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SHANGHAI, People's Republic of China - China just posted its first monthly trade deficit in nearly six years, a $7.24 billion shortfall for March that essentially torpedoes Washington's argument that the Asian giant is a "currency manipulator" of the worst kind.
The Obama administration's assertion that China is artificially keeping the yuan undervalued to gain a global competitive advantage isn't just misguided: It actually demonstrates that Washington lacks even a basic understanding of global economics. Given that the same U.S. leaders who have been pushing to hang this manipulator label on China and impose sanctions are the same ones who tried to end the financial crisis by creating a river of debt that will haunt us for years, I can't say that I'm surprised.
As the U.S. argument goes, pegging its currency to the dollar gives China a distinct advantage when it comes to less-expensive manufacturing and a strong export market. The implication is that somehow this is negatively impacting our economy, or - in a variation of the same logic - holding back our recovery. Washington points to the massive trade deficits we regularly run with that country as evidence of China's currency-market wrongdoing.
In reality, China's pegged currency has done two things. First, it's allowed the United States to keep its inflation rate at a much lower (and more-manageable) level than it should have been in view of the $14 trillion in debt that this country has taken on.
And, second, it's allowed China to fuel its own stimulus package while at the same time assuming a meaningful role in the ongoing global recovery.
Let's take a minute to talk about why this is true.
Every new dollar printed diminishes the value of every dollar that's already in existence. This, in turn, effectively causes the prices of goods and services to rise. In this case, by keeping the yuan pegged within a narrow band to the dollar, China ensures that the bulk of our goods and services have not inflated, despite the Treasury Department's turbocharged printing presses.
In essence, Beijing's policies have acted like the relief valve on a pressure cooker: They've kept the U.S. pot from exploding.
Washington also frequently points to Beijing's $2.4 trillion in foreign reserves as additional evidence that China is a manipulator. This, too, represents flawed logic. Trade reserves accumulate whenever a country sells more than it buys with its partners. Therefore, China's huge reserves are not evidence of currency manipulation; instead it's just proof that the rest of the world really wants to buy what China has to sell.
It's easy to feel as if America is getting the shaft here - especially at a time when so many are out of work and with the country struggling to recover from its worst financial crisis since the Great Depression. Washington isn't helping by nurturing this flawed view of reality.
It's time for us to take a sobering look in the mirror.
China didn't force America to buy anything, let alone run-up our huge-and-growing deficit. We did this all by ourselves - and with substantial gusto, I might add. Our companies sought out China's inexpensive manufacturing because it helped them become more profitable and become more-globally competitive. Our consumers have been more than happy to go to Wal-Mart Stores (NYSE: WMT) and buy Chinese-made goods: They were inexpensive and the quality has reached a point where those products are as good - or better - than their U.S.-made counterparts.
If anything, we were perfectly content to benefit from this relationship right up to the point where it went against us - or at least, until we perceived that it went against us because we felt that the yuan is artificially undervalued in relation to the dollar.
Albert Keidel, a senior fellow at the Washington-based Atlantic Council and a noted expert on Chinese economic affairs, said that "China's trade surpluses do not necessarily mean that the yuan is undervalued. In fact, economists [really] do not have an effective way of judging whether a currency is undervalued. China's currency surpluses since 2005 have stemmed from the excessive consumption of the Americans, rather than problems with the yuan's exchange rate."
According to our own government, the yuan appreciated by 16.5% in real terms between June 2008 and the end of February 2009.
The yuan also performed like a thoroughbred during the global financial crisis.
According to the Bank for International Settlements (BIS), from February 2007 (when the U.S. subprime mortgage crisis really took hold) and January 2010, the yuan's real exchange rate rose 10.7%, while the same rate for the dollar dropped 8.1%. These statistics are indicative of an appreciating yuan and a depreciating greenback, the BIS concluded.
In reality, even if China were to immediately revalue its currency overnight, that would not immediately restore the millions of lost American jobs. Nor would it magically restore our economy. In fact, we would likely see precisely the opposite outcome.
