas and Birds

Lama Temple's Front Courtyard

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On Sunday, I went to go visit Yonghegong (or the Lama Temple). It is an active Buddhist temple (of the Tibetan variety), so mixed in with all the tourists was a fairly sizable group of people praying at and in each of the “shrines”, which made for an interesting experience. I felt a little awkward running around taking pictures while they were all burning their incense, but there were a bunch of other dopey foreigners there doing the same thing. So, I didn’t feel too guilty. The temple itself was quite impressive. There were several small buildings within the compound that contained little shrines, with statues and altars and whatnot set up. There were also a couple larger buildings that housed enormous statues. The largest statue was about 3 stories tall. I don’t really know enough about Buddhism to be able to say what the significance of all the different statues is, but it was fairly impressive none the less. There were also a couple small exhibit halls, which contained all kinds of miniature Buddhas and sutras, etc.

I had some time to kill after visiting the Lama Temple, so I next went up to the Olympic Park to visit the Bird’s Nest stadium. It’s a very large stadium (currently seating about 80,000  or so). There’s no cost to wander around the outside of it, but I figured it would be more fun to wander around inside. So, I bought a (fairly expensive) ticket and wandered around the inside of the stadium for a bit. You can go just about anywhere within the stadium. They’ll even let you ride a Segway around outside of the main field for the right price. However, the views from the 5th and 6th levels were quite impressive (especially since the weather was cooperating). You can get a nice view of the city from some of the look-out points they’ve made available. They also have an exhibit on the 5th floor that displays some of the instruments and whatnot they used during the opening and closing ceremonies (which I have actually yet to see- though I understand they were quite impressive). And of course, they have the torch. One advantage of the rather steep admission cost was a significant lack of other people in the stadium, so you could get up nice and close with the exhibits (which I did). I didn’t make into the Water Cube (though I did see it). There’s also supposed to be some sort of Olympic Forest that supposed to be pretty interesting. But I was feeling pretty wiped out at that point, so I may return later if I have some free time.

Of All Things Wet and Shiny


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Yesterday, I went to the Beijing Aquarium, the largest inland aquarium in the world. It’s located within the Beijing Zoo (which also means you have to buy a zoo admissions ticket in addition to the aquarium ticket) in a large, conch shell-shaped building. You start by walking through a tropical exhibit, which contains several different varieties of some very large fish that I was unable to identify. You then enter the main lobby, from which you can access the Coral Reef exhibit, the sturgeons, and the “Touching Pool” a long, shallow pool filled with fish that you can touch. Of course, touching the fish is easier said than done, as they are quick little swimmers. There was also a large sea turtle at the end of the pool. You weren’t actually supposed to touch him, but most people did (it seems like most rules here are made to be broken). Though, the turtle seemed to have a routine down. He’d swim along the edge of the pool, people would touch his shell and grab his flipper thing, and he’d just keep swimming his circuit.

The aquarium also offers daily shows, which were reputed to be quite interesting. So, I went to one. You have to get there early to get a decent seat (I showed up about 45 minutes before hand), as the shows are quite popular. The first act involved a seal doing various tricks, including dancing, marching, clapping his flippers, etc. He also managed to jump out of the water and bop one of the plastic balls hanging from the ceiling. After the seal, a team of dolphins came out. They did the usual sort of dolphin thing, dancing around the pool, jumping in the air, etc. But they also had a dolphin rider, who managed to ride a pair of dolphins across the length of the pool. She then followed up by riding a single dolphin back across the pool, and then finished the act by having the dolphins throw her into the air. It was quite impressive. I didn’t think you could actually ride dolphins, but apparently that’s a thing.

I finished up my tour by buying what is probably the largest stuffed penguin the world (at a mere $15). I’m not entirely sure how I’ll get it home, but I’m going to chalk it up as the one of the greatest buys ever (and one that will probably make Molly very jealous).

Imperial Vaults and More!

The Long Corridor. When the Emperor made a sacrifice, this hallway would be lined with lanterns.

