Thursday, October 14, 2010

I remember when...

Unemployment claims were up again this week as the economy staggers along toward Depression. The stock market was down but it supposedly would have been much worse if not for the Federal Reserve’s decision to start printing money with a modest 32 billion to be pumped into long term Treasury bills over the next month. The trade in dollars did not react well to this with USDs down against all major currencies including the Chinese renminbi, Swiss franc and Australian dollar. Gold set another all time high and oil has been going up as well as the USD sags.

The trade deficit continues to soar rising by 9% in August to 46 billion for the month. Imports from China increased to 35 billion for August and with 7 billion in exports to China this caused a 28 billion dollar trade deficit with China alone. China doesn’t much care for the USD being inflated as it holds a lot of them so China is spending them as fast as possible. With the Fed buying Treasury bonds you can expect China will be somewhat mollified by unloading more of its US debt holding. With China now being allowed to buy hard assets inside the US instead of just worthless paper they are hedging against inflation with things like Texas oil fields, it also gives them knowledge of drilling technology that they find even more valuable.

However the USD is still the world’s reserve currency and the whole notion of letting all currencies float was supposed to be underwritten by the stable USD. But the old greenback is being abused by Wall Street bankers to maintain their 144 billion dollars in bonuses in ways that you would only expect from a banana republic. Singapore surprised the markets by allowing its currency to rise against the dollar. Other countries from India and Russia to Israel and Switzerland are all unhappy about the unstable dollar as it undermines their exports and their USD reserves.

Friday is the semi-annual deadline for the Treasury Department to name currency manipulators and you can expect that China will get a pass again. It seems that failing to get any cooperation on the Yuan, the Obama Administration is simply going to play chicken with a full blown currency war.

We could have a manufacturing and trade policy as we had from 1790 until 1980 but that would cut into the cash flow of billionaires. As they continue to sell off our manufacturing base and our economy spirals down it is very likely that 2011 will be the year that the US falls to second place for the first time since the 19th century. Practice this phrase to use with your grand children, hái jìdé nèitiān, it means “I remember when…” in standard Chinese.


Anonymous said...

Are we suicidal, insane or both.

It is well known that we have abandoned our manufacturing base to China.

To the hefty trade debt thus generated add the several trillions borrowed from China to fight wars meant only to keep China away from Iraq/Iran oil.

But now we allow China to purchase Texas oil fields providing not only the valuable commodity but also "knowledge of drilling technology that they find even more valuable"?

John Puma

ickenittle said...

Of course we have to give China knowledge of drilling technology-they will be our landlords-we need to stay on their good side and give them all we can as sufferers of "stockholm syndrome." often do.