Saturday, November 25, 2006

China's Dilemma

Guan Tao, deputy director-general of the general affairs department of the Chinese State Administration of Foreign Exchange (SAFE), has spoken the truth like a child.

chinese-child4
[Thanks to selasskoli.is for the picture.]

Reuters reports a few of his statements:

"The U.S. buys cargo, and countries with a trade surplus buy U.S. treasuries -- they actually have no other choice. ... If I have a surplus on the trade account, if I have foreign exchange income, I can certainly invest part of it in non-dollar assets, but the size of the market for non-dollar assets is very limited so the great majority of foreign exchange reserve assets has to be invested [in] U.S. financial markets."

Otherwise stated: "They've got us by the ying-yang." [My words.]

May I suggest gold to Monsieur Guan Tao? And May I also suggest they stop the pegging? (For an explanation of this maneuver, read the last part of my March 1, 2006 PrudentBear.com article "Trade Deficit Bubble or Credit Bubble".)

Either that, or stop complaining.

You can't have it both ways. You can't give an artificial boost to your own manufacturing sector by pegging your currency to the dollar, and also have a diversified reserve account.

I also read that Paulson and Bernanke will be traveling together to China to make their case, which is strengthened by the fact that trade-barrier Democrats are now in power in the US.

2 Comments:

Anonymous billp said...

Words, words, and more words.

Think of deficient education as the basis for these problems whether lawyer or liberal arts educated bureaucrat, media person

Do not fear the enemy, for your enemy can only take your life. It is far better that you fear the media, for they will steal your HONOR. That awful power, the public opinion of a nation, is created in America by a horde of ignorant, self-complacent simpletons who failed at ditching and shoemaking and fetched up in journalism on their way to the poorhouse.
Mark Twain

In America half the population doesn't read the paper. Clearly, they are the intelligent half. Gore Vidal
or politician.

why not do something?

regards
http://www.prosefights.org/fbi/fbi.htm

5:56 PM  
Anonymous Anonymous said...

:quote
May I suggest gold to Monsieur Guan Tao? And May I also suggest they stop the pegging? (For an explanation of this maneuver, read the last part of my March 1, 2006 PrudentBear.com article "Trade Deficit Bubble or Credit Bubble".)

Either that, or stop complaining.

You can't have it both ways. You can't give an artificial boost to your own manufacturing sector by pegging your currency to the dollar, and also have a diversified reserve account.

I also read that Paulson and Bernanke will be traveling together to China to make their case, which is strengthened by the fact that trade-barrier Democrats are now in power in the US.
:unquote


They can have it both ways for quite a while. Most likely, both parties are coming to an agreement a-la Plaza accord. China will complain and pretend to look for dollar alternatives. US will pretend to put pressure on China. Both will cooperate in killing currency speculators. Eventually, the $ will creep lower, but very slow (slower, than doomsayers predict). This may continue for years, but, eventually, will turn into a disaster anyway. Hold on to your gold.

11:06 PM  

Post a Comment

Links to this post:

Create a Link

<< Home