The one thing that seems to be certain is that for China (or some other country) to peg their currency so that it is undervalued, they MUST be willing to hold the overvalued paper that comes in… The second that they decide that they don’t want the overvalued paper, the currency peg begins to disappear.

I made a big one on the cash for clunkers post and I learned something from it – there’s always a silver lining.

Seems appropriate to post here.

Don’t worry about it. That money’ll come back as investment. Sans capital controls and a loathing of foreign investment, et al, we wouldn’t have to worry so much about currency fluctuations…

What is the market clearing price of a ticket out of Auschwitz? I suppose this question has an answer, but the answer has nothing to do with “free market economics”. If it does, then every economy is a “free market economy”.2. I can’t agree with you here. Again, this system seems roughly equivalent to taxing Chinese factors of production and using the tax revenue to bid the exchange rate down to the fixed level. Would this tax be identical to the Chinese not having their own currency?What does something cost to make? Again, is the “cost” of labor simply the cost of avoiding starvation, or does “cost” mean something else?You’re missing the restraints of trade that you aren’t discussing. You’re assuming that one Chinese merchant’s ability to negotiate a price with one U.S. merchant is the only “freedom” that matters. In reality, countless forces affect the price these two traders negotiate, and these forces aren’t necessarily what the liberal traditional calls “proper”.