China Currency and Trade

Re: [spiers] Re: China Currency and Trade

Anthony,

Your question "But why would China allow it's largest customer's currency to
tank? " ... implies that the Chinese are the ones behind the fall or are in
favor of it. I believe that is not the case.

The US gov't has been trying to get China to re-evaluate their currency for
years. The RMBY was pegged to the dollar, if the dollar fell the RMBY would fall
also. China is now using a "basket of currency" float which will smooth out the
fluctuations of the dollar. Devaluation of the dollar means the US would be
paying their debt to China with currency worth less that it is today. Good for
the US, not China.

If I was a conspiracy person, I would posit that the US is working the value of
the dollar down, as it did at the beginning of Gulf War II. The dollar fell then
to punish Old Europe for not supporting the war. The cost of European export
went up so their imports to the US cost more and were less attractive. If the US
can devalue the dollar, our outstanding debts can be paid off with cheaper
currency, the cost of imports will increase and importation will slow reducing
the international (China) trade deficit. I expect a short term drop in consumer
spending because of increased gasoline prices which will reduce the trade
imbalance with China even further.

This runs against the current indicators of consumer sentiment so I may be off
base here. This summer gas prices will be an interesting story but the big hit
will occur in the fall when heating prices are projected. That story should
break right after the fall elections.

"And, What are the chances the US will end up like Chile, or Argentina of old
with runaway inflation? Will my retirement savings be wiped out, worthless? "
... If we continue on the current course we will BE Chile or Argentina, not LIKE
them. The stratification of wealth in the US is a mirror of South and Central
America. It is only home ownership which separates us from them. The middle
class has all their eggs in one basket, their home. A drop in real estate values
or an inability to borrow against that value is the functional end of the gravy
train. I lived through 17 percent interest mortgage rates. I am not sure we
would survive that again.

I am still trying to make sense of John's comment on currency sellers getting
out of the dollar. I have a bad feeling it is somehow tied to my comments above.
I hope I am wrong.

Randy

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