Thursday, April 8, 2010

Knight takes Pagoda, check

Chinese officials are letting it be known that there will be a large revaluation of the reminbi “to satisfy domestic needs”. This move was made entirely to do a favor for Obama but if managed correctly it does work for Beijing as well and everything in China is carefully managed. Despite the claim that it is a domestic issue, they are planning to make the announcement before President Hu Jintao visits Washington next week.

China spends roughly 200 billion USD per year to manipulate the currency markets in its favor. Presumably it would be in a position to buy more Treasury bonds stabilizing bond prices. Mortgage interest rates have been climbing in the past two weeks as they are tied to the bond price. China has made it clear that they aren’t going to do any big changes overnight so as to maintain stability as they shift to bigger domestic economy. Some say the rise in the remindi will hurt China as they need to buy imports but not that much. China used its huge currency reserves during the crisis to buy up or lock in supplies from across the planet. You don’t need to worry about China, they have plenty of canned goods and oil fields, copper mines and on and on.

While the Republicans were trying to make health insurance reform Obama‘s Waterloo, Sec Geithner (who speaks fluent Chinese) was quietly making a deal with Mr Hu to outflank the Republicans. By November healthcare will be a positive issue for Democrats and they can point to gaining hundreds of thousands of jobs a month and while hanging the Republicans for losing 8 million jobs in the waning days of the Bush Administration.

Lets be clear, this does not fix any of our problems except the Republican problem and probably that one is only marginally contained. They still have all the money and control all the economic activity but they won’t be able to get control of Congress despite the treasonous Supreme Court trying to give it to their fascist (I mean corporatist) buddies. I see nothing to keep that double dip from coming but maybe the damage can be contained and used to enact real reform.

Wednesday, April 7, 2010

Roach bait

Treasury Sec. Geithner made an unscheduled stop in China today, really tomorrow (it’s already Thursday there (where’s Dr Who when you need time explained)). He will meet Wang Qishan, the vice-premier responsible for economic affairs, after spending two days in India getting them on board. It’s not likely an agreement on revaluing the Chinese currency will be announced during his visit with a high level visit to Washington next week.

Before he left India he had to make a statement reassuring Wall Street that out-sourcing jobs to India would not stop and he would oppose protectionism. He did this while still in India so he could wink while he said it. India knows the gravy train will end one way or the other. Their experience with China causing a huge trade deficit for India makes them ready to go back to “protectionism”.

Both China and India realize that the US will collapse without a return to economic sanity and a failed state that has 2500 missiles with each carrying multiple warheads is not a desirable situation.

Wall Street didn’t react well to the possibility that the flat earth party is over and the markets were down. The Euro continues to decline as the damage the Wall Street banks has done becomes more apparent. With the Euro down, the USD was up but gold was also up sharply so the USD is not really as “strong” as it appears. Gold should go down as the dollar gains “value”.

Anybody who follows my missives knows I’m not a blue birds and roses kind of guy. This looks like it’s going our way for a change but the neo-cons may not just scurry back under the fridge this time. They have a lot riding on this and they could go for broke. Maybe they’ll make a deal with Obama to keep their ill gotten gains while they allow the country to be rebuilt so they can steal it all again in another couple of generations. I think we should slide the paper with the roach bait on it under the fridge behind them.

Tuesday, April 6, 2010

Knight moves to block neo-cons

Treasury Sec. Geithner is over in India trying to bring them on board with pressing China to cut back on exports by revaluing China‘s currency. India had for a long time avoided buying into the flat earth nonsense but their version of neo-cons had been recently pushing them into it. Small business thrives in India, Walmart is allowed only one store, but the neo-cons have been throwing money around in an effort to change all that. The result of their influence so far is that India is running a huge trade deficit with China and the Indians find that to be politically untenable so Geithner’s comments appear to be welcome.

Geithner on Indian TV, "I am confident that China will decide it's in their interest to resume the move to a more flexible exchange rate that they began some years ago and suspended in the midst of the [financial]crisis.” …

“As we [the US] move to an economy that is saving and investing more, we want to see broader reforms outside of the US,” Mr Geithner said. “This is in the interest of the world to produce stronger demand and growth, like you are seeing in India today.”

Of course Geithner doesn’t really mean that he expects Americans to start saving and investing any time soon. Savings accounts pay nothing and 401k’s are just a place to flush your money away. The only reason the savings rate is above zero is that people can’t get credit and are forced to save to buy things. What the Secretary really means is that the US is either going go back to tariffs of some kind or the economy is going to collapse and take India with it, the Indians understand this. India added a hundred tons of gold to its inventory and may buy more from the IMF. The gold that the IMF sells comes from its members with the US being the largest holder of gold, so most or all of it came from Fort Knox.

Simultaneously the US is pressing the Europeans to require their banks to hold more capital which would bring to a halt all the market speculation. The US would need to do the same with Wall Street banks and they won’t be very happy. But they just grabbed off another 150 billion in bonus money so they can probably get by for awhile. They are doing much better than the 200,000 Americans who had their unemployment cut off this week by the Republicans in the Senate. If the unemployed would funnel millions to the Republicans they would be better treated too. Stupid unemployed people, they don‘t understand capitalism at all.

Monday, April 5, 2010

Knight takes steel mill, the checker players don't know what hit them

Something totally unexpected has happened that can be a major boost to the US economy for at least the rest of the year. The world price of iron ore has doubled, literally overnight. Since the US produces a lot of iron ore this is good news. But wait there’s more; most US steel mills sit idle; the ones still in operation are vertically integrated meaning they mine their own iron ore and the world price of ore doesn‘t matter. The jump in iron means the world price of steel will be at least one third higher and suddenly US steel is competitive again.

The reason for the price jump is the end of a forty year worldwide agreement to set the ore price for the year based on the first supply contract signed each year. This was always a race to the bottom and this was how Japan could buy iron ore and coal, ship them to Japan and ship manufactured goods to the US driving US companies under. Japan is not happy that this system has ended.

The end of this pricing system was caused by another player in the world market that used this same Japanese principle of cut throat economics and did it even better. The Peoples Republic of China who now produces five times the steel that Japan does and is now the big dragon on the block. Why would China change a system that has made them a super power? China can afford to be generous with its trading partners since it has two trillion USD worth of foreign currency reserves. It has also been going around the world and buying up iron mines with surplus USD that it didn’t know what to do with, so the price jump doesn’t cut into them nearly as much as it does Japan.

It also does a favor for China’s new BFF Barrack Obama who will be able to produce the jobs he needs to get Democrats elected in the fall. China is also indicating that they are likely to do away entirely with pegging their currency to the USD. This is not to make you think that all of a sudden The Peoples Republic of China has ceased to be Stalinist regime bent on our destruction, it has not. But the Chinese leadership is pragmatic and thinks in the long term.
China’s senior leaders lived through the Cultural Revolution and understand the inevitable disaster that comes from turning things over to extremist ideology. They doubtless find Obama a breath of fresh air after Bush and don’t want the Neo-cons back in power. China will of course be looking to the long term to take any advantage and their throwing us a bone does not fix any of our real economic problems. This is a tourniquet and not just a band-aid but real surgery will be needed from the next Congress if we are to survive as a democracy. There is now a good chance that we will have “yes we can” instead of “Hell no you can’t”.