Soros: China must fix the global currency crisis
- Thread starter eMiniFreak
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They are creating trade surpluses to fuel economic growth at low inflation hoping that they can at a certain point turn to internal consumption for sustained growth while at the same time achieve greater gains from becoming a key economic and military power. It is a power game.
China is doing to US what germany did to countries like Ireland, Portugal, Greece, Spain, etc. Germany set up a "game" called EU via which it would create huge surpluses by lending money to those countries to fuel its economic growth after WWII. Now, it also wants the money it borrowed those countries imposing very strict austerity measures. The plan is to get as much as it can and then bail out.
China used corrupted and incapable US politicians to enter in a "game" of globalization but with a pegged currency. This created huge surpluses which China lent back to the US to continue buying its goods and fuel its economic growth. China knows this cannot go forever because Americans, unlike idiot Europeans, will resist austerity measures. China dreams of becoming a superpower and taking the place of USA in the woold wide geo-political arena. China used US money to grow then lent the money back to the US for interest and now wants to make sure it will get everything back not affected by inflations.
Both China and Germany as examples of manipulators of international trade and they are involved in power plays that can trigger another world war. Germany did not get its lessons and did not appreciate that it was let to print $750 billion marks to get unified and China does not realize what happened to Japan and that it can become a poor nation overinight should US decides so.
Excellent analysis, and I see your point, but here's another way of looking at it:
In the past, what China and Germany are doing today made more sense. When international trade was conducted in commodities, or precious metals, everyone won, or at least your trade surplus was not vulnerable to currency debauchment or default.
Today it's different. China is recycling that surplus into agency and sovereign debts, as well as foreign investments: mines, agricultural land, etc...
BUT.... I see their debt holdings ultimately collapsing. For example, I wouldn't rule out that one day the US defaults on foreign held debt. And as for China's foreign investments.... ask the Hunt brothers what Ghadafi did to their oil fields.
In the end, I believe that China and Germany are accelerating the collapse of fiat, of debt backed money. A war can't be ruled out.
IMO, the situation would have been much worse without fiat money. If we assume that all money were backed by gold and China had a persisting trade surplus, at some point soon US would be left without gold to back its money and be at the mercy of China to lent money so Americanss can buy the food stuff they produce. Thus, contrary to what it appears you think, fiat money prevents nations to enslave other nations solely due to trade imbalances, as it happened many times to many countries in the past. The side effect is inflation. I prefer inflation though.
This is one reason China supports the gold standard or some other standard to back currencies.
China is playing a very dangerous game given the views its Price Minister expressed a few days ago. They black mail about unrest in China if they revalue their currency forgetting that unrest is already building up in Europe and may also start in the US if the politicians continue to overlook China's unfair trade practices.
I look at it the other way around - my opinion is that fiat money required that we find markets with lower wages, i.e. China. Thus, we could expand fiat with much less inflationary effects due to global wage arbitrage. But ultimately, the inflation did show up - it showed up in the stock markets and real estate - which ultimately created a non productive FIRE economy - Finance, Insurance, and Real Estate. Basically, the west's economies, to a large extent, began to function as speculative casinos.
This is the choice: experience illusory wealth through fiat, but ultimately have a credit driven catastrophe.
or
Maintain a gold or commodity backed standard of sorts where economies do not become artificially inflated but the drawback is that euphoric bubbles are less common.
What we face ahead of us, in my opinion, is a massive correction of consumption levels, a massive re-orientation of economies as the FIRE sector shrinks or collapses, and ultimately, a corresponding change for the worse politically, and socially - i.e. extreme political parties, crime, unemployment, etc...
I don't believe there is a solution that can bring us back to what we had 10+ years ago. It was a fiction.
If or when the SHTF, I could see the US defaulting on its foreign held debt, yet going back to a gold standard of sorts. It gives the US a way out of the unsustainable debt, but keeps the US Dollar from becoming trash at the same time. This is not what the US wants, mind you. But the US does have the most gold - and as soon as one major economy goes to gold, all else must follow.
China is worried about this scenario, IMO. That's why they're scrambling to buy gold, but in ways that does not affect markets. Given the size of their population and economy, they have a long way to go to accumulate significant gold.
There is one more option. Through the G20 and IMF, a global currency replaces the dollar. This requires significant global coordination and cooperation. But given the current escalating currency war - does this seem like a viable development? The global bankers are pushing this, but I believe elements in the US Military, in the name of national security, will not allow this to happen. This is what I have been following in my blog - the geopolitical developments. Because ultimately, that is how this crisis will be resolved - geopolitical conflict or cooperation.
Recently, as I recall, China applied to purchase a gold mine in Nevada. They were denied by the Treasury Department with the reasoning that there is a nearby military base - basically, national security reasons. I think there's more to that story.
True story, I kid you not.
I live in Northern Europe and there is a GM plant in my city.
It used to have 20K employees back in the seventees which was brought back to around 3K due to machinisation...
The plant, although one of the most efficient and productive of all GM plants in Europe was under attack for quite some time now.
GM always wanted to please all governments and unions so despite the loss in orders always divided production amongst all plants but then the 08 crash came and action was needed regardless.
Not being located in a country with big economic strength as were other plants in the UK or Germany the plant's faith was quickly sealed.
They decided to shut it down but left open the option for a third party to step in and take over.
Now, and I swear this is not a joke...
The third party interested in taking over the plant was Chinese carmaker Geely...
They wanted to build 200K cars in the most unionized country in the world and ship them to China for sale...
Why would they want to do that, right? China is the factory of the world...
Anyway...
The deal is presumably dead because, and again this is not a joke either... Word has it employees would rather take their dismission bonus (ranging from 60K$ to 200k$) then stay and keep their job at admittably lower wages...
Such a mess on so many levels...
Where to begin....
I live in Northern Europe and there is a GM plant in my city.
It used to have 20K employees back in the seventees which was brought back to around 3K due to machinisation...
The plant, although one of the most efficient and productive of all GM plants in Europe was under attack for quite some time now.
GM always wanted to please all governments and unions so despite the loss in orders always divided production amongst all plants but then the 08 crash came and action was needed regardless.
Not being located in a country with big economic strength as were other plants in the UK or Germany the plant's faith was quickly sealed.
They decided to shut it down but left open the option for a third party to step in and take over.
Now, and I swear this is not a joke...
The third party interested in taking over the plant was Chinese carmaker Geely...
They wanted to build 200K cars in the most unionized country in the world and ship them to China for sale...
Why would they want to do that, right? China is the factory of the world...
Anyway...
The deal is presumably dead because, and again this is not a joke either... Word has it employees would rather take their dismission bonus (ranging from 60K$ to 200k$) then stay and keep their job at admittably lower wages...
Such a mess on so many levels...
Where to begin....
The Chinese wanted to buy know-how, not just the plan or to make cars. Northen Europe's machinists and metal processing are the best. After they get the know-how they dump it.