Let's assume that China's currency is 60% undervalued, as some believe. If Beijing were to immediately bring that to par, everything in this country that we import from China is going to see a price increase of at least that amount - and possibly even more. That would devastate our economy, wiping out the millions of American families that are struggling to make every dollar count right now. It would also seriously crimp - or more likely obliterate - U.S. corporate profits, igniting a new round of layoffs, plant closures and corporate bankruptcies.
The fallout wouldn't be contained within U.S. borders. Our trading partners would immediately feel the pinch, too, as we bought less and as the price increases rippled their away around the world. It would be bad news for everyone.
And here's the thing: A hard look behind the numbers demonstrates that this change isn't necessary anyway.
According to China's General Administration of Customs, exports increased 24.3% from a year ago to reach $112.1 billion, while imports jumped 66% to $119.3 billion. Furthermore, and despite what Washington wants us to believe, the bulk of China's trade deficit came from trading activities with Taiwan, South Korea and Japan - not from the United States.
These facts and statistics make several important points. They demonstrate, first and foremost, that the global recovery continues, with worldwide demand on the upswing, But they also prove that China's domestic demand is accelerating - a far more meaningful development, since it highlights the Asian giant's emergence as a true economic marketplace.
We're not the only ones to reach this second conclusion. Olivier Blanchard, ostensibly the chief economist for the financially conservative International Monetary Fund (IMF), said that it was important "that we do not criticize China for its currency policy. What China is now doing is to cut its savings rate to boost domestic demand while re-orienting production to meet increased needs at home. Only in this context can a stronger yuan help China better allocate its resources and prevent economic overheating, thus creating benefits for both the country and the rest of the world."
This won't be the last monthly trade deficit that we see Beijing post. Indeed, if you really break down these numbers, you'll be able to see just why I'm predicting that there will be other deficits in the months to come: Higher domestic demand for crude oil and raw materials accounted for the dominant share of the March deficit, although sharp increases in the number of imported cars and manufacturing parts also contributed to the shortfall.
The best way to profit from these trends is to follow the advice that we've been providing in our investment reports here in Money Morning - as well as with the specific investment picks we continue to identify in The Money Map Report, our monthly advisory service. Going forward, the biggest profits will flow from companies operating in the sectors that provide the products, materials and services that China wants and needs. Now, more than ever, the best opportunities will be in the areas that Beijing has identified as being most relevant to China's continued domestic growth.
The bottom line: This is yet another reason to double your exposure to Asia. Granted, there will be some wild swings … the kind of volatility that will cause some investors to reassess their commitment to their China-oriented investments. Don't make that kind of mistake. When it comes to long-term growth and profit potential, this is truly the greatest game on the planet and will be for many years to come.
[Editor's Note: If you find this unique perspective and detailed analysis to be valuable, you might want to check out our monthly advisory service, The Money Map Report. Please click here for more information.]
News and Related Story Links:
- Reuters/Yahoo News:
Yuan rise still on cards despite rare trade deficit. - Bank for International Settlements:
Official Web Site. - China News and Reports:
A Stable Yuan Contributes to Global Recovery. - Atlantic Council:
Official Web Site. - General Administration of Customs:
Official Web Site. - International Monetary Fund:
Official Web Site. - Olivier Blanchard:
Official IMF Bio.
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.
I would like you to send me the details for joining the full spectrum of all services on the lifetime membership basis; ie. what would be my cost and related rebate for being a member of the Money Map Report and the Geiger Index. Would lifetime membership include Shah Gilani's Capital wave and just generally what is provided.
Thank you, Julf Schwenke
Lifetime means business lifetime, not necessairly yours.
Mr. Perot was very correct when he forecast that GATT and NAFTA would cause a huge "sucking sound" of American jobs, manufacturing and economic might going overseas (although few in leadership at that time seemed to listen)… In my opinion, those two Acts where probably the greatest examples of the overwhelming greed and lack of foresight on the part our ultrawealthy leadership in the history of this once great country.
So somehow you are suggesting that leveling the playing field between our two countries and allowing each of us access to the others market on an equal basis is bad for your economy? NAFTA helped grow your economy and export trade business as it did Canada's.
