Business Plan Writer
In a follow-up to yesterdayâ??s post on foreign exchange (â??Hot Money, Gold, Foreign Exchange And The Fallout From QEâ??), the first day of the G-20 meeting in Seoul was not a good one for the Obama Administration and President Obama in particular. Mr. Obama was unable to conclude a free trade agreement with South Korea, and China told him to stop meddling in their internal affairs and put his own house in order first. Of course Chinaâ??s President Hu said that in polite, diplomatic language.
The whole controversy is about international â??imbalancesâ? which is a deceptive diplomatic code word. To everyone but China, Germany, Brazil, South Korea, and Taiwan, all successful exporters, it means that these exporters have to shoot themselves in the leg to give everyone else a â??fairâ? chance in the foreign marketplace. To do that it means that China has to allow the yuan to rise in value (which it would if it was unpegged) and to open up their markets wide to imports from less successful countries. China isnâ??t going to do that for obvious reasons:
â??The major reserve-currency issuers, while implementing their monetary policies, should not only take into account their national circumstances but should also bear in mind the possible impacts on the global economy,â? Zheng Xiaosong, director general of the Ministry of Financeâ??s International Department, reiterated at a press briefing.
What he is saying is that the U.S. (the dollar being the major reserve-currency) is being reckless by pursuing QE2, and that the resulting devaluation of the dollar will make Chinese goods more expensive and therefore will hit their main industry (exports) hard which will harm their economy. If, as they would privately argue, you guys canâ??t compete because you have harmed your industrial base from past reckless monetary and fiscal policies, donâ??t expect us to take the hit for you to recover.
Another Chinese minister put it more bluntly:
"Don't make other people take the medicine for your disease,"? Yu Jianhua, a director general at China's Ministry of Commerce, told reporters in Seoul late yesterday. "Quantitative easing will have a very big impact on developing countries including China."?
They are absolutely right for the most part. The part where they are wrong is the pact they made with the devil by pegging the yuan to the currency of their biggest buyerâ??the U.S. dollar. In a system of freely floating exchange rates, Chinaâ??s yuan, off-peg, would have been revalued long ago to the rate which the FX markets determined was correct based on the supply and demand for yuan and dollars. That would have made Chinese goods more expensive, U.S. exports to China would be more attractive, and the trade balances would be distorted far less. What the Chinese didnâ??t foresee or chose to ignore was that our profligate government would use monetary policy as a mercantilistic tool to make U.S. goods more competitive.
This G-20 meeting has been a disaster for President Obama and his Administration. It shows you how great countries decline. By pursuing reckless fiscal and monetary policies, the dollar has been substantially devalued, our citizens will be burden for generations by high debt and high taxes, our ability to compete on world markets is weakened, and we lose our status and influence. I canâ??t blame this on Obama alone. He was preceded by a hundred years of politicians who have chipped away at our freedoms and the free market. They have spent and promised more than they can deliver and we will have to pay for it through the destruction of our capital and/or high taxes.
There is a solution to all this foreign exchange mess and that is for nations to adopt the gold standard. In my studies of it I believe it would act to reign in the destruction of currencies and act to fairly balance foreign trade and foreign exchange. I am aware of all the claims of how it failed during the 1920s and that FDR abandoned it as a â??barbaric metalâ? in place of â??modern money.â? These views are incorrect and reflect a statist Keynesian approach to political economy.
Interestingly, Robert Zoellick, former U.S. Treasury official and now president of The World Bank, has floated the idea that gold should be used in foreign exchange as a â??reference point.â? As he said in the Financial Times, â??Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today."? What he means is that in real terms gold has not increased so much as that currencies, especially the dollar, have devalued, and that is why people are buying it.
The FT sneered at this suggestion saying that â??most economistsâ? believe it would lead to tight monetary policies [true] which restrict growth [false]. In fact Martin Wolf came out with an article examining the possibility of returning to the gold standard. In his inimitable way, he appears to give it a serious analysis and then dismisses it as an impossible return to the 19th Century. Mr. Wolfâ??s â??inimitabilityâ? is to set up a straw man and then demolish it. Donâ??t take him seriously.
Tight money (read â??real moneyâ?) would actually lead to growth. If we could print our way to riches, then weâ??d all have been rich long ago. That would be another article. But I think we can all agree that the post-Bretton Woods systems havenâ??t worked and the solutions proposed on all sides will make things worse.
I donâ??t see any realistic solution to come out of any G-20 meeting on the topic of â??global imbalances.â? There are no such imbalances; it is just an invention of countries like the U.S. to pin the blame for their policy mistakes on the Chinese. If I were China, I wouldnâ??t worry about the long-term because the result of QE will be to weaken our economy by destroying capital which will lead to sluggish growth and be less of a threat to them despite a â??cheapâ? dollar.
China lecturing the US? Theyâ??d have a leg to stand on if they would just quit buying our debt. Theyâ??ve been supporting our reckless monetary policies indirectly by funding our debt. As for QE2, it wonâ??t work. Businesses wontâ??t borrow money if the consumer isnâ??t buying anything because the consumer has no job or is worried about keeping the one he has, not to mention his rising oil and food prices. Heck, the same goes for business â?? theyâ??re not going to borrow or buy if theyâ??re uncertain about whether their doors will be open in the future, or if they can pay their fuel costs. So maybe the Fed will just have to take back all that money it put in the system that no one can use or wants right now. Assuming, of course, China doesnâ??t step in a buy it.
In all of this, we need to address the issue of capital destruction (via consumption and malinvestmentâ??the real consequences of credit inflation).
