[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.60,0:00:03.43,Default,,0000,0000,0000,,In the last video, we saw a\Nreality where the currency
Dialogue: 0,0:00:03.43,0:00:06.08,Default,,0000,0000,0000,,between, or the exchange rate\Nbetween, the Yuan and the
Dialogue: 0,0:00:06.08,0:00:08.78,Default,,0000,0000,0000,,dollar started off at 10 to 1.
Dialogue: 0,0:00:08.78,0:00:13.74,Default,,0000,0000,0000,,And at that exchange rate,\NChina was shipping more
Dialogue: 0,0:00:13.74,0:00:16.89,Default,,0000,0000,0000,,goods-- in terms of whether you\Nmeasure it in dollars or
Dialogue: 0,0:00:16.89,0:00:20.96,Default,,0000,0000,0000,,Yuan --was shipping more to\Nthe U.S. than the U.S. was
Dialogue: 0,0:00:20.96,0:00:22.76,Default,,0000,0000,0000,,shipping to China.
Dialogue: 0,0:00:22.76,0:00:25.92,Default,,0000,0000,0000,,And because of that, we saw an\Nimbalance in the currencies.
Dialogue: 0,0:00:25.92,0:00:28.84,Default,,0000,0000,0000,,The Yuan became more expensive,\Nor the dollar
Dialogue: 0,0:00:28.84,0:00:32.51,Default,,0000,0000,0000,,became cheaper, until eventually\NChinese goods got
Dialogue: 0,0:00:32.51,0:00:35.34,Default,,0000,0000,0000,,expensive enough that there was\Nless demand in the U.S.
Dialogue: 0,0:00:35.34,0:00:38.09,Default,,0000,0000,0000,,and U.S. goods got cheap enough,\Nthat there was more
Dialogue: 0,0:00:38.09,0:00:39.90,Default,,0000,0000,0000,,demand in China, that the trade
Dialogue: 0,0:00:39.90,0:00:42.52,Default,,0000,0000,0000,,actually came into balance.
Dialogue: 0,0:00:42.52,0:00:47.81,Default,,0000,0000,0000,,Now, that's OK if everyone\Nwanted to have balanced trade,
Dialogue: 0,0:00:47.81,0:00:50.38,Default,,0000,0000,0000,,but what if the Chinese\Ngovernment didn't want that.
Dialogue: 0,0:00:50.38,0:00:52.88,Default,,0000,0000,0000,,They said, hey, we needed to\Ndevelop, the United States is
Dialogue: 0,0:00:52.88,0:00:55.80,Default,,0000,0000,0000,,already developed, we want to\Nhave an industrial base, we
Dialogue: 0,0:00:55.80,0:00:59.11,Default,,0000,0000,0000,,want to have a market to\Nsell our goods to.
Dialogue: 0,0:00:59.11,0:01:02.07,Default,,0000,0000,0000,,We want to export more to\Nthe United States than
Dialogue: 0,0:01:02.07,0:01:03.25,Default,,0000,0000,0000,,we import from them.
Dialogue: 0,0:01:03.25,0:01:05.65,Default,,0000,0000,0000,,We want export-led growth.
Dialogue: 0,0:01:05.65,0:01:09.25,Default,,0000,0000,0000,,So they don't like the dynamic\Nthat they saw, they did not
Dialogue: 0,0:01:09.25,0:01:11.39,Default,,0000,0000,0000,,like the currency, they\Ndid not like the
Dialogue: 0,0:01:11.39,0:01:13.44,Default,,0000,0000,0000,,Yuan getting expensive.
Dialogue: 0,0:01:13.44,0:01:16.73,Default,,0000,0000,0000,,So let's say the Chinese\Ngovernment-- let me scroll up
Dialogue: 0,0:01:16.73,0:01:29.56,Default,,0000,0000,0000,,a little bit --so the Chinese\Ngovernment wants to keep
Dialogue: 0,0:01:29.56,0:01:45.70,Default,,0000,0000,0000,,currency exchange pegged at-- I\Nran out of space over there
Dialogue: 0,0:01:45.70,0:01:47.57,Default,,0000,0000,0000,,--at CNY 10 per dollar.