Seems to me the US only likes it when they have an unfair advantage over other countries when it comes to trade. Like Keith said, no one forced the US consumers to buy Chinese made goods, you did it yourselves.
Your article is right on! It is our consumption and evolving lack of competitive domestic manufactured goods and services that is the problem. Trade deficit is a clear indication of that. The friction cost of centrally planned economy in U.S. is increasing and the political power is shifting towards orgnization who pursue collectivism and mediocrity i.e. unions rather than individualism, innovation, creativity, meritocracy. After WW II America was the exporter with technolgy and manufacturing leadership to rebuild Europe, China. As our economy gained momentum, so did the value of our currency. The weakening of Chinese currency will be an indirect tax on imports leading to price inflation, penalizing consumers of Chinese goods, encourage few exports we may have where we are competitive and ofcourse help federal government reduce its debt with inflated dollars. People will pay increasing taxes on sales, all payrole taxes on income as it adjusts for inflation. What a way to help the average citizen!Are we really that desnse that we cannot figure this game out and take steps to have the government that serves us?
Jas Gill | April 13, 2010 wrote:
"….. Are we really that desnse that we cannot figure this game out and take steps to have the government that serves us? "
Its not about "dense", it about "Change" and spreading the wealth and changing how America is structured, from a free, independent, strong country, to a socialist one, and big government. To make those changes, you have to destroy it from within.
Look at the trends and the seeming idiotic way Washington does things, especially this administration. Ironicly, for being so smart, they sure do really "stupid" things. If it isn't planned destruction, then the whole liberal philosophy and experiment is a disater and should be replace and never again instituted. Either way, its not good for America.
We have to look under the covers to find the real purpose on this one.
For those who skipped their history lessons, it happened once before in pre-WWII Germany. If the politicians (socialist activists, Liberals, and Progressives, and the just nieve) screw it up bad enough, the populace will scream to get anything done, even if it is wrong. They even used the Unions to do the strong arm bidding.
That philosophy put Hitler into power because the people were desperate and blind. Its been that way since Biblical days. It was that way in ancient Rome.
That is the theory, and the theory worked in Germany circa 1938. It apparently worked last November 2009, and, as in Hitlers' 1938, the people got more than they bargained for in the Obama "Change". Problem is, it was hiding in plain sight because there was a great hysteria against Bush that blinded many voters (again, circa 1938 hysteria). With polls at less than 50%, many are getting buyers remorse, just as in post 1938.
For the massive changes to occur (not impossible, Hitler, Stalin, Bolshivicks, and any revolution), the American people (voter)would have to be the stupid, uninformed, or asleep, or more. So far, one or more happened last November. I hope the alarm went off and people wake up this coming November in 2010, and 2012 so we can begin the trek back to being a contender once again.
I am not an activist, politically ambitious, or a sympathizer to any party. Just an average self-educated citizen that is concerned enough to write herein.
The publisher of this article makes these points to validate a place for you to invest, as in the Chinese market. This isn't the forum for a political debate, though we polarized Americans simply cant get away from battling each other on the political soapboxes. This is the real American crisis! We can't organize.
I made typo error. I meant to state that strengthening of Chinese currency will be an indirect tax———. After WW II we rebuilt Europe and Japan, not China. Sorry about the errors!
muy buen artículo
I moved to China just before the" Financial Crisis". My hi-tech company was expanding its operations in China and I could see the handwriting on the wall about the future of the company I worked for. It wasnt to escape the inevitable but it was a personal decision I made to do something all my friends said was Stupid , Crazy or Brave. I knew it was the latter.
Anyway I moved here living on a meager Teamsters union pension I earned when times were booming in the building industry in America.
