15 May 2007

US vows to punish China and others for undervaluing their currencies

While the US prepares to punish China for pegging the Yuan to the dollar and China telegraphs a response regarding the risks that would pose to their economy it might be worth reading an outside of consensus perspective . I'd take the last article, the outside perspective, with a grain of salt. Seems like gold dealers see a percentage in increasing fears of US economic weakness, but absent hyperbole there are a few comments there that seem worth reviewing...

A few excerpts:

Congress to press China over its undervalued currency - Los Angeles Times

Legislators target nations that manipulate their money. Critics say it's the wrong approach.
By Molly Hennessy-Fiske, Times Staff Writer
May 10, 2007

WASHINGTON — Democrats in Congress have been pushing an ambitious trade agenda, promising to assist displaced American workers and reduce the trade deficit. Now they're taking on the global currency market — vowing to pass legislation to punish China and other Asian countries for undervaluing their currencies.

China: No Currency Change Ahead of Talks
Tuesday May 15, 10:25 am ET
By Joe Mcdonald, AP Business Writer

China Rules Out Major Currency Moves Ahead of Washington Talks

BEIJING (AP) -- Chinese officials on Tuesday ruled out major changes demanded by U.S. lawmakers in Beijing's currency controls ahead of a high-level meeting and called on critics in Congress not to politicize trade disputes.

Beijing is making progress in allowing its currency to trade more freely, but acting on U.S. appeals to move more quickly could disrupt the economy, said the officials. They briefed reporters on next week's meeting in Washington on condition they not be identified by name.

A senior Finance Ministry official said China wouldn't permit a backlash against financial markets and its "harmonious society," using Beijing's term for efforts to spread China's new prosperity to its poor majority.

The Russian Bear, Chinease Dragon, and US Dollar :: The Market Oracle :
By Jim Willie CB
Editor of the “HAT TRICK LETTER”

Russia and China have become a major problem. Everywhere one turns, there is Russia & China at odds with the United States . We have the Great Bear in a conflict over energy, Iran , military installations, and central bank policy. We have the Great Dragon in a conflict over currency reform, banking reform, copyright enforcement, trade matters, human rights, and central bank policy.

Armed with a combined account of almost $1600 billion, these two giants are in a Battle of Titans with the United States for geopolitical control. With the financial shift to developing nations comes a natural push toward geopolitical control. The USEconomy and USDollar have never been in a weaker position. The bear and dragon know it well, and have taken steps to wrest more power and influence.


In 2000, all changed. Russia and China hit the scene. The ill-fated decision during the Clinton Administration to grant Most Favored Nation status to China opened the door to a labor arbitrage. The result was over three million US manufacturing jobs sent to China . US corporations justify their abandonment of US workers, shedding fringe benefit costs at the same time, by claiming the low-cost solutions benefit both their financial structure and the USEconomy. The trade gap would next grow even while the USDollar would be devalued by 25% to 30% in the next few years...

China captured a large slice of that exported US-based inflation. Moronic economists actually claimed that the USEconomy was exploiting the Asian lower labor costs, as we sold them our high-grade debt. China began to accumulate its MOUNTAIN OF US $-BASED DEBT in its FOREX account. Foreign reserves held in the land of the Great Dragon enjoyed a head start, measured at $160 billion in the year 2000, having grown to $1202 billion by early 2007. Now the sleep walkers running US policy regard the Chinese yuan and gigantic FOREX mountainous reserves account as a problem...

The cooperation identified by constructive contracts between US corporations to build Chinese factories took a respite in 2002 and 2003, but clearly resumed to surpass $15 billion annually in 2004 and 2005 each year. If one needs to point fingers at the new problems with China, look no further than US corporate executives who plowed tens of billion$ into China, killed off US jobs, and have fed the dragon. However, the end of the rigid yuan currency regime was removed in July 2005 with little progress to show in a yuan upward revaluation. A relatively small 7% rise in the yuan since then pales by comparison to the 55% rise in the euro currency (versus US$) since 2001, and 15% rise in the euro in roughly the same time frame as the yuan has been relaxed, but not freed. The ineptitude of USGovt leaders has been exposed, when dealing on the economic and financial chessboard with patient and crafty Beijing leaders.

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