Thursday, March 11, 2010

The latest battles from the economic front

US economic diplomacy is not going very well, basically we are war and as usual the US is the bad guy. Tim Geithner, US Treasury secretary, has delivered a blunt warning to the European Commission that plans to clamp down hedge funds and private equity groups that have looting and pillaging across the EU. After what has been done to Greece, Spain, Portugal and Ireland by US firms it isn’t surprising the EU want regulation to keep the pirates out. But this would interfere with the Wall Street banks and this threatens the current bubble economy and the Obama Adm. is annoyed.

Sec. of State Clinton didn’t have any better luck in Brazil on her tour of South America where she tried to line up their vote for a UN Security council resolution against Iran. She was told no thanks, you see Brazil is about a trade war with the US over cotton subsidies. The US is the world’s largest exporter of cotton but that is primarily because the US no longer has any textile industry of its own and Brazil wants to avoid a similar fate.
Brazil won its case at the WTO and is allowed to impose the tariff increases. The US has been subsidizing cotton farmers and providing a loan guarantee program for international buyers of US cotton. US taxpayers were paying to keep cotton cheap and paying foreign companies to buy it. The Brazilians plan to raise duties on cotton products from between 6% and 35% to 100%. Duties on appliances and electronics would go from 20 per cent to 40 per cent and on cars from 35% up to 50%. Brazil could also impose further penalties – known as “cross-retaliation” breaking patents in the pharmaceuticals, technology and media industries. It’s the patents and copyrights that would really affect US companies since we don’t export any manufactured goods.

Chinese investments in US Treasuries are “market investment behavior and we don’t wish to politicize them,” so says Yi Gang, director of the State Administration of Foreign Exchange (Safe) that controls roughly 2.4 trillion in foreign reserves. “We are a responsible investor and in the process of these investments we can definitely achieve a mutually beneficial result.” He went on to say that China is not purchasing large amounts of gold which would drive up the price and the price of gold promptly went down. Of course everything China does in this regard is a state secret so most likely China just wants to acquire gold at the best possible price. They already hold at least 1100 tons and are rumored to be buying another 900 tons. Saying they will continue to buy US bonds also keeps bonds from dropping in value as China quietly sells them. Nobody knows how many China really holds but they are buying and selling constantly all over the world.

We are at war and as usual the poor and middle class are bearing the brunt of it. The dead and wounded aren’t so obvious in an economic war but the body count is there just the same and it‘s only getting started.