After living here I realized that a cheap loaf of bread in America goes for about 1.25,In China a cheap loaf of bread goes for 7- to 10 Yuan or exactly the same. A gallon of gas in America is 3-4 dollars a gallon,In China about 7 yuan per liiter or just about exactly the same. What is different is housing costs here in China I live in a new 2 bedroom condo in a secure hi-rise that I rent for 1,200 yuan a month or about 180 usd a month whereas a similar condo in Portland Oregon would be about 1200 usd per month. Also nearly every blue collar worker here gets an Apartment as part of the meager salaries they make of an average of about 3-500 usd a month with usually about 2 meals a day also provided by most factories. Health Insurance is provided at no cost to the workers. So if you add housing costs and 2/3 of their meals provided It puts them on par with a little over minimum wage workers in America. I have seen absolutely no signs of "Communism" and when I ask people on the street here about Communism they have no idea what it is. What I do see is a minimum of red tape in getting state funded projects up and running. Right now in Dongguan province where I live there is over 65,000 factories that produce everything that consumers around the world purchase. So I see all the money in the world that is spent on consumer goods flowing through this province. China to me is the land of opportunity that my forefathers saw when they came to America from Europe. In addition I see fewer beggars on the streets here in this town of 7 million than I see in Portland Oregon. I think Obama wants the RMB s value changed so that the USA will owe China less money than they are commited to now. Kind of like welching on a bet or begging for some welfare from another government,of course this would help America but it would also create a burden on the average chinese worker.the burden that the American worker has today.
P.S there is no smelly cheap sheetrock in any house I know of here . It was a greedy American Coimpany that ordered it that way to maximize profits. So dont believe everything that the Christian Science Monitor says about China being the epitome of evil.
Thanks, Mike for your sharing your personal direct US/China experiences with the ignorant and greatly deceived and misled American public, but I doubt whether they will be allowed to hear the bitter truth with all the noise being made by the ignorant ones, both left and right of the political spectrum to deny the truth and blame others for the flawed and outdated system that is ruining the US economy, but which many still want to paint as the best that the world has to offer.
By the way, Dongguan is not a province but a city in Guangdong Province. Guangdong province is the economic powerhouse of China that is mainly responsible for its export growth. Maybe its just the misplacement of the two syllables similar in both names.
You tell 'em Keith. I, like you, think we ought to thank our lucky stars for China's economy and fiscal policies. We, in typical American fashion, like spoiled brats, want to "have our cake and eat it too." As you point out, we were rah, rah China (Walmart – inexpensive imports) until our own fiscal irresponsibility got us into debt over our heads. Now we want to blame China for our own irresponsibie behavior. We are being very hypocritical, which is disturbingly, a big trend I see in America during the last 40 years or so. Home of the… "hypocrites." I know it doesn't ryhme, but might really be closer to the truth. Thanks for people like you who try and put the record straight, using clear and proper facts and logic.
Bruce
Who is 'we' kimmo-sabe? Don't splash all Americans with your paint brush or you might look like a 'donkey' i.e., an 'ass'. This country stupidly voted in a criminal administration, they are painting everything like the movie 'world according to garp' which only exists in the 5 inches between their dumbo sized ears, instead of looking at observable reality … don't lump me in with these matoids. Save the 'we' isms for you and yours.
I do not, at this time, quarrel with the substantive content of the article, but I do contest the intended inference at its outset that the charge against China for currency manipulation originated with the Obama administration. It did not. Further, the "river of debt" that Mr. Fitz-Gerald condemns, likewise originated in the prior administration, which, indifferent to deficits (that, according to Cheney, don't matter), spent away the Clinton surplus and passed on a $1.3 trillion shortfall to its successor.
what comes round goes around, civilisations come and go. usa is the land of excess ,all that processed food . where else do u get a scooter to do your shopping in a supermarket.
in the east people are disciplined and trim, no wonder the us lumps of lard huff and puff around the factory floor. go on diet bro , both culinary and financially. the rest of world is wise to your exploitation with strings attached
bruce johannesburg za
Kieth, you are not taking into consideration that China has been buying up commodities at breakneck speed. Once they have divested themselves of their USD reserves, they will slow down their purchasing of commodities and there will be less money being spent abroad by China. Just watch what happens to their trade balance then. They will have huge surpluses. I also believe that the US government wants the yuan to increase in value against the USD so that the U.S. will not owe as much to China. What an immoral move that is. Borrow money from China and then devalue the USD against the yuan so that the U.S. doesn't owe as much.
