Posted on 03/22/2008 9:41:31 PM PDT by manilaman
US waging economic war against China
Outside the Box 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.
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.
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.” -- Business Mirror http://businessmirror.com.ph/0320-222008/opinion05.html
Cry Havoc and let Slip the Dogs of Economic War!!!!!!!!! F U CHINA
We’re waging economic war against China? How? Buy buying everything in Wal-Mart? I suspect if we keep it up, we might be able to buy every scrap of plastic over there, and soon enough, we’ll own the world’s supply of cheap plastic stuff! Yes! Take that, Mao!
I think liberal journalist read our random post here at the FR and steal our ideas.
Yes, we are waging an economic war against China. No, liberal journalist, no matter how well they write, have any insight to matters local or international.
Only Conservatives can see the future. And I predict, Obama is a Gramschi communistic rat racist.
The Philippines Should Become The 51st State
http://www.useless-knowledge.com/1234/jan/article528.html
by short changing their economic infrastructure. They have to look else where... but there is nowhere else to look besides s.e. Asia.
Bookmark for morning read. Night All!
This article is nonsense.
The article is right on in many respects. I can point to posts of mine from a year ago stating that the drive to weaken the dollar was focused on China and its reluctance to revalue the Yuan up.
The article contradicts itself with these two statements however:
“China is hurt because now Chinese products are very expensive in the United States”
“China has refused to revalue its currency to a realistic level”
As the chart above shows, the dollar has lost about 15% of it’s value. Not nearly as dramatic as the difference with the Euro and Pound. By and large, Chinese products are not much more expensive in the USA and we are using that to our advantage. We get nice big screen TVs, they get a few more pieces of paper.
These two statement sum it up completely:
“In effect, the United States is using China’s strength against China.”
“That objective is now achieved by a weaker dollar.”
The price of oil, which is denominated in dollars, is hurting China as much if not more than the US.
I for one believe this policy is correct for the long run and look forward to adding more US manufacturing jobs on the payroll in the years to come.
Just a question ....if US imposes tariffs etc on China do they not just pass on that cost to the homers that shop at the Great Wall of Mart’s , Targets, SAM’s, Price Clubs, Costco’s, Bed Bath’s and Boobs etc etc in Podunk USA as they maintain their profit margin ?
Just asking.......:o)
Stay safe !
Bump for later read
Interesting premise. Not sure if I buy it. It seems to me that the Red Chinese are going to own us lock, stock and barrel. If we are trying to hurt their economic power, I’m all for it. Seems like everything I buy these days is Made in China. Hard to find anything manufactured in America anymore.
BTW, Welcome to FreeRepublic manilaman.
Tell us about yourself. Are you the author?
Some said the exact same thing about the Japanese about 20 years ago.
my favorite freeper (and all around good guy) has been saying for years that the declining dollar has a method to its apparent madness, the primary one being the encouragement of a yuan that floats like the currencies of all the other major industrialized nations.
AIT? What’s your take on this?
The only reason why I can’t buy this completely is because many other nations, not just China, have huge dollar reserves and are hurting because of the dollar devaluation.
It’s causing a frenzy here in Japan. And, if the United States could strengthen the dollar, I am sure Prime Minister Fukuda would be on the phone screaming about it.
Japan has not totally recovered from the burst economic bubble of 1988 and a lot of people are extremely nervous as indicators haven’t really stabilized in a positive way.
Why inflict our dysfunction on a country full of good people?
For later read
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