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Germany and Japan are joining the U.S. in pressuring Beijing to let the yuan appreciate to prevent an international currency war from spiraling out of control. Still, China remains firm that a gradual rate change is all it will allow.
German Economy Minister Rainer Bruederle warned yesterday (Wednesday) that a trade war could erupt if China didn't float its currency for a more fair value. As the China-U.S. currency tensions have heated up, other countries are saying China's unfair trade advantage is threatening export-driven recoveries around the globe.
"We have to take care that the currency war doesn't become a trade war," Bruederle told German business paper Handelsblatt. "China bears a lot of responsibility for ensuring that it doesn't come to an escalation."
You Heard it Here First: China's Plan to Dethrone the Dollar Continues to Unfold
The U.S. dollar is on the way out as the world's top reserve currency. And as Money Morning Chief Investment Strategist Keith Fitz-Gerald predicted more than a year and a half ago, the yuan could be set to replace it.
The greenback has served as the world's benchmark reserve currency since the mid-20th century, but soaring deficits and the U.S. Federal Reserve's loose monetary policy have drained the dollar's value. Meanwhile, emerging markets - many of which are vibrant manufacturing hubs, net creditors, and have rich caches of commodities - are more fiscally sound than the United States, which has a $1.3 trillion budget deficit.
"If you look at the fundamentals of a lot of these emerging markets, they are considerably better than developed markets," Kenneth Akintewe, a Singapore-based investment manager at Aberdeen Asset Management PLC told Bloomberg in an Oct. 11 interview. "Who wants to be holding U.S. dollars at this stage?"
China, which leads the world with more than $2 trillion in currency reserves held mostly in U.S. Treasuries, is chief among the countries seeking respite from the dollar's decline. Beijing has long bemoaned the depreciation of the dollar, stating outright that it should be replaced as the world's main reserve currency.
The Dollar's Unavoidable Day of Reckoning is Here…
The government is printing money 24/7 to paper over the bad debts of the housing crisis and Wall Street bailouts. We're about to enter a cycle of hyper-inflation that will devalue every dollar you own... but there is a way to profit! Find out how in this free report.
Money Morning Mailbag: Japan's Rising Yen Struggle Signals Need for Industrial Shift
The yen strengthened as much as 82.75 per dollar Wednesday, fueled by speculation that the U.S. Federal Reserve would buy more government bonds after a drop in U.S. payrolls.
The yen's rise came after the Bank of Japan tried yet again this week to devalue its currency. On Tuesday the Bank of Japan lowered the benchmark interest rate to "virtually zero," and announced a $60 billion (5 trillion yen) plan to buy government bonds - similar to the 'quantitative easing' policy employed by the U.S. Federal Reserve.
"With today's decision, the Bank of Japan paved the path for the next step," Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo told Bloomberg News on Tuesday. "What will be critical will be how foreign-exchange rates move as a result," along with the impact of any additional easing by the Federal Reserve, she said.
Controversial House China Tariff Bill Will Take America Down the Wrong Road
The U.S. House of Representatives this week overwhelmingly passed a bill that would enable the Obama administration to impose punitive tariffs on almost all Chinese imports into the United States - a controversial move that's intended to punish China for refusing to revalue its currency.
The House China tariff bill faces opposition in the Senate and from the Obama administration and isn't expected to become law. Let's hope that reluctance continues to hold: This bill is little more than a political con job and is quite possibly the stupidest thing that Washington could do right now.
Not only will this touch off a war the United States literally cannot afford to fight, but it's going to hamstring millions of already cash tight Americans by raising the cost of living dramatically while further eviscerating our already fragile gross domestic product (GDP).
Let me show you why...
To understand the hidden costs of the China tariff bill, please read on...
U.S.-China Tension Evident in Futile House Currency Bill
The U.S. House of Representatives today (Wednesday) will vote on legislation that would let the U.S. government take punitive actions against countries that undervalue their currencies.
The bill isn't likely to have any tangible impact on U.S. policy, but it's yet another manifestation of the growing friction between the world's two greatest economic powers.
The Currency Reform for Fair Trade Act (HR 2378) is the apparent result of increasingly harsh rhetoric towards China's currency policy, which U.S. lawmakers say keeps the yuan undervalued. It is a relatively toothless measure that will likely have no effect on U.S. policy, but instead serve as a rallying cry for Congressional lawmakers looking to win votes ahead of November's midterm elections, and perhaps, U.S. officials heading to a Group of 20 (G20) summit the very same month.
Exchange-Rate Risk: The Unseen Enemy of U.S. Investors
When specialty-chemicals-maker H.B. Fuller Co. (NYSE: FUL) announced its third-quarter results earlier this month - with earnings and revenue coming in well below expectations - company shareholders suffered an 8% haircut in a single day.
Rising raw material costs appeared to be the headline reason for turbulence at the company. But there was another culprit - a frequent flier in cases of earnings shortfalls, but one that often remains unseen and misunderstood.
I'm talking about exchange-rate risk.
U.S. investors don't realize it yet, but the level of exposure to exchange-rate fluctuations facing big American companies - as well as those based overseas - is steadily increasing. So what happened to H.B. Fuller - and its shareholders - is going to occur with increasing frequency. And in many cases, the fallout will be much more severe.
To better understand the rising exchange-rate risks facing U.S. investors, please read on...
Currency Exchange Rates and Your Investments: What You Don't Know Can Hurt You
You may be facing immense foreign-currency risks in your investment portfolio - and not even realize it.
If that's the case, don't feel bad: You're not alone.
The reality is that most American investors have no idea that currency exchange rates directly affect U.S. corporate earnings, this country's stock market, or the growth rate of our economy.
The bottom line: These investors don't realize that they face some pretty major foreign-exchange-rate exposure in their investment portfolios - as well as with the individual stocks contained in those portfolios.
This exchange-rate exposure can be accompanied by some pretty major risks. Understanding how currency fluctuations can enhance or destroy corporate earnings, the export sector and the U.S. economy, and even your personal wealth will make you a smarter, better investor. To understand how the currency markets are determining the fate of our economy, please read on...
Money Morning Mailbag: With Many Ways To Hold It, Investors Need To Get Their Hands on Silver
A couple weeks ago, Money Morning Guest Writer Jack Barnes examined the last major commodity to enjoy a true price breakout: silver.
Barnes detailed why silver is poised for a breakout, based on its current price surge underway in India, the price run up of gold - a leading indicator of silver prices - and the fact that the white metal has yet to set a new nominal record price in U.S. dollars.
Barnes outlined the actions investors should take to involve silver in their investment plans, offering three strategies: physical acquisition and accumulation, exchange-traded funds (ETFs) and stocks, and options on futures.