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WSJ: China Calls for a Supersovereign Reserve Currency
declaredemer
Member Posts: 2,698
ARTICLE: Robert Flint, Dollar Declines As China Stirs Currency Caldron. Wall Street Journal, June 27, 2009, at B6, online.wsj.com/article/SB124602201814360491.html
The era of the dollar could be at an end in a relatively short period of time, coming as swiftly as the change from gold standard. The countries that bankroll the U.S. debt NO LONGER want U.S. dollars and have lost faith in the U.S. economy and currency. This is, and will be, one of the most historic economic changes in economic history.
According to the article published in the Journal, "the People's Bank of China elevated the status of earlier suggestions for a new international currency." Those ideas today, again according to the published article, are now "the official view."
Most people in the United States, using the U.S. dollar, probably have no idea what the hell is going on right now in international banking and what the consequences will be for THEIR standard-of-living and cost-of-living. It is utterly fascinating to see this process of devaluaing the United States unfold. As I mentioned earlier an article published in the Harvard Business Review, the United States has lost more ownership control recently than any (any) country in the world. Americans, literally, do not even own their own companies anymore. Ken Smith, Losing (Ownership) Control, Harvard Business Review, June 2009, at 18-9, harvardbusinessonline.hbsp.harvard.edu/b02/en/common./item_detail.jhtml;jsessionid=ASN4OX1JDV5UUAKRGWCB5VQBKE0YOISW
Comments
If they've lost faith in the U.S.' economy and currency who's economy and currency do they have faith in?
Your links all require payment/ subscription.
Nonetheless, yes it is utterly amazing that no one seems to grasp the implications here.
deviliscious: (PS. I have been told that when I use scientific language, it does not make me sound more intelligent, it only makes me sound like a jackass. It makes me appear that I am not knowledgable enough in the subject I am discussing to be able to translate it for people outside the field to understand. Some advice you might consider as well)
Is this reason you wanted Obama to be elected ? As an Australian you wanted to see America fail ?
Oops. Sorry. I did not see that. It was not for a payment or subscription when I originally posted them. That is weird.
EDIT: See if this gives the full text, which is not very long: online.wsj.com/article/SB124602201814360491.html. Apparently, when I post it automatically changes to the sub-required page.
I cannot get the HBR article to load now. LOL.
Here is another interesting Wall Street Journal article I wanted to post:
Damian Paletta, Fed Documents Fuel Concerns About Expanding Central Bank's Role, Wall Street Journal, June 27, 2009, at A4, online.wsj.com/article/SB124606477050863921.html.
"Whether or not Mr. Bernanke threatened Mr. Lewis's ouster over the rescue remains a source of contention. Mr. Lewis suggested in testimony to New York Attorney General Andrew Cuomo that the Fed chief did just that. Mr. Bernanke has denied making such a threat to Mr. Lewis."*
*Mr. Bernanke is the Chairman of the Federal Reserve.
In the article, Meg McConnell, a top Federal Reserve Bank of New York official,
"At this point I have [the] sense that the hearts and minds war in Iraq was handled better than it has been in this crisis, particularly within the Fed system."
It is really amazing to see these sort of things unfold.
It is WEIRD to me that there is discussion of expanding the Federal Reserve's oversight authority and power when the Federal Reserve is responsible for the banking crisis. At minimum, a major factor. According to what I read in the Wall Street Journal, we are seeing (a) collapsing U.S. dollar (for which the Fed controls monetary policy) and (b) an expanded Fed. This is WEIRD to ME - maybe not to YOU.
It's not really wierd to me at all.
All I have to do is look at the faces of the advisors flanking Obama every time he announces a major economic reform, and remind myself from whence they came, and to whence they will return once Obama's term is over.
His Secretary of the Treasury is a prime example.......
(excuse the pun)
Their own.
China is attempting to replace it's world market with a domestic market. To grow it's middle class and provide it's own consumers for it's own goods.
Their government estimates this process will take between 5-10 years.
China's problem with the dollar is that America seeks to devalue the dollar in order to lower the value of it's debt's and lower the cost of it's exports to make them more comptetative. Typically their have their currency pegged to the dollar to prevent their loans be devalued.
Don't worry about a collapsing Dollar, you are in a recession. A collapsing Dollar is what you want right now. Good for you, bad for China.
It's not really wierd to me at all.
All I have to do is look at the faces of the advisors flanking Obama every time he announces a major economic reform, and remind myself from whence they came, and to whence they will return once Obama's term is over.