Dialogue: 0,0:01:47.57,0:01:50.12,Default,,0000,0000,0000,,And they want that because they\Nwant this situation to
Dialogue: 0,0:01:50.12,0:01:53.68,Default,,0000,0000,0000,,keep on going forever, that\NChina keeps shipping more to
Dialogue: 0,0:01:53.68,0:01:57.17,Default,,0000,0000,0000,,the U.S. than the U.S. ships to\NChina, or maybe they wanted
Dialogue: 0,0:01:57.17,0:01:59.21,Default,,0000,0000,0000,,to go even more, that China\Nkeeps shipping more and more
Dialogue: 0,0:01:59.21,0:02:02.31,Default,,0000,0000,0000,,to the U.S. than the U.S. ships\Nto China so that China
Dialogue: 0,0:02:02.31,0:02:04.39,Default,,0000,0000,0000,,could build its industrial\Nbase.
Dialogue: 0,0:02:04.39,0:02:07.34,Default,,0000,0000,0000,,And, I guess the more sinister\Nview is also so that the
Dialogue: 0,0:02:07.34,0:02:10.37,Default,,0000,0000,0000,,United States' industrial\Nbase gets depleted.
Dialogue: 0,0:02:10.37,0:02:12.92,Default,,0000,0000,0000,,That they keep manufacturing\Nthings cheaper and cheaper and
Dialogue: 0,0:02:12.92,0:02:14.53,Default,,0000,0000,0000,,cheaper, and then United States
Dialogue: 0,0:02:14.53,0:02:15.71,Default,,0000,0000,0000,,manufacturers can't compete.
Dialogue: 0,0:02:15.71,0:02:20.74,Default,,0000,0000,0000,,And we'll talk about this in\Nmore videos, it's not it's not
Dialogue: 0,0:02:20.74,0:02:23.47,Default,,0000,0000,0000,,clear that it's 100%\None-sided.
Dialogue: 0,0:02:23.47,0:02:26.14,Default,,0000,0000,0000,,There's actually some benefits\Nthat the United States also
Dialogue: 0,0:02:26.14,0:02:27.83,Default,,0000,0000,0000,,gets from this, and we'll\Ndiscuss that more.
Dialogue: 0,0:02:27.83,0:02:29.39,Default,,0000,0000,0000,,It's a little bit\Nmore involved.
Dialogue: 0,0:02:29.39,0:02:30.70,Default,,0000,0000,0000,,So how could they do this?
Dialogue: 0,0:02:30.70,0:02:32.93,Default,,0000,0000,0000,,Let's just say that the Chinese\Ngovernment wants this
Dialogue: 0,0:02:32.93,0:02:34.97,Default,,0000,0000,0000,,reality, and they want\Nthis reality frozen.
Dialogue: 0,0:02:34.97,0:02:37.72,Default,,0000,0000,0000,,They do not want the reality\Nwhere the trade balances.
Dialogue: 0,0:02:37.72,0:02:41.66,Default,,0000,0000,0000,,How could they intervene in\Ncurrency markets so that this
Dialogue: 0,0:02:41.66,0:02:42.66,Default,,0000,0000,0000,,doesn't change?
Dialogue: 0,0:02:42.66,0:02:45.38,Default,,0000,0000,0000,,Because, as we said, if more\NChinese goods are being
Dialogue: 0,0:02:45.38,0:02:49.06,Default,,0000,0000,0000,,bought, there's more demand\Nfor Yuan, the Yuan should
Dialogue: 0,0:02:49.06,0:02:51.47,Default,,0000,0000,0000,,appreciate, the dollar\Nshould go down.
Dialogue: 0,0:02:51.47,0:02:52.56,Default,,0000,0000,0000,,But how do you get both?
Dialogue: 0,0:02:52.56,0:02:54.73,Default,,0000,0000,0000,,How do you have your cake\Nand eat it too?
Dialogue: 0,0:02:54.73,0:02:58.36,Default,,0000,0000,0000,,How do you get more goods being\Nshipped to the United
Dialogue: 0,0:02:58.36,0:03:03.09,Default,,0000,0000,0000,,States than back to China\Nwithout the Yuan appreciating?
Dialogue: 0,0:03:03.09,0:03:05.03,Default,,0000,0000,0000,,And the way you do that,\Nthere's the Chinese
Dialogue: 0,0:03:05.03,0:03:07.77,Default,,0000,0000,0000,,government, or maybe in\Nparticular we could talk about
Dialogue: 0,0:03:07.77,0:03:09.85,Default,,0000,0000,0000,,the Chinese Central Bank.
Dialogue: 0,0:03:09.85,0:03:12.52,Default,,0000,0000,0000,,The Chinese Central Bank, which\Nis a part of the Chinese
Dialogue: 0,0:03:12.52,0:03:16.69,Default,,0000,0000,0000,,government can say, hey, to\Nkeep our Yuan devalued, we
Dialogue: 0,0:03:16.69,0:03:17.82,Default,,0000,0000,0000,,will print money.