Past policies were designed to destroy capital by encouraging borrowing money that canâ??t be paid back to use for consumption and production for consumption. We canâ??t fix this by trying even harder to encourage consumption and malinvestment!
From what has taken place so far, wouldnâ??t it have been better to force the T.B.T.F. boys to do just that? By giving them all that free or just about free money with the idea that they would prop up the economy by loaning it out, instead they bought treasuries, are collecting interest on same, costing the Treasury to pay out more funds, while the consumer is in a continual decline. I donâ??t think that the U.S. can continue along the â??business as usualâ? path, without holding those responsible for the mess it finds itself in today. To argue otherwise, seems to be the same as sticking ones head in the sand & wishing for the tooth fairy to come.
[...] Obama Strikes Out Twice At G-20 - Daily Capitalist [...]
The US is clearly BK and the sooner we and the rest of the world acts accordingly the better off we all will be. Of course it is the transfer of wealth and industry to china that is at the bottom of the problem â?? but people in US are lied to by both parties and unable or unwilling to realize what has happened.
Beside what is Paris H wearing for panties today??!!
We are about to have to pay up for past neglectâ?¦
The greater depression is HERE NOW!!!!
No way out except gridning deflation or chaotic hyperinflation â?? reason both parties lying with every speech â?? only Ron Paul has been touching on the truth, and even he is way to optimistic.
RBS
Even if we know that the solution for humanity would be a totally Gold backed currency because that would solve all disbalances, scams and injustices, continuing to preach that Gold Standard because of sound reasoning is a possibility, is to practice wishful thinking.
Rothschild said long time ago that â??give me the power to make the money and I do not care who makes the lawsâ?.
Now we know that the Elite have taken over the governments, not only of the Western world but the Elite of the Eastern world has moved in there too.. They are the governments. The matter is worse than what Rothschild said. Now the Elite makes not only the money but they also make the laws.
Do you think they care about the people? People who govern, and people who command those who govern, will never acquiesce to something just because it is good for humanity. They will never relinquish the power that printing money gives to them and takes away from humanity. Give up fractional reserve banking? What a crazy idea.
They will impose any, any solution which will keep Fiat Money as King. Because that puts their hand in your pocket. Argentina has survived taking 18 zeroes off the currency in 50 years. A Weimar? no, not as much, but enough damage. But it survives. So will the world with Forever Inflating Fiat.
They make the laws, those that governâ?¦ they want it this wayâ?¦ they will NEVER put the Gold Noose over their neck. They are perverse, not stupid. They have PPAS (Political Power Abuse Syndrome). Expecting ethics and reasonability and the good for common people from them is fantasy. And if there is a tiny minority among those who govern who may have the good of the people in mind they are too few to matter.
Fiat will be King, no way we will get a Gold Standard Currency. And if even an implication is put forth by "them"?, it is just to keep us hopingâ?¦ the carrot in front of the donkeyâ?¦ Walk.
How does debasing currency help the â??Elites?â? It destroys their capital. A is still A, Aristotle.
What a lot of empty rhetoric. â??Obama Strikes Out Twice At G-20â?³. Why? Because our economic rivals did not applaud his policies? Why should they? And why should we care? China has big ignoring international demands for a decade to permit its currency to appreciate. Does that it mean it â??struck outâ? at every international meeting in which it rejected international demands? Now, the U.S. has finally decided to change its own economic policies rather than begging the Chinese to change their policies instead of begging China to change its, economic nationalist should be standing up and cheering. Instead they declare that we have â??struck outâ?! Of course increasing the amount of U.S. currency in circulation will devalue the dollar. Thatâ??s what its intended to. Those who have been calling for appreciation for the yuan donâ??t seem to understand that this is exactly the same as devaluing the U.S. dollars in terms of the yuan. Obama strikes out? Seems to me that he, or rather Bernanke has a hit a home run. Naturally the other side isnâ??t happy about it.
Bernanke has no option other than QE2. Itâ??s not to make America competitive â?? US workers would have to be paid 1/10 of what they are now for that to happen â?? itâ??s to support the bond market. If the Fed doesnâ??t print the money to buy bonds, no one else will, unless yields are astronomical, which puts up interest rates for all of us. China is now a net seller (wouldnâ??t you be?) The big problem for the US will be paying for oil imports. What OPEC country in itâ??s right mind would part with the precious black stuff for a fistful of freshly printed paper? Once OPEC demands real money (yes, even gold) energy-hungry US will grind to a halt. The days of the dollar as the reserve currency must be numbered.
[...] This post was mentioned on Twitter by Joshua Motlong, Niecie Draper. Niecie Draper said: Obama Strikes Out Twice At G-20: In a follow-up to yesterday's post on foreign exchange ("Hot Money, Gold, Foreiâ?¦ http://bit.ly/aM69Rk [...]
inflation is the cost of deficit, how you think pay that
the biggest mistake done by US was invading iraq and Afganistan. That caused the massive deficits both domestic and external. America, once withdraws from these failed missions would put its finances in productive economics and that would strengthen the dollar and would pave the road to balance the deficits. America should shed its false pride of exporting democracy in failed nations ( middle east )or engaging in regime change in South America or anywhere. It would be futile and costly and unnecessary.Americaâ??s role as world police or cowboy is the actual reason for the current state of economic mess.The sooner America realize this the better for future .Donâ??t blame China , India, Japan or Heaven/ Hell,,,etc.â? Long Live The Dollar and May God save Americaâ?
Name
Mail (will not be published)
Website
Read Full Article »