His Secretary of the Treasury is a prime example.......
(excuse the pun)
Great point. You are so right.
ASIDE: The very last thing you want is a devalued dollar, especially if you have any "savings" in dollars. The very last thing you want is a decrease in your purchasing power and inflated oil, food, energy, retail, and other prices.
The devaluation of the currency is simply shifting the costs of the debt burden to the consumers. China does not want the U.S. dollar devalued either because they purchase our debt. If so many of your assets are in dollars, and the dollars decline, so too do your assets. The American consumer and the Chinese have the same interests.
Who benefits from a devalued dollar, and why is this mainstream economic, monetary policy? Why is the German government not following the British and U.S.A.?
The Chinese not wanting U.S. dollars is the symptom of printing currency and killing-off the purchasing power of the American working and middle-classes. If the U.S. dollar were strong and the consumers had purchasing power, the Chinese would be happy to export to us and buy our debt. The worrisome issue is that many Europeans such as baff want to see a declined U.S.A., and boy! will they regret it when they get what they wish for. The Chinese moving-away from the U.S. dollar is actually for our own good. When the dollar increases, the pound and the Euro tend to decrease. If the U.S. economy remains the economic center of the world, then you can expect weaker Euro and pound. We are seeing a stronger pound and Euro. It is increasing the standard-of-living in Europe and decreasing the standard-of-living in the U.S.
In a WEIRD sense, America is becoming like the old sick and economically stagnant Europe as Europe becomes like the U.S.A. with a more powerful market, higher standard of livings, an efficient health care system, open and sound educational institutions, and so forth.
Telling people that they want a devalued U.S. dollar scares me because some people might be dumb enough to believe that.
I want to see a strong Dollar vs a weak Pound. The British economy has been devaluing lots in the recession. The Euro has been unable to as it is not a national currency but a slower to manage "consensus" currency. (Lol, it's truely European! Unable to act decisively).
You should want to see a weak Dollar.
China is developing it's economy away from international trade completely. They are consequently losing intrest in the dollar as they are no longer focusing on you to be their biggest customers.
The German government doesn't have fiscal control of it's currency. It would like to devalue the Euro since it is a giant export economy, but the rest of the Eurozone isn't voting for that. In all honesty, the Euro is a screwed up currency. I wouldn't be too worried about emulating that one if I were you.
Exporters, manufacturers, domestic producers and foreign investors gain from a devalued currency. The manufacturing industries are all on life support and need every help they can get, and pensioners are not receiving much dividends or returns on their local investments, this is offset by their foreign investment returns as long as the dollar is weaker. The low Dollar price is their life support.
While imports cost more, this means domestic goods cost comparatively less. It boosts the local economy in preference to the global economy.
Asset value is largely irrelevant as currently they are all too weak to sell at a profit. What is important about an investment is how much it returns, not how much it sells for, (unless you are a stock trader or facing insolvency).
If the U.S.A prospers, I make my money out if it. If China prospers, I make my money out of it. If Europe prospers, I make my money out of it. Russia, Africa, South America, you name it, I own some of it. If one declines or my own country declines, I have other sources of income. I'd like to see America prosper. I'd like to see everyone prosper. But I've hedged my bets. If America collapses, I won't go hungry and my next car will still be a Lexus.
When your currency is high you buy foreign goods and invest abroad because to do so is cheap. When your currency is low, foreigners, seeing a bargain, invest in you. So when you need money, you want a low currency value, and when you have too much money and you wish to start hedging your bets with foreign investments, you need your currency high.
Currently the U.S. needs a low Dollar value more than it needs a high one.
I will begin by using an analogy. One reason, I think, inspite of profound intellectual prowess or potential, Russia has not seized the opportunity to reform its economy and its dependency on natural resources. Dictatorships emerge in Russia to the Middle East to elsewhere when you do not have to produce, create, innovate, or invest in your people but just extract from the earth some natural resource.
Similar to oil, the U.S.A. has its dollar. The corruption that builds around energy are those massive conglomerates. You could say that the corruption that builds from a financial system also creates corruption around it. By far, and I mean by far, finance is the industry monster in the U.S.A.
The ability to print money, or extract billions from natural resources, allows you to create a society in which you do not have to invest in health care, education, infrastructure, or any institution.
