China caught in "dollar trap"

If the chinese were to lose their investments, it would mean that the french, japanese, saudis, brazilians, all the rich people having their investments in USD will lose. The first losers will not be the chinese, it will be the americans with a complete wipeout of their savings and buying power simultaneously with a loss of ownership of their assets and no guarantee of making up for that through new investments or more competitiveness.

The talk about the chinese potential loss seems to be meant to divert americans from looking at their own looming loss - maybe politically astute, but a national economic suicide.

The american dream is built on purchasing power, which is built on a strong currency. Without a strong currency, there is no more american dream for the middle class, but a pattern that people in the developping and third world know just too well: more work, lower buying power.
 
Quote from RZTrader:

If the chinese were to lose their investments, it would mean that the french, japanese, saudis, brazilians, all the rich people having their investments in USD will lose. The first losers will not be the chinese, it will be the americans with a complete wipeout of their savings and buying power simultaneously with a loss of ownership of their assets and no guarantee of making up for that through new investments or more competitiveness.

The talk about the chinese potential loss seems to be meant to divert americans from looking at their own looming loss - maybe politically astute, but a national economic suicide.

The american dream is built on purchasing power, which is built on a strong currency. Without a strong currency, there is no more american dream for the middle class, but a pattern that people in the developping and third world know just too well: more work, lower buying power.
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In a dollar collapse (hyperinflation) all of your fixed rate loans go to zero too... I'm trying to keep aproximately 1:1 ratio of cash and fixed rate debt (5.25%). Not that that's my entire solution to the problem, just something that i'm doing as a little bit of a hedge.
 
Quote from Broken_Trades:

wow


That was balanced and informative.
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Particularly considering the source. Not my first choice for news about the US, if you will pardon my bias.

Go around the net and do some looking - it is being widely discussed that:

1. There was a shift from agencies into Treasuries last year (no kidding!)

2. Central bank and Sovereign wealth funds are moving down to the short end of the curve instead of the long end. (Read:China)

#2 is scary as it raises the threat (not the likelihood, but the threat) of massive liquidity and capital outflows. I am sure that this not too thinly veiled threat has been leveled by the Chinese at US diplomats. And will be leveled again at our Treas Sect. shortly.

However, as the piece notes, its not like they (the chinese) can do it without shooting themselves in the foot - right now. In a year or so, who knows? The short end of the curve will tell us everything we need to know. By the way, more US domestics are also holding those instruments.


It does seem that our debt holders want more for their money - probably an interest rate about 5.25% (that was near the high on the 30yr yield either this last or the previous summer). Why take under 5%, just so the americans can avoid bankruptcies and foreclosures, at least from their perspective, particularly when we aren't buying as much STUFF!?

No doubt that everyone is trying to thread the needle here. And that's fine - that's what we pay our elected officials to do. If they pull it off, well then job well done and we can all go back to our business shaken, if not a bit stirred.

But the threat is if someone balks and that someone is going to be the Chinese. Wars start over stuff like this, I'm sure, but at least there should be a build-up first. IF China's MFN status is revoked, or if those SED conferences stop then we might be in trouble.

Note that a blogger has reported that on Hong Kong television it was mentioned that Geitner is heading down to china June 1-2 2009 for talks. No ability to corroborate this info. I'll leave that to all the tinfoil hat types. Political Economy <> Conspiracy, sorry!

http://sinoamerica2000.blogspot.com/2009/05/secretary-of-treasury-geitner-will.html
 
Quote from libertad:

Maxpi....

I'm reading "The End of Work". It's a most interesting book. The author argues that productivity gains are benefiting the corporations and not workers, and not just in the USA, it's global. He says it's a myth that productivity gains through technology create other, better jobs for the displaced workers. That explains very well our "jobless recoveries". Couple that with the threat of serious inflation and the truth may be a lot worse than anybody realizes regarding fragility. With jobless recovery the tax base shrinks [the State of California leadership is seemingly about to figure this out.. maybe.. ] while the bailout money flows from the public coffers... Martin Armstrong's prediction of hyperinflation after a credit crisis might be borne out..

Trade well or die folks, it's end game for the workers of the world unless they form a global union and ensure that wages keep up. I don't see that happening at all either...


................................................................................................

Agree with the view....and would like to restate a possible solution ....

Think out of the box as to how stock ownership could solve labor versus efficiency issues....

Labor would want efficiency because the value of owning stock would be hopefully more than offsetting....

Thus the solution to better distribution of wealth....

A factory cannot exist without good people whether the products are soft or hard assets....

Better distribution of wealth through merit is of paramount importance for many reasons....
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Thanks, I had not really thought about a solution, still in shock here a bit. The author was suggesting a worldwide union. To me, a union, with reasonable goals of just keeping wages up with corporate gains makes sense, this insanity we have like the UAW and all. forget it... or if the UN could somehow mandate that wages keep up with corporate gains, that would be fine too. The corporations have workers fragmented all over the globe so they cannot really strike effectively. Worker ownership is good for sure. Maybe an international union with worker ownership. A union should only be there to see that laws are enforced regarding worker's rights and safety, laws should mandate that workers pay keeps up with corporate profits, it might alleviate the boom and bust cycle.
 
Maxpi

Thanks, I had not really thought about a solution, still in shock here a bit. The author was suggesting a worldwide union. To me, a union, with reasonable goals of just keeping wages up with corporate gains makes sense, this insanity we have like the UAW and all. forget it... or if the UN could somehow mandate that wages keep up with corporate gains, that would be fine too. The corporations have workers fragmented all over the globe so they cannot really strike effectively. Worker ownership is good for sure. Maybe an international union with worker ownership. A union should only be there to see that laws are enforced regarding worker's rights and safety, laws should mandate that workers pay keeps up with corporate profits, it might alleviate the boom and bust cycle.

..........................................................

Good post....


The key issue here is holding on to competitive efficiencies....

Whenever a component of production increases in price....then inflation becomes an issue....

There needs to be an incentive to do well....reward of ownership by merit....and a built in check on inflation....a true financial incentive to keep prices away from inflation....

Ownership by stock....when combined with the idea that stock is the least cost capital means....all point to a better long run scenario in every aspect.... such as quality, price....etc....etc....

Unions have a reputation of contributing to higher prices....labor objectives can be accomplished via stock ownership....
 
Who would be so cocky to think the US dollar could never collapse? We're back by gold that no one has seen in decades lol.. we may be goldless for a decade.
 
Quote from bradleyt:

Who would be so cocky to think the US dollar could never collapse? We're back by gold that no one has seen in decades lol.. we may be goldless for a decade.
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Would it be so hard to buy a bit of gold when you are printing trillions anyway?
 
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