Dialogue: 0,0:03:17.82,0:03:20.23,Default,,0000,0000,0000,,So let me draw the Chinese\NCentral Bank.
Dialogue: 0,0:03:30.14,0:03:31.39,Default,,0000,0000,0000,,Let me do this in a new color.
Dialogue: 0,0:03:43.41,0:03:46.86,Default,,0000,0000,0000,,And what they do, they can\Nactually just print money.
Dialogue: 0,0:03:46.86,0:03:50.22,Default,,0000,0000,0000,,So we had this scenario that I\Nhad outlined in the last two
Dialogue: 0,0:03:50.22,0:03:53.25,Default,,0000,0000,0000,,videos where we had\Nthis imbalance.
Dialogue: 0,0:03:53.25,0:03:56.31,Default,,0000,0000,0000,,There was demand for\NCNY 1,000, but only
Dialogue: 0,0:03:56.31,0:03:58.48,Default,,0000,0000,0000,,supply of CNY 500.
Dialogue: 0,0:03:58.48,0:04:02.54,Default,,0000,0000,0000,,So what they can do is\Njust equalize this.
Dialogue: 0,0:04:02.54,0:04:15.68,Default,,0000,0000,0000,,They could just print CNY 500\Nand then try to convert that
Dialogue: 0,0:04:15.68,0:04:16.93,Default,,0000,0000,0000,,into dollars.
Dialogue: 0,0:04:24.09,0:04:25.62,Default,,0000,0000,0000,,So what just happened?
Dialogue: 0,0:04:25.62,0:04:29.79,Default,,0000,0000,0000,,Now all of a sudden, we have\N$100 that are trying to be
Dialogue: 0,0:04:29.79,0:04:33.59,Default,,0000,0000,0000,,converted into roughly CNY 1,000\Nor if that exchange rate
Dialogue: 0,0:04:33.59,0:04:34.74,Default,,0000,0000,0000,,were to be constant.
Dialogue: 0,0:04:34.74,0:04:37.04,Default,,0000,0000,0000,,So there's demand\Nfor CNY 1,000.
Dialogue: 0,0:04:37.04,0:04:39.51,Default,,0000,0000,0000,,Before the Chinese Central Bank\Ngot involved, there was
Dialogue: 0,0:04:39.51,0:04:42.27,Default,,0000,0000,0000,,only a CNY 500 supply.
Dialogue: 0,0:04:42.27,0:04:44.91,Default,,0000,0000,0000,,But now the Chinese Central\NBank says, OK, there's a
Dialogue: 0,0:04:44.91,0:04:48.45,Default,,0000,0000,0000,,demand for CNY 1,000, there's\Nonly CNY 500 supply, we're
Dialogue: 0,0:04:48.45,0:04:50.11,Default,,0000,0000,0000,,going to produce another\NCNY 500.
Dialogue: 0,0:04:50.11,0:04:53.36,Default,,0000,0000,0000,,We literally can just print it,\Nand then they will convert
Dialogue: 0,0:04:53.36,0:04:55.49,Default,,0000,0000,0000,,what they printed\Ninto dollars.
Dialogue: 0,0:04:55.49,0:04:58.30,Default,,0000,0000,0000,,So just like that, you\Nnow have a balance
Dialogue: 0,0:04:58.30,0:05:00.32,Default,,0000,0000,0000,,of supply and demand.
Dialogue: 0,0:05:00.32,0:05:05.39,Default,,0000,0000,0000,,You have CNY 1,000, 500 here and\N500 here that want to be
Dialogue: 0,0:05:05.39,0:05:09.09,Default,,0000,0000,0000,,converted into dollars, and then\Nyou have $100 that want
Dialogue: 0,0:05:09.09,0:05:12.18,Default,,0000,0000,0000,,to be converted into,\NI guess, CNY 1,000.
Dialogue: 0,0:05:12.18,0:05:15.06,Default,,0000,0000,0000,,So if they were to do this, the\Ncurrency wouldn't change.
Dialogue: 0,0:05:15.06,0:05:18.99,Default,,0000,0000,0000,,The exchange rate\Nwould change.
Dialogue: 0,0:05:18.99,0:05:22.90,Default,,0000,0000,0000,,The supply and demand of the two\Ncurrencies would be equal.