ONLY READ BELOW THIS POINT IF YOU ARE
PRESSED FOR TIME AND READ WHAT IS ABOVE LATER
The Dollar in America is Like Russia's Oil
(and, yes, when the U.S. currency is low, as I showed with the Harvard Business Review article, you have unprecedent buying of U.S. assets. And, as I explained, it is a society built on (a) consumption and (b) services. When the corporations purchase the assets, they shift (b) services abroad, thereby hurting the U.S.A. When the dollar declines, (a) consumption declines with it because purchasing power is weakened, thereby reducing the standard-of-living and raising the cost-of-living for Americans.
The people that pay for a weak dollar are the little workers; that is the problem. And they have zero --I mean zero-- control over monetary policy and limited (indirect) control over fiscal policy.
(a) decling dollar + (b) increases in taxes (energy to income) is going to kill them off.
I do not want to see that happen.
(worse, some might believe YOU that a weak dollar is "good" for them)
Based on MY sources (Harvard Business Review and Wall Street Journal), we are witnessing:
And, YOU, say this is good. . . . to ME this looks, and I regret I do not have a better word, weird.
See, most Americans can't afford to hedge anything, since they are nearly living from paycheck to paycheck. America's high GDP per capita is completely offset by the distribution, which is why our living standards are much lower than European countries with lower GDP's.
The top 10% or so might be well off, since they can diversify their investments, however, the younger generation that hasn't accrued enough wealth to create a financial position would entirely be screwed.
Can you recall when the euro was first unleashed? The ridiculous drops in capital led to people not being able to withdraw their money from the bank due to instant hyperinflation that halved salaries and doubled the prices of consumer goods.
This is a sequence of characters intended to produce some profound mental effect, but it has failed.
It's not really wierd to me at all.
All I have to do is look at the faces of the advisors flanking Obama every time he announces a major economic reform, and remind myself from whence they came, and to whence they will return once Obama's term is over.
His Secretary of the Treasury is a prime example.......
(excuse the pun)
Great point. Y
In a WEIRD sense, America is becoming like the old sick and economically stagnant Europe as Europe becomes like the U.S.A. with a more powerful market, higher standard of livings, an efficient health care system, open and sound educational institutions, and so forth.
Individual western European countries have pretty much consistently outranked the United States as a whole on quality of life for several decades now.
70 % of the US GDP is Dosmestic spending.
Yes this our unemployment.
Trade in material assumptions for spiritual facts and make permanent progress.
Yes. It is what troubles me. I want Americans to have much greater and higher quality of life than they do now. The problem is also education. Most Americans, interestingly, do not have a passport. They do not realize how really --and I mean really-- wealthy the, say, Arab states are. Or how most new billionaires are in Russia. Or the quality of health care in France. And it could even get more particular when discussing health from exercise to education to corporate food.
The real unemployment/underemployment in the United States is staggering. Fuh- frightening.
Worse, I was just reading in the Wall Street Journal, some computer programmer made 90,000 a year and was laid off; his temporary unemployment benefits are like 300.00 per week. That is remarkable. How is this guy going to afford health care and, well, live on that amount of money? Especially as the dollar begins to drop, 300.00 per week is nothing. I can barely live on 300.00 a day, and I am 100% serious.
We have no real safety net infrastructure to deal with the death of the middle-class in terms of health care costs and offshoring of jobs abroad. We better get
Yes. It is what troubles me. I want Americans to have much greater and higher quality of life than they do now. The problem is also education. Most Americans, interestingly, do not have a passport. They do not realize how really --and I mean really-- wealthy the, say, Arab states are. Or how most new billionaires are in Russia. Or the quality of health care in France. And it could even get more particular when discussing health from exercise to education to corporate food.
Its much easier to manage a vary small economy's when it come to quality of live issues,like those in Europe compared to the a vary large economy like ours in the US.considering the fact most of the country is rural.And the fact that we are the largest economy earth has every seen.
We have to deal with the fact that also, that people are dieing to get here,because we treat our people so bad.
Trade in material assumptions for spiritual facts and make permanent progress.
Let’s talk about China,I'm going to try to put this together so it doesn't make your eyes bleed.
China is the US’s largest creditor. All told, the People’s Republic has $700+ billion in US Treasuries bucks.China is believed to have 70% of its $1.7 trillion in foreign reserves sitting in green backs.
Needless to say, the Chinese are not too happy about our Central Bank’s decision to print TRILLIONS of dollars propping up the US financial system.
Indeed, the initial rumblings of what will eventually turn into outright conflict (either economic or war) have already begun. China’s Premier Wen Jiabao recently commented, We have lent a huge amount of money to the US…Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.Yu Yongding, a former Chinese central bank adviser, recently referred to the US Federal Reserve as the world’s biggest junk investor… ridden with rubbish assets, and to Chairman Ben Bernanke as “helicopter Ben.”
