The two main econ stories in the news this morning are (1) China's currency and (2) Chris Dodd's financial-reform bill. Also in this morning's roundup is (3) a little Goldman candy for finance nerds.
The yuan is not undervalued, China's Premier Wen Jiabao argued yesterday at his once-a-year press conference. China has been keeping its currency pegged to the dollar since mid-2008. This makes Chinese exports cheaper in foreign markets like the U.S. and Europe, which in turn makes it more difficult for manufacturers in other countries to compete. China keeps the value of the yuan constant by selling lots and lots of yuan and buying dollars and other foreign currencies. In his column today, Paul Krugman calls China's approach "the most distortionary exchange rate policy any major nation has ever followed.
Chris Dodd will release his finance bill this afternoon. The Consumer Finance Protection Agency will be housed inside the Fed, according to the Washington Post. Liberal Dems won't like that. But the bill will allow states to pass tougher consumer-protection laws, a provision that liberals will like, Politico says. I'll have more on the Dodd bill after it's released this afternoon. In the meantime, Listen to Friday's podcast for more on finance reform.
Goldman Sachs and JP Morgan use their strong position in the derivatives market to force their counterparties to put up lots of collateral. This gives the banks the use of lots of cash at very low interest. Bloomberg News explains.