Friday, September 24, 2010

Currency Wars Set To Escalate

Between the idea
And the reality
Between the motion
And the act
Falls the Shadow...T.S. Elliot, "The Hollow Men"
In what could be possibly the worst piece of legislation to move through Congress - after the healthcare catastrophe of course - during Obama's failing reign, a House panel is set to approve a bill which would deem China's currency, the yuan, as "undervalued" and allow the U.S. to slap import duties on Chinese goods coming into the U.S. Here's the link: Confederacy of Dunces

The aspect that I find most problematic with this legislation is how exactly can anyone determine the "correct" value for any country's currency?  Perhaps the U.S. dollar is substantially overvalued.  In the absence of free markets, there is absolutely no way to determine "fair" valuation for anything.  How about if China threatens to sanction the U.S. if the Fed/Treasury does not cease and desist from capping the price of gold?

If the U.S. were to succeed in forcing China to revalue its currency higher, however, two huge problems will result.  First, this will drive up the cost of imported Chinese goods for the U.S. consumer and fuel the already percolating price inflation.  Walmart has already raised prices on average by over 5% this summer.  Prices will escalate even more if Congress is arrogant enough to slap import duties on Chinese imports.

Even more problematic, at least for our borrow-and-spend Government, is the effect this will have on China's appetite for buying Treasury paper.  If China were to "artificially" revalue its currency higher vs. the dollar, the net effect would be to create massive currency translation losses on its holdings of U.S. Treasury bonds.  And perhaps this is part of Congress' motive.  Create a mechanism in which to repay large Treasury bond holders with "cheaper" dollars.  Of course, it's also a way to discourage further foreign participation in financing the the U.S. Government's rapidly escalating borrowing requirements.

Friday Music:  "U.S. Blues"  I'm Uncle Sam/That's who I am/Been hiding out/In a rock n roll band


  1. I am beginning to think the folks in DC lean more to stupid than corrupt.

    maybe 60% stupid, 35% corrupt and 5% FUBAR.

  2. Third world wages have been destroying America for decades. What's " Fair" is whats good for America... period! Bravo to congress for finally doing something about rape.

  3. My my my such a tangled web we weave....And to think of how many more "Erik" types ( clueless in nature )are out there.....


  4. What we have here is a double edged sword!

  5. At this point, the bill is still far from law or actually slapping extra duties. It is more of a negotiating tactic.

    I posted some comments on the exchange rate issue.

    Gold and silver prices influenced more by currency maneuvering

    Latest development over dollar - yuan exchange rate

    JJ from WSB

  6. How I learned that that the whole political-financial system is full of shit...

    Y'all heard about the "Stuxnet" virus which you would realize that it is pretty serious if you've done any industrial PLC work at all.

    Now all the news article point to the idea that it's made specifically for the Iranian nuclear plant, the plant that was made by Russia despite all the restrictions and embargo's. Old news, but here's where it gets interesting. The news has been showing screen shots of the control room. Now, I would have expected to see some sort of Russian Industrial controllers for this plant, instead I see a Seimens Industrial PLC system working on a Microsoft Windows platform; this kind of reminds me of Standard Oil providing fuel additive for the German planes during WWII.

    Does anybody think that the MSM will call out the largest American Software and largest German Industrial Control company for their participation in the manufacturing and enabling of this Nuclear Plant? No, I don't think so either.

    Sorry for the rant, but I really think the world has gone full retard.

  7. China probably is using the dispute to counter the US pressure on exchange rate. Yes, it is complicated. The fight over the exchange rate is multi-faceted.

    "We do believe that, because the Senkaku islands are under Japanese jurisdiction, that it is covered by the US-Japan security treaty. That said, we also stressed that we don't take a position on the sovereignty of the Senkaku islands."

    Under the 1960 treaty, the United States is obliged to defend Japan against any attack on a territory under Tokyo's administration.

    Clinton urges dialogue to resolve China-Japan row

    JJ from WSB

  8. US Playing Checkers
    China playing MahJong

    Us is reactionary, China is playing with long term strategy.

    Gonna get ugly.

  9. I bought my physical gold in Korean won. All asian currencies are rising sharply. The Korean won itself has risen, and is expected to rise further. Does this mean that the price of gold in the Korean market will go down while the price is going up in US dollars? Anyone?

  10. LMAO who is this moron? think about this chinas economy is the 2nd biggest in the world but yet their currency is one of the lowest in the world?

    shouldnt it be higher by now? like closer to the biggest economy in the world?

    this writer is a moron and only spewing propaganda

  11. so if we dont do this then how do we get our jobs back? we cant continue to borrow and spend forever
    is it gonna get tough you betcha. hate to tell you this but ITS gonna get tough either way. i would rather pay more and have a job then no job and no way to pay at all. your thinking is seriously flawed. do you really want to keep importing from china when they continually send poison to us?
    you really think china is our friend? heard them threaten us many many times with war. but yet americans keep buying cheap chinese crap.

    be an american citizen and boycott china made crap.

  12. "Walmart has already raised prices on average by over 5% this summer. Prices will escalate even more if Congress is arrogant enough to slap import duties on Chinese imports."

    I say: This is not necessarily a bad thing.
    Experiment for the weekend : figure out what it is at Walmart that people are buying that they can't live without entirely. I find nothing of value there - its all cheap plastic crap to me. You can spend not-much-more on stuff elsewhere and it lasts a lifetime.

  13. Dude, a high percent of the population shops at Walmart for all necessities, including clothing (I bet every single clothing SKU at WMT comes from China or southeast Asia), because WMT has the lowest prices.

    Just last week a story was published about how the shopper traffic patterns and shopping patterns at Walmart correlate the 12 a.m. electronic end of month re-setting of electronic food stamp cards. Check this out:

    I personally believe this country should abandon all social welfare programs. However, imagine what will happen when the U.S. slaps import tariffs on chinese goods, combined with what may be an artificial revaluation higher of the yuan. Artificial or not, the lower yuan vs. dollar relationship helps keep prices low in this country.

  14. Just wondering how all this whining from the US about how the yuan should be much higher against the dollar -- or, to put it the other way around, how the dollar should be much lower against the yuan -- fits in with Timmy Geithner's "strong dollar" policy.

  15. It doesn't fit. That "strong dollar" bullshit is nothing but the Govt blowing smoke to keep foreigners in the game of buying our Treasuries.

    Geithner is nothing more than puppet for the bankers. He has his head up his ass.