America, especially Wall St., certainly deserves the blame for the mess are in. Wall St. wanted deregulation, and got it, and bailouts, and got it all. China has done a much better job of managing its economy.
But I don't understand this quote: "by keeping the yuan pegged within a narrow band to the dollar, China ensures that the bulk of our goods and services have not inflated." How does this work, exactly?
Also, how can these both be true?
"According to our own government, the yuan appreciated by 16.5% in real terms between June 2008 and the end of February 2009."
"According to the Bank for International Settlements (BIS), from February 2007 [to] January 2010, the yuan's real exchange rate rose 10.7%, while the same rate for the dollar dropped 8.1%."
So, in eight months the yuan went up 16.5%, but in three years the yuan went up 10.7%?
If China has pegged its currency to the dollar, how can there be this much appreciation of the yuan? If China has had a very stable currency, this seems to show a lot of fluctuation.
I'm shocked and appalled at the ignorance on display here.Perhaps we should all move to China.I can't believe that nobody has commented on the treasonous actions of placing the long term health of our nation,citizens and economy in the hands of a communist nation half way around the world.A nation that eschews the same values that made our nation great.
Communist China is despicable.I still am unable to understand how a country can have a communist government yet embrace western capitalism at the same time.Yes,our leaders have failed miserably.But to blithely encourage even more investment in a nation devoid of human rights or transparency makes me sick.Anything to make a buck,I guess.
The Chinese government DOES manipulate the renminbi,imposes prohibitive tariffs and duties on imported goods,violates human rights,pollutes indiscriminately,maintains slave wages for hundreds of millions of its factory workers,minimizes foreign investment in its domestic companies,and operates above WTO agreements without reproach.
To pin the blame on our leaders misses the point entirely.When do the 300 million+ Americans matter?Or don't they?
You say inflation has been kept in check.This is temporary.You know what else has been kept
in check?Our domestic wages!!!!
WHAT ARE YOU GENIUSES GONNA DO WHEN MOST WORKING CLASS PEOPLE HERE CAN'T AFFORD $200,000 HOMES OR $25,000 CARS because their job has been shipped out and their wage stripped away?
It's obvious that,not only is our empire DEAD,but our leaders are completely unwilling to engage in HONEST discourse.That would,of course, compromise our relationship with our largest creditor.The United States is doomed.
I do,however,admire China for putting its own interests ahead of EVERYTHING AND EVERYONE else.Perhaps,there's a lesson in that?
BUY GOLD AND SILVER.PROTECT YOURSELF.After all,the chinese governement has made both available to its ordinary citizens.
Scott Wolf seems to be one of those that have been programmed with the Cold War mentality of seeing everything, and everyone that is associated with communism as bad and evil. And you may soon start to see God as evil when you come to realize that there is no room for capitalism in present Heaven, and there will be no room for the greedy capitalists in the New Heaven and the New Earth where God's sovereign will will be done as taught in the Lord's prayer.
At no point did I elaborate on the supposed moral and religous implications of our current economic and social decline.By the way,EVERYTHING discussed about China is about CAPITALISM.
I assume you work and have a job?Why?To MAKE MONEY.You are,in fact,A CAPITALIST.
I guess we should live our lives in abject poverty and be influenced by some strict religious edict.You are a moron.
WASHINGTON IS US
Remember we all (53%) voted for these "manipulating politicans" and officals of the current administration. We need to correct our own leadership and policy problems first before change can occur. China will continue to be China irregardless of what we do or think.
Dear readers;
We've received a lot of comments — and quite a few e-mails — on Keith's analysis of the currency tug-of-war going on between Washington and Beijing over China's yuan. By and large, these comments were very positive. But even the folks who disagreed with the analysis seemed to put a lot of thought into their analysis. And that's good. Informed investors are the best investors and it's clear to me from the quality of the responses that we received that most of the folks who responded to this commentary are well-read and well-informed.
Here's one thing to remember: Keith Fitz-Gerald, Money Morning's chief investment strategist, knows as much about the China market as any expert on the planet, and actually just returned from a trip to that country during which he attended a major conference and also had a chance to get a firsthand update on China's financial and economic outlook. So you'd be hard-pressed to get a better read on what's happening in China from anyone else.