China owns a TON of dollar denominated assets. And the Fed is doing everything it can to devalue the dollar. Thus China has a few options:
Openly sell the dollar, thereby destroying the value of its reserves and inviting open war with the US.
OR...Quietly shift away from the dollar without openly attracting attention or threatening the US publicly.
The Chinese are not idiots. And they know that dropping the dollar standard would destroy a HUGE portion of their foreign reserves, since everyone and their mother would follow suit.
Here’s a few dots to consider…
Feb.10, 2009: China buys Oz Minerals, the world’s second largest zinc miner for $1.7 billion
Feb. 12, 2009: China buys $20 billion worth of Rio Tinto, one of the three largest iron ore producers, giving it the potential to raise its stake to 19%.
Feb. 24. 2009: China buys 16% of Fortescue Metals an Australian iron ore company.
April 1, 2009 China buys $46 million worth of Terramin Australia’s lead and zinc supplies in Algeria.
April 15, 2009: China buy 51% of Ontario’s Liberty Mines: a nickel producer.
Make no mistake, the Chinese have already begun diversifying away from the dollar. They just haven’t advertised the fact openly. Chinese students openly laughed at our Treasury Secretary Tim Geithner when he gave a talk there promising that “Chinese assets were safe” in the dollar. If Chinese STUDENTS can figure the Fed’s moves out, what do you think the Chinese GOVERNMENT is doing?
I think we both know the answer to that.China is in deep trouble.if they can't keep a 7 plus growth rate then they the vary foundation of their economy falls,their exports are down as much a 40 percent!! an this is a vary Conservative estimate..
Their is much more...Make no bones about it we are at economic war with china right now.In 10 yrs china will have more car than the US on the roads.If you have not noticed we are in control of the Mideast which is considered part of Asia,what we the US are doing is grabbing all the oil we can.Troops in Iraq, and the under mining of Iran as we speak..Our plan is to force them China to buy oil from unreliable secondary sources.The plan is to also destablelise China and brake it up.
They is even more...but im out of time.forgive the spelling im in a rush..
Trade in material assumptions for spiritual facts and make permanent progress.
Similar to Mexico, the U.S.A. is married to China. Many of China's problems are our problems. If it were not for the Chinese exporting cheaps goods into the U.S.A., the American standard-of-living would be in lower. The American consumer needs Chinese goods to deflate prices. In fact, I see China as a strategic partner more than a strategic opponent. We are competitors, of course, economically, but so is the E.U. and so forth.
China is a very interesting case study and situation. All of China is either democratic or capitalist, excluding its political system, which might be a good thing for us. If China were to democratize, I am not sure the regular and growing middle-class in Chinese would be interested in purchasing as many U.S. bonds to sustain U.S. hegemony, as you said, in the Middle-East.
If anything, we need the Chinese to remain communist, continue to grow, and continue to buy our debt. WE have unwisely exported our debt because we have not invested in ourselves: health, infrastructure, education, social institutions, new industries, and so forth. We have consumed or burned-it-up on defense, wars, corporate farm subsidies, farm subsidies, and so forth. We somewhat need status quo in China, and the Chinese need us to continue to consume their goods. In fact, though, you are right about the Chinese interested more in Europe, Africa, Caribbean, and even Latin America. WE are missing HUGE opportunities to obtain regional trade agreements in Latin America. In fact, our negligence of Latin America, I think, contributes to the drug war in addition to China's growing influence there. We should end our farm subsidies and import our food from Latin America, where it is (a) cheaper and (b) better.
Great (great) points and discussion.
I seriously doubt this can be true. Most European countries have unemployment well into the teens (US may top out at 10% this go around). Although the Euro governments give much more wealth back to the people, the term 'quality of life' is pretty suspect used in this context. Most of the people I talk to in Europe are lucky to be living in a 1,500 sq. ft. apartment (double wide trailers bigger).
One thing the US has that Euro states are lacking are a shitload of natural resources, and wide open space to expand. Also, the low value of the dollar has helped our business immensely. We are selling more internationally than ever before, and places like the Middle East and Asia hold very high regard for US products (especially in biotech, my field).
I hate to break it to you, but there is no economic meltdown, or catastrophic shift in global wealth happening for at least another 100 years.
