Cancun and China

Greetings!

The news this week about the "failure" of the WTO meeting in Cancun and the
story of our Treasury Secretary trying to get the Chinese to revalue the
Renminbi Yuan (the People's Popular Liberated buck) are actually related.

In both instances, our trading partners are declining to accept the present USA
govt's plan for world trade.

In Cancun, the developing nations have no interest in policies that continue to
allow USA to blanket the world with subsidized agriculture (our #1 export) which
lays waste third world growers, and at the same time we curb third world
textiles coming into USA. Of course the fastest and best policy is to simply
rid ourselves of farm subsidies and open our borders to textiles. (Nothing would
reinvigorate the domestic small business in both fields faster as well). I'd go
further, but that would be a start. In the meantime, the current regime cannot
expect cooperation from WTO members.

China has maintained a currency rate of about 8.5 yuan to the dollar for nearly
20 years. Business likes stability. USA has inflated its currency wildly. Most
countries float their currencies against ours, so we in effect export our
inflation. By maintaining the ratio, China avoids importing USA inflation, but
the side effect is Chinese goods get cheaper and cheaper for USA consumers.

The plot thickens: with all the dollars China is earning, where does it invest
those dollars? US Govt T-bills! They lend it back to Uncle Sam! The bottom
line is, who is going to get hammered by the malfeasance of USA monetary policy?
Borrowers or lenders? Communist China will decide for us when it is good and
ready.

The last 30 years have been fascinating, but I think the next 30 are going to be
better yet.

John

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