| US waging economic war against China??? | |
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| Mar 27, 2008 01:51 |   |
 | Source: Abs-cbnnews.com. US waging economic war against China By JOHN MANGUN Why have the prices of commodities like oil and gold risen so dramatically in the last year? Why has the dollar fallen so much? Normal business cycle? Bad management from the world’s financial institutions? And why hasn’t the world’s largest and strongest economy, backed by the most powerful government, been able to change the course of the situation? Perhaps the larger picture is that the United States is waging an economic war against China. The New York stock market rallied some 400 points Tuesday night, prompting an increase in prices across Asia. Even the Philippines participated a little. US stock prices reacted favorably to the news that the Federal Reserve lowered interest rates. Bloomberg: “The Fed has cut the benchmark lending rate by 2 percentage points this year, the most aggressive easing since the federal funds rate became an explicit target of policy in the late 1980s.” But don’t get too excited because you must look not just at the “big” picture, but the “whole” picture. Conventional and common wisdom talks about the recession facing the United States and the potential that an economic slowdown is confronting the globe. There is little indication that a “normal” economic slowdown is happening; normal meaning that production is dropping. It is not so much that production is going down but that the end-result of production, buying, is dropping. If you look around the world at virtually every country in every economic and wealth group, people are wealthier today on the average than at any other time in history. But if people are wealthier, why aren’t they purchasing? One word: inflation. Prices are going through the roof around the world. Well, that is obviously the fault of high oil prices, right? For example, Kuwait reports that inflation is at a 15-year high. China is very worried and the United States is ignoring the issue in favor of trying to keep the financial system sound. |
| Mar 27, 2008 01:52 | #1 |
| World inflation has been in a downtrend since 1990, but prices are expected to show heavy increases in 2008, potentially reversing a 15-year movement. Traditionally, high interest rates were a strong indication of inflation trends. In the last 20 years, inflation was best illustrated by a weak dollar and strong gold and commodity prices. And we now have the dollar at historic lows and gold at historic highs, with both of these trends showing little likelihood of changing. Then we must ask, why is this happening? Why have the prices of commodities like oil and gold risen so dramatically in the last year? Why has the dollar fallen so much? Normal business cycle? Bad management from the world’s financial institutions? And why hasn’t the world’s largest and strongest economy, backed by the most powerful government, been able to change the course of the situation?Perhaps the larger picture is that the United States is waging an economic war against China. The United States could strengthen the value of the dollar. It has not. China is hurt because now Chinese products are very expensive in the United States, and this will reduce the US trade deficit with China. China must import huge amounts of oil and strategic metals which are very much more expensive now. China holds hundreds of millions of physical dollars, the value of which is now much less. China has refused to revalue its currency to a realistic level to improve its trade position with the United States. China has used its huge dollar reserves as a sword against the United States by threatening to sell those dollars, and thereby causing the dollar to drop in value. In effect, the United States is using China’s strength against China. In order for China to maintain the levels of its trade with the United States, it will be forced to lower the value of its currency. However, if it does that, it faces two major problems. Foreign direct investment (FDI) into China would become less expensive, and China is worried that more and cheaper FDI would spur China’s inflation. Further, a devalued currency would reduce the profit to China for its exported goods. |
| Mar 27, 2008 01:52 | #2 |
| If China keeps it currency at its present levels, the United States will buy less. The United States wanted a stronger yuan to reduce trade, which China was unwilling to do. That objective is now achieved by a weaker dollar. China’s dollar holdings are worth much less when buying goods like oil and metals that China depends on for its development and growth. Further, China has been talking and trying for some time to diversify its foreign-reserve holdings form dollars to other currencies and gold. Now, their dollars are worth much less when buying gold, yen and euros. The current crisis hitting the financial institutions looks to me like a normal business-cycle shakeout not unlike the dot-com IPO fiasco of the 1990s, the savings-and-loan and foreign-country debt crisis of the 1980s and the personal credit crisis of the 1970s. Back then, the US government bailed out Wall Street, Mexico and the banks, among others, without receiving much in return. This time, the “crisis” is being used to further the US economic position, long-term position, particularly with regard to China. From Sun Tzu: “All warfare is based on deception.” |
| Mar 27, 2008 01:54 | #3 |
| What do you think of this report? Do you think it is reasonable? If so, what Should China do to survive the economic war? |
| Mar 27, 2008 11:07 | #4 |
| Every 18 year goes a business cycle triggered by production in oil industry. Although I don’t quite understand the theory, the fact that energy did cause debt crises –latin and southeast asia and then the domino chains were extended to currency market. US financial and consumer sectors are in deep crisis with millions of millions of write-downs on their books and the floor still cannot be seen yet. Current market herd behavior is like that stay away from those with high leverage (in deep debts), specifically, AVOID US CORP. The current RMB peg to $ US is 7:1 or something that attract US consumers to first look at Chinese goods not US goods. I guess controlling oil price is a better way than manipulating interest rate for US gov to balance Fed book. Economy is always on the forefront of political discussion as the article above mentioned. If somebody is a selfish Chinese YUAN earner, he/she prefers YUAN up again $ US. And some speculators in currency market could be accumulating RMB long positions with the bet on the correction of RMB against U$ at the level of 5:1 or even 4:1 coz eventually RMB will not be pegged to U$ and free float someday. |
| Mar 27, 2008 17:25 | #5 |
| A "double-edged sword" situation for both China and the U.S. as China will gain and lose on some policies as will the U.S. Specifics are hard to state as a lot of decisions made are intertwined with others. (and I'm not an economist) "Deception" is a good term, as there is much to be desired in the transparency and intent that is not reported in publications. One thing is sure: only those institutions that are in global finance or manufacturing or service will gain from economic(domestic and global) decisions and the rest will be left behind to suffer for these decisions thru job loss, job down sizing or an increase in taxes. |
| Mar 27, 2008 22:40 | #6 |
| It is probably more of a competitive battle than it is a war; at least I hope that is true. The USA is paying for years of mismanagement and failure to heed Ike's warnings about the military industrial complex. The rest of the world is linked to the fortunes of the US. That will chance in the years ahead, but for now, as the US goes - so goes the global economy. |
| Apr 7, 2008 21:00 | #7 |
| "China is hurt because now Chinese products are very expensive in the United States, and this will reduce the US trade deficit with China. China must import huge amounts of oil and strategic metals which are very much more expensive now. China holds hundreds of millions of physical dollars, the value of which is now much less." I am wondering how much US dollar will depreciate. Judging from what US has down, it sounds an economic war. Who will be the winner? Let's wait and see. |
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