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Yesterday, I took a quick-ish little trip back to Tiananmen Square to go visit the Mao Zedong Memorial Hall. It was fairly impressive. They don’t allow you to bring any bags, cameras, etc. into the Hall, which I think is largely related to the security concerns of running thousands of people through the place everyday. The wait was about an hour, as I worked my way through a rather long and meander line that wound itself around the Square. Just outside the main entrance you could buy flowers to place at the foot of a statue of the former Chairman (I decided to take a pass on this part of the trip). Then you got to enjoy the AC for a few minutes as the line wound through to the back of the building where Mao’s body was on display. It was extremely quiet in this part of the building, especially compared to the general chaos that seems to characterize most public venues here. I personally thought it was kind of creepy to see him just lying there. But then I also realized why many people claim that the body in the casket there isn’t actually Mao (many claim it’s made of wax, etc.). The only thing you could see was his head (the rest of the body was covered in a blanket), and his face had a very orange color to it. The experience was quite fleeting though, as the friendly communist stooges quickly waved me through the line. Once outside the building, there were a few gift shops set up. They mostly sold ornate pictures of Mao and Maoist jewelry. However, I was feeling fairly nauseated by this point, so I just took a quick peek and left.

I also went to visit the Temple of Heaven, one of Beijing’s more iconic sites. However, the pollution wasn’t exactly cooperating, so the quality of some of my pictures leaves something to be desired. I actually ended up walking through the park backwards. Typically, the emperor would enter through the south gate and proceed to the Circular Mound, then to the Imperial Vault, then to the Hall of Prayer for Good Harvests. However, I came in the east gate (which also happens to be where the Metro stop is), and so went to the Hall, then the Vault, then the Mound. It was a nice little park. There were also two Cyprus forests on the grounds. Though, I think they may have been man-made, as most of the trees seemed to situated along straight lines.

Before heading back, I took a quick stop at the Pearl Market, located across the street from the Temple of Heaven. It was one of those large market deals, where you can buy nearly anything. The Pearl Market also sells pearls and tends to target foreigners for its customer base. I didn’t buy much (mostly just some panda-themed chopsticks in a rather snazzy box), but it was quite interesting. You bargain for everything, which is kind of neat as long as you know what you’re doing. The general rule of thumb is to not pay more than half of what the original asking price is. So, for my chopsticks: the starting price was 460 yuan, which she immediately cut to 260, which I negotiated down to 80. I also had someone try to sell me a belt. She wanted something like 300 for the belt, but I had zero interest in buying a belt (which she didn’t seem to understand). But it was kind of fun, because without me even doing much, she dropped the price down to 100 before I just took off. I found the trick was to sort of play dumb with the bargaining and then pretend to have no interest in whatever it is you wanted to buy. I also found that the best way to avoid being harassed by the shopkeepers was to simply keep walking (though this strategy was less successful when they tried to grab my arms). All in all, it was an interesting experience. There are several other markets like that in the area (the most famous be the Silk Street Market), but from what I understand, those can be considerably more intense.


Of Temples and (Nice) Trains

Shang Dynasty drinking vessels

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Update: In light of yesterday’s train wreck, I am currently re-evaluating my position on the D-Trains.

Our second day in Anyang, we spent some time touring some of the local cultural sites. We first went to the site of Yin Ruins, which are the site of one of the capitals of the Shang Dynasty. The Shang Dynasty is reputed to be the second dynasty (following the Xia Dynasty) in Chinese history, and the oldest dynasty known to exist (the existence of the Xia Dynasty cannot be historically confirmed). In addition to touring the grounds, we also visited the on-site museum which some of the Shell and Bone “manuscripts” (in addition to other artifacts). The Shell and Bone script was frequently carved on the “belly shells” of turtles, and if you look closely in the pictures above, you can see some of the carvings on the shells. The writing is quite small and doesn’t bear a whole lot of resemble to modern character styles, but it’s pretty neat to look at. You can see the evolution of a few characters in this chart.

Next we went to lunch. But on the way, our bus broke down (in the middle of traffic). It was slightly disconcerting being stranded on the side of busy thoroughfare, but after about 30 minutes or so one of our group’s other buses (we had three) came and took us to lunch. I was quite surprised when, after lunch, the formerly broken-down/stranded bus was parked in the restaurant’s parking lot. Apparently, it doesn’t take Chinese mechanics two or three days to fix an engine problem.