This won't be the last analysis that we post from Keith's China visit. Expect another of Keith's dispatches from the Red Dragon later this week.
In the meantime, please feel free to keep those comments and suggestions coming. We welcome them ….. positive or not. Thanks to all of you who have written already.
Respectfully;
William Patalon III
Executive Editor
Money Morning
keith, thanks for the prespective, I visited china 3 months before the olimpics and was impressed very much by shangai´s urban planning, ( positive) and beijings grotesuqe air pollution in january. Visited som factories and they seemed like juvenile correctionals, ( jails) exploiting young adults from rural areas. but my question is what has happened to stocks like china mobile which is stuck for a long time and dgw for example? i truly believe china is another land of opportunity to make money but their accounting is not very transparent and timely as in the US, i would like to hear your opinion on this matters , thanks
oscar f (mexico)
The real problem is the high wage in the US which is making US-made goods less competitive in the global market. This is a self-imposed problem that is enhanced by the unique role of the US dollar as real international currency that only the US is privileged to produce. With such unique absolute monopoly on the production and export world's most demanded commodity, the US soon naturally came to rely mainly on the export of the dollar in which it enjoys absolute advantage in international trade, and thereby lost its competitiveness almost everywhere else. This bad situation as it is today was made possible by the unilateral rejection and the breach of the Gold Standard condition in the international agreement that made the US dollar the main international currency. THAT IS THE REAL MANIPULATION OF CURRENCY OF THE GREATEST MAGNITUDE EVER AND ITS EFFECTS ARE STILL TROUBLING THE TRADING WORLD TODAY WITH UNDUE OR OVERDUE ADVANTAGE TO THE US. The Cold War mentality that blinded US major allies to the unfairness of the US unilateral move also helped to sustain and seal the manipulative and unfair deal with dire consequences on the entire global trading community.
China's monetary policy so far has proved to be the right one, and is not to be truly judged as currency manipulation. The Bretton Woods Agreement was concluded with a strong desire for a stable exchange rate regime as the right policy and a recipe for fair play in international trade by trading nations. China has always opted for stable exchange rate. Even in situations when the so-called monetary experts in the IMF were recommending disastrous policies like during the Asian financial crisis when they wrongly recommended devaluation China refused to devalue like other Asian countries. That selfless principled policy indeed helped the Asian nations to recover more quickly from the financial crisis. Now they are trying to push China in the opposite direction and China still stands by its stable exchange rate policy for the its currency. That is no manipulation at all.
THE UNILATERAL MOVE BY THE US TO DITCH THE GOLD STANDARD WITHOUT GIVING UP THE PRIVILEGES ACCORDED TO THE DOLLAR BY IT IS WHAT HAS LED TO THE CURRENT ECONOMIC WOES OF THE US TODAY, NOT CHINA OR ANY OTHER NATION, IT WAS SELF INFLICTED. Why should China be blamed for US businesses being driven from the US shores by high wages in the US to China to produce goods for export to the US? It is the US currency manipulation (or rather its abuse of the privilege role of the dollar) that is making it possible for the US to to continue to live with such huge deficit without much concern. Never mind the creditors, when they come knocking for their money, all that the US will need to do is to print more dollars, provided there is enough credit from the creditors to import the paper and the ink for this number one US export.
I think Keith has pretty much nailed it. The problem isn't "price manipulation" on China's part, but rather "media manipulation" on America's part. The American media is trying everything they can to distract the people from the real issues and what's really going on in America….. Congress and the Fed are selling America right down the river.