Quality-of-life is so much broader than the size of one's flat. You raise an interesting point, however, that many people have in the past, perhaps not so much now, in the United States used the size of their abode as a status symbol. It is kind of weird if you think about it, really. Have you seen Oprah's house?
Oprah's 80-90 million dollar home
(extraordinary income disparity exists in the United States)
Disposal income, money to travel, educational institutions, social institutions, quality of health care, accessibility of health care, education, and other institutions, violent crime, commute times, pollution, job security, political freedom, familial stability (using divorce rates as an example), cost of living, wealth disparity, social mobility, purchasing power, etc.
The United States ranks high in terms of quality-of-life, but it is not top ten.
ASIDE: No one is knocking the United States; we just mention this to improve the quality-of-life for Americans. The inability of our society, especially our educational institutions, to adopt to a globally competitive economy is going to have severe repercussions for regular people who are stuck in a union/government-controlled system. It really is failing them so badly that I actually, and honestly, feel sorry for them. Worse (or better), the rewards for preparation in this globally competitive economy will be far-reaching. Knowledge of math, science, languages, other cultures, and so forth will be crucial.
Politically/Socially/Economically/Financially, however, we have what I consider to be three problems:
In my view, until (1) excessive debt, (2) health care costs, and (3) tax reform are achieved, we will not have the resources available to even address an educational system that will fail the vast majority of "regular" Americans.
Aside: most Americans, to my knowledge, do not (a) work for the government or (b) have the skill-set of job security. Worse, they do not have the necessary safety nets. As I mentioned, that computer programmer lost his job and now gets 300.00 bucks a month in benefits.
Unfortunately, in MY view, if it is not obvious, people can expect increased job insecurity and increased financial anxiety until debt, health care costs, and taxes are addressed. And, then, finally, we should have resources to prepare our society for a globally competitive economy. Otherwise, we will just expand and exacerbate our outstanding entitlement liability problems as well as our debt.
WE CAN. YES. WE CAN.
BUT - WILL WE?
(RUNNING AROUND AND TELL PEOPLE "YES. WE CAN." DOES NOT HELP IF YOU DO NOTHING ABOUT (1) EXCESSIVE DEBT, (2) HEALTH CARE COSTS, and (3) TAXES)
One of the biggest reasons the U.S. is behind other developed countries in many areas is that we spend a huge percentage of GDP on our military.
With all of its flaws the U.S. has stood as a deterrent to many greater evils over the past half century.
One of the reasons other allied countries can spend so LITTLE on national security is the knowledge that the military might of the U.S. is essentially protecting them.
I absolutely support single-payer national healthcare in this country but we will never be able to afford it while we bear the burden of the security of the free world.
I am a liberal but also a realist.. I do not see any other nation or group of nations willing to share the role of "world protector" any time in the near future.
Think carefully before you attack this post... I urge you to take a realistic look at the relative military strength of the United States, other developed nations, and the strengths of our potential adversaries. If Scandanavian and European nations had to start spending enough money to adequately protect themselves without the help of the U.S. their other "quality of life" indices would fall quickly.
deviliscious: (PS. I have been told that when I use scientific language, it does not make me sound more intelligent, it only makes me sound like a jackass. It makes me appear that I am not knowledgable enough in the subject I am discussing to be able to translate it for people outside the field to understand. Some advice you might consider as well)
okay well I'll be the first to say it then.
"THE SKY IS FALLING."
oh my god!, an analyst things something is bad! welcome to every day, shit happens.
There is billions of people out there, somebody will find a solution with a way for them to profit off it, and BAM, back in business.
The only unfortunate is I will have totally forgotten about this when 2 years down the road everything will be absolutly fine.
after 6 or so years, I had to change it a little...
It reminds me of something else. Not to long ago I was talking with someone about her job, and she mentioned to me that she needed to, "save her vacation days for surgery" (blinks rapidly).
It tells ME about what regular people go through in this country not only when they get sick. Not only the costs of the surgery, but also how you lose "vacation days" because of surgery.
It is sad. It really is.
David R. Burton and Cesar Conda, Why Stagflation is Coming, The Washington Times, June 28, 2009, www.washingtontimes.com/news/2009/jun/28/why-stagflation-is-coming/.
Here is the direct quote:
"The recovery, when it comes, will combine
It is unfortunate, but from my warnings about housing to finance to bail-outs to the recovery to excessive debt to health care costs to taxes are enough. It is like a series of problems that are imploding in sequence. And the tragedy and irony is that the solutions will make the complex problems worse.
It is really weird. Get (a) smart or (b) tough.