After lunch, we went to the Chenghuang Temple to watch a Yang Ge performance. It was something between drum performance and a dance, with the performers all decked out in red, beating on drums and, moving about in a fairly complex fashion. The temple also had some different types of artwork on display (and a few Buddhist shrines), so wandered around those for a bit. The temples had rather graphic visual depictions of hell, which were both intriguing and disturbing. It was a little graphic for my taste, with demons ripping people to pieces and spewing blood everywhere. It wasn’t exactly family friendly.

Finally, we went to go see the Wenfeng Pagoda, which was some sort of ancient Buddhist temple, or something along those lines. There were also two (apparently active) shrines next to the Pagoda. I snapped a few pictures of the statues, but there were people praying and whatnot in the temples, so I tried to tone-down my touristy side.

After wandering about the city for a bit (and a rather tasty dinner- we had, among other things, a blue soup made with laver?), we took the train back to Beijing. Except this time, we took a D-train, which is one of the slower bullet-trains that people are always salivating over. It was much nicer than the T-train. It still took about 4 hours to get to Beijing, but there were no people in the aisles, I had plenty of leg-room, the AC worked, it was clean, and I had a nice soft seat. It was a bit more expensive than the T-train (a ticket was 155 yuan, or about $24), but in my opinion, it was well worth the extra $10. I could comfortably ride a D-train again, while nothing short of a gun to my head would get me on a T-train.


Of Penguins and Pandas

Penguins, doing their penguin thing

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I went to the Beijing Zoo today, which was quite interesting. You can flip through the pictures I took in the album above. It was a fairly large zoo and took several hours to cover. However, beforehand, I lunched at KFC, where I enjoyed a Shrimp Burger. While unexpected, the burger was quite tasty.

The zoo has an unbeatable 20 RMB (about $3) admission fee, which includes the 5 RMB (for reference, Ren Min Bi, aka the yuan or, more informally, the kuai) add-on for the pandas. There was also a 10 RMB add-on for the penguins, which now that I think about it, is quite odd. You’d think that with pandas being a national treasure and all that, they’d be worth more than the penguins and, the zoo would charge more to see the pandas than the penguins. Or maybe this is some sort of government program to ensure that all the masses can see the pandas and thus revel in their great proletarian revolutionary past. I will have to give this some thought.

Anyway, I sent most of the day wandering around gawking at all the cool animals they had in the zoo. There were penguins, really cool goldfish, pandas, deer, donkeys, monkeys, birds, lions, and bears. Oh my! The Beijing Aquarium (the largest inland aquarium in the world) is also located within the grounds of the zoo, but I did not have time to stop by. The exhibits were all quite interesting, and the zoo generally allowed you to get quite close to the animals (especially when compared to the standards of most American zoos). In fact, there were hordes of excited children running around the zoo with bags of lettuce that they would take and feed to the animals, both for the excitement of feeding zebras and such, but also as a way to set-up a better photo-op with the animal in question. I actually saw one guy banging on one of the lions’ cages with a stick so that they would be situated directly behind his son when he snapped a picture. It didn’t really strike me as the smartest idea in the world, but it worked.

I hit the pandas last, mostly because they were on the other side of the zoo, but also because one of the better souvenir shops was located in the Olympic Panda House. I was pleasantly surprised to discover that the prices at this place were quite reasonable. I was able to pick up a couple of pandas (one at the behest of Molly, the other one I bought for myself), some rather decent postcards, and a rather cool-looking piece of panda art for about $25. Even the sodas weren’t that pricey. I bought a 20-oz. bottle of Coke for about $0.75. The Chinese have obviously not learned the art of extortion that typically characterizes gift shops.

On an unrelated topic, I also went to go see a Chinese acrobatic performance at the Heaven and Earth Theater on Friday night. Unfortunately, they had a rather strict no cameras policy, so I couldn’t snap any shots. However, the performance was quite interesting, with the acrobats doing all kinds of wild twists and turns (so of which I didn’t think were even possible) and balancing acts with glasses and balls and whatnot. It was quite cool.