I'm not an American, but your policies affect my life too. Wake up and pay for the coffee.
oh dear,and this guy calls himself an investment strategist !
i must disagree on almost everything he says !
first of all his first paragraph is laughable,no the first deficit in 6 years does not disprove the currency manipulator charge.one must delve into the figures first,not just the actual final line !
and one month out of 72 ?
i would suspect that massive commodity import stockpiles and huge investments by the chinese authorities might explain this.remember,don't look at the final figures as per enron balance sheets and quarterly profits,look at the real facts that gives those figures.
obvious common sense
second,once again wrong,wrong,wrong.with china pegging their dollar and therefore keeping interest rates(including huge chinese purchases of us bonds) and imports artificially cheap(thus inflation low) the wrong and incorrect signals are sent to all in the market.
how the hell is this good for americans,and the rest in the west ?
this just creates the gambling mentality as we have seen and puts off the market corrections and day of reckoning!
what is needed is for the us pot to explode,another point not understood,because the longer it takes the more damage done.
if china did not manipulate purchases of bonds,and managed trade in their favour,interest rates and inflation would have been much higher years ago,and the problem could have been sorted before the usa debt levels got anywhere near today's
third,people buy chinese goods for 2 reasons – one because they are cheap(currency manipulation)and two because consumers have no choice !
if i want to buy an ipod ,i can only buy one made in china.
ah,the chief economist from the imf – one question – did he predict the gfc ?if not,why would i listen to anything he might say.
for the record i did predict the gfc years ago.
Washington isn't helping by nurturing this flawed view of reality.no,neither are the chinese !
i am not the slightest interested in what is good for china,or for consumers in the west short term.i am interested however, in what is good for the western countries(and consumers) as a whole medium and long term !
what has not been factored into the price short term of imports from china(and asia )is unemployment,higher taxes,massive debt levels etc.
he is however correct on some points.the usa could not correct the situation quickly,and washington has been printing far too much money.
Look at things from the perspective of a non-American. US is and will always remain a great country… there is no need to compete with India and China as both are engaged in the low end manufacturing jobs and low end service sector jobs… USA is a more advanced, knowledge based economy. It is still in the USA that most of the Ground Breaking Research work takes place. Till date USA owns far more number of PATENTS (in the fields of Hi-Tech Equipments and Macinery, Arms, Space Technology and Research, Satellite Technology and Cryogenics, Pharmaceuticals, Genetics, Nano-Technology, IT Software, IT Hardware, etc,etc,etc…) than most other nations in this world (and is Light years ahead of India and China)…
The exports from China primarily consist of TOYS, Mobile accessories/batteries/etc, auto parts and accessories and a plethora of such low end goods the manufacturing for which is routinely outsourced to China by The World. The exports from India primarily include Call Centre Services, Coding and Customisation of Softwares.
Food for Thought:
* One of the Two Major Passenger Airline Manufacturers in the World, Boeing, is in the USA [Boeing and Airbus together have more than 80% of the Market to Themelves].
* USA is the biggest exporter of Hi-Tech Armaments in the world. The Technological superiority that US Armaments Manufacturers (e.g. Lockheed Martin) possess is Unparalled in this whole world.
* In Space Travel and Space Research (NASA) and Satellite Technology and Cryogenics USA is Far Ahead of the Rest.
America is far ahead in Healthcare related research, SOFTWARE (Microsoft – windows being the Most popular OS in the World, IBM, Sun, Oracle, Google, etc), HARDWARE (Dell, IBM), Networking (Cisco, HP), Pharma (Pfizer), Genetics, Nanotechnology… Must Mention APPLE Inc. over here, it is in a different League All together and I wil ratherl not confine it to one single category. Also HOLLYWOOD needs to be given credit, for being the biggest Film Industry in the World. American Media can't be Ignored either (CNN, Fox, etc) which are one of the biggest and the best in the world. Some of the Finest Universities of the World are in The USA (MIT, Harvard, Wharton, etc).
To conclude with, every country has some inherent advantages… China has it in manufacturing, India has it in services and USA has it in High end Research and Technology and it ought to focus and build on that…
I think this is exactly what will happen. China will sink our ship without firing a shot.
The Chinese people were not as considerate as they could have been to the American people, their low-cost goods did not hit the American capitalist not the American speculator, but the American everyman, the workers in the bolts and parts factories, the American woman worker in the textile industry, they lost their jobs, the others profited, maybe the Chinese people think of the progress, yet perhaps progress is up to the American people.