Dialogue: 0,0:05:22.90,0:05:26.32,Default,,0000,0000,0000,,Now, and that would work and\Nfrankly that's what they have
Dialogue: 0,0:05:26.32,0:05:28.21,Default,,0000,0000,0000,,been doing for some time now.
Dialogue: 0,0:05:28.21,0:05:30.71,Default,,0000,0000,0000,,But there's one kind\Nof catch here.
Dialogue: 0,0:05:30.71,0:05:35.13,Default,,0000,0000,0000,,The whole time that they're\Ndoing this, what is happening?
Dialogue: 0,0:05:35.13,0:05:37.82,Default,,0000,0000,0000,,Well, they keep shipping more to\Nthe United States then the
Dialogue: 0,0:05:37.82,0:05:39.78,Default,,0000,0000,0000,,United States is shipping\Nto China.
Dialogue: 0,0:05:39.78,0:05:43.20,Default,,0000,0000,0000,,These guys keep having to print\NYuan and buy dollars
Dialogue: 0,0:05:43.20,0:05:45.58,Default,,0000,0000,0000,,with those Yuan in\Norder to keep the
Dialogue: 0,0:05:45.58,0:05:47.66,Default,,0000,0000,0000,,Chinese currency cheap.
Dialogue: 0,0:05:47.66,0:05:51.29,Default,,0000,0000,0000,,So these people are going to\Nkeep accumulating dollars.
Dialogue: 0,0:05:51.29,0:05:53.77,Default,,0000,0000,0000,,They just keep printing Yuan\Nand then they just keep
Dialogue: 0,0:05:53.77,0:05:55.53,Default,,0000,0000,0000,,accumulating dollars.
Dialogue: 0,0:05:55.53,0:05:58.73,Default,,0000,0000,0000,,Let me draw that over here, so\Nthe Chinese Central Bank just
Dialogue: 0,0:05:58.73,0:06:01.16,Default,,0000,0000,0000,,starts accumulating many,\Nmany dollars.
Dialogue: 0,0:06:01.16,0:06:04.92,Default,,0000,0000,0000,,They can they can print Yuan\Nas much as they want, those
Dialogue: 0,0:06:04.92,0:06:09.12,Default,,0000,0000,0000,,Yuan, they trade them into\Ndollars and then these guys
Dialogue: 0,0:06:09.12,0:06:15.17,Default,,0000,0000,0000,,start accumulating more and\Nmore dollars over here.
Dialogue: 0,0:06:15.17,0:06:17.80,Default,,0000,0000,0000,,And the more that they want this\Ntrade imbalance to occur,
Dialogue: 0,0:06:17.80,0:06:20.32,Default,,0000,0000,0000,,the longer they want it to\Noccur, the more dollars that
Dialogue: 0,0:06:20.32,0:06:21.16,Default,,0000,0000,0000,,they will have to accumulate.
Dialogue: 0,0:06:21.16,0:06:22.99,Default,,0000,0000,0000,,So they have to just keep\Non doing it, they can't
Dialogue: 0,0:06:22.99,0:06:23.97,Default,,0000,0000,0000,,even stop doing it.
Dialogue: 0,0:06:23.97,0:06:26.61,Default,,0000,0000,0000,,They have to keep doing it in\Norder to keep the trade
Dialogue: 0,0:06:26.61,0:06:27.95,Default,,0000,0000,0000,,balance the way it is.
Dialogue: 0,0:06:27.95,0:06:29.72,Default,,0000,0000,0000,,And in the next video, I'll talk\Nabout what they actually
Dialogue: 0,0:06:29.72,0:06:32.24,Default,,0000,0000,0000,,have to do with these dollars\Nbecause they actually won't
Dialogue: 0,0:06:32.24,0:06:34.85,Default,,0000,0000,0000,,just keep it in cash, what they\Nactually have to do with
Dialogue: 0,0:06:34.85,0:06:37.48,Default,,0000,0000,0000,,these dollars, and then what\Neffect that actually might
Dialogue: 0,0:06:37.48,0:06:39.40,Default,,0000,0000,0000,,have on the United\NStates economy.
Dialogue: 0,0:06:39.40,0:06:43.87,Default,,0000,0000,0000,,Then we could talk about how\Nthis might unwind itself, but
Dialogue: 0,0:06:43.87,0:06:46.85,Default,,0000,0000,0000,,we'll find out it's actually\Nvery difficult for this
Dialogue: 0,0:06:46.85,0:06:50.28,Default,,0000,0000,0000,,scenario to unwind once\Nit gets started.