I'm sure you guys have heard it as it's been on just about every financial show the past two days. I'm interested in fleshing out the LOGIC behind this. Does anyone out there think that they're spinning a "fake logic" behind it to the public, and there's some other rationale as to why this action would benefit them?

As I understand it, American politicians are wanting the Chinese government to print LESS yuan for each dollar they take in then their current exchange rate would imply. Correct?

So, using hypothetical numbers just to think about the economic theory, an American buys a cheap good from a Chinese manufacturer for $10. If the exchange rate is currently $1 = 10 yuan then that Chinese manufacturer will get 100 yuan when he exchanges it at his Central Bank. So if the Chinese were to listen to America, and change the exchange rate to $1 = 5 yuan, then when that American buys that good for $10 the Chinese manufacturer is now only going to be getting 50 yuan.

So the effect of this policy would mean that the Chinese citizens have their purchasing power halved? I find this all confusing as I'm comparing one piece of paper to another and both can be created from the ether... I'm lost lol. What economic statements can one make about "life under the new exchange rate" versus "life under the old exchange rate"? It seems like there'd be less yuan inflation in China then, yes? Would make American exports more competitve to the Chinese? And Chinese imports less competitive to Americans?

I'm throwing it out to the forum as I'd just love to hear as many thoughts on this exchange rate issue as possible because I've got a feeling it'll be in the news for some time. I find it quite hard to go through the "exchange rate logic" clearly enough without being sure I'm erring in some economic logic somewhere. Part of me can't help but think, "imagine how easy it would be to spot bunk economic logic or how easy it would be to get what's going on if we all had one money and you didn't even have to worry about exchange rates?"...sigh.

50 yuan then still has the purchasing power of 1 dorrar or 1/30 gram of gold or whatever it is atm

basically if the yuan appreciates it gains purchasing power, if however this is an artificial manipulation then the worker can buy less for his money in china

am I right?

Wouldn't the manufacturer then be charging $20 for the good (100 yuan)?

However, an American machine gun that was $10,000 (100k Yuan) now costs a Triad $10,000 (50k Yuan)

in the example given in the OP, if it goes from $1 = 10 yuans to $1 = 5 yuans, its the Americans who lost half their purchasing power, since something in China that's valued at 10 yuans in purchasing power will now require $2 for americans rather than $1. If the amount of yuans Americans got for their dollar decreases then they are the ones who lost purchasing power.

our politicians are under the belief that if China lets their currency appreciate we will be more competitive with our exports and it will help our economy

What will happen is that american companies will be paying their workers less purchasing power, thus they can lower their prices and get more competitive.

how does the dollar losing value in foreign exchange allow american companies to lower their prices and become more competitive? if they are paying their workers the same amount that just happens to have lost value and goods being imported are more expensive, how does that equate to them being able to lower their prices