Mr. Penn-
It is certainly true that the Bush administration and the republican congress handed Obama a 1.3 trillion dollar deficit. However, the context is everything, and your assumptions are void.
The Bush administration spent money we actually had, and 1.3 trillion we didn't. Obama spent trillions of money we did not have, and compounded that error by increasing the future deficits that will occur on promised benefits. In other words, the 900,000 billion dollar healthcare bill will become 3 trillion, then 5 trillion, then 10 trillion, etc., etc., over the coming decades. Eventually there won't be enough money in the economy to cover the future costs of that program. All giveaways are not free. They must be paid for somehow. "Somehow" inevitably becomes impossibly never.
That is a funny comment, Chinese people not considerate of the American's living standard! Think, if there is a brain, may be that is the problem. The average wage of a Chinese worker is , I don't know the exact figure, but be honest about it, and fill in the blank yourself! I suppose, it would be best to keep the status quote when the Britain had the big guns. What got me was Dan Snow of stupid BBC only last month put out a program in an episode he proudly proclaimed how Britain robbed China of Hong Kong! I know this history long past! But the principal of humanity is, if I robbed Britain's Crown Jewels a few years back because I had a big gun, I wouldn't shout about it, would I? All that proclaimed righteousness, nothing but Hypocrisy!
[…] Money Morning View From China Report (2010): Washington – Not China – Is the Real Manipulator Here. […]
To Scott Wolf: You've made some decent points as to what the Chinese government was, or was not, but as you are a hard core capitalist you can only see the half truth about the real China, red or not. Yet as a learned Chinese myself, who studied and lived in the U.S. more than 10 years, who also lived through the years of the Chinese Cultural Revolution period, I think I can understand both countries situations much better.
Listen, Chinese Communist Party was a true Communism when it started to revolutionaize the whole country back in 1927, started by one of its founder, Mao. To me that was truly a great moment for all the poor chinese then. But over the course of its development, CCP had inherited all the evil spirit that all other political parties and social systems developed throughout the human history: greedy for political power, money, slavery, and sex. You can think of anything in the corrupted U.S. system, CCP has it, you don't have or can't imagine, CCP would have it. So ideally speaking CCP after its initial moment has never a true Communist to my standard, a standard that was established by the founder himself, Carl Marx. So, to your desmay, Chinese Communist has never a true communist after 1950, but merely a wolf with a sheep's clothe. Nowadays, people inside the Chinese government and its Party are nothing much but lawless and greedy capitalists. By denoucing my government I'm not saying that all people are bad. It's just we Chinese people have never had a good system, something Americans have-but again, I'm not saying everything in the U.S. are all that great, but U.S. is comparatively much better a country by certain measure. Chinese economy has done quite alright in the past 30 years, but the people suffered a great sacrifice for it – not worth it – in my opinion, but it mainly for the benefit of the Party to remain in power. So in short, when you curse the CCP, do not curse the true communist idealogy (I'm not saying it's all flawless, samething would be said about socialism), but you should blame the lawlessness of the people who would grab everything for their own good. The one last thing I want to share with you: Capitalism and socialism can stand alone on itself, one has to go together with the other, or a well balanced country or world would clapsed in no time. Americans never has a socialist moment in history? It's only in some people's dream. Capitalism represents the rich, socialism represents the masive poor. For the rich to get along with the poor, you need both sysytems to work together one way or the other, it's just the art of balance of the two orders that makes the people look great and smart. Thanks.
To add to the arthor's view: a nation's foreign currency reserves is not a simple collection of the foreign currency that's made only from international trade, but a mixture of funds from all foreign trade or business activities, such as foreign entities doing businesses inside that country, foreign partnerships, private foreign money that's ever flowing in and out between the boarder. In other words, the foreign reserve fund is not all belong the that country, it merely reflects how much international business activities that country's currently invoved with the world.
I was dismayed to realize, that in this U.S. thread my comments are also pending for "moderation ", and my earlier comment is gone without any trace. Why this is the same way in U.S. as CCP in China have been doing for regular people in China? anyone want to explain this to me ? Now I do hate this kind of "communism"!