Meet The World's New Reserve Currency: The Chinese Yuan

$1.3 Trillion = Rally?!

Case in Point.

Good Lord.

"Never waste a crisis" certainly applies to this "budget."

Have we become subprime as a nation? It appears that way. $1.3 trillion is somewhere around 10% of GDP and is almost certainly understated (it always is), which means you and I should expect the deficit for next fiscal year to top $2 trillion in red ink - or a roughly 20% increase in the national debt.

IF the world will let us borrow that much from them and IF we do not garner ourselves a sovereign downgrade as a consequence of this gambit - a bet I'm not so sure I'd be willing to take.

To put that in perspective this is somewhere in the neighborhood of the entirety of the FX reserves of China and Japan, plus a few other nations (depending on how far "over" we wind up.)

I thought I read somewhere that China and Japan, however, were having their own recessions (or worse.) Has anyone in this country thought about the possibility that these nations might need their reserves for their own people?

Apparently not.

There's another $250 billion in that figure for a "future" financial rescue program; taking that back out, however, still leaves the government spending more than 30% above its income level.

We are in this mess precisely because a significant number of individuals in this country managed their personal finances in exactly this sort of irresponsible fashion. Always spending more than they make, they then turned to credit cards and, when those were exhausted, they tapped the ATM embedded in the wall of their house to keep the merry-go-round spinning.

As a nation we have learned nothing, and it appears that only when the rest of the world forces us to live within our means (probably about the time they conclude that they need their resources for their own people instead of our profligate money-burning exercises) that we will repent and begin to truly heal as a nation.

For today Uncle Sam has chosen to answer the question "Cash or Credit?" with one word: CHINA!

(Now we know what Hillary was doing over there, eh?)

reply to post by projectvxn


I am familiar with Smoot Hawley and the fact FDR tried to bailout banks and they both failed. When I speak about "tariffs" I am speaking more about unfair trade agreements my mistake.

Here is a quote from Ravi Batra an economist I find interesting.
The Link

A healthy economy requires that there is a balance between supply and demand. Here supply means the production of goods and services offered to entire society, and demand means society’s demand for such things. Thus, economic balance requires that



Supply = Demand



Without this balance, there is either high unemployment or high inflation. The main source of supply is labor productivity, whereas the main source of demand is the real wage, or people’s purchasing power in Sarkar’s nomenclature. When productivity rises, production or supply goes up and when the real wage increases, consumer spending, and hence investment spending, go up. Because of this investment and new technology, productivity grows over time, which means supply rises over the years. Therefore, demand must also grow proportionately to maintain the economic balance, implying that the real wage must rise in proportion to productivity. However, Greenspan loved to see the rise in productivity but hated the rise in the real wage. He even wanted to abolish the minimum wage, and always argued against its rise, although relentless price increases in the United States had all but demolished its purchasing power. In this respect, the maestro had a lot of company, including the support of President George W. Bush and economic establishment. As a result, the U.S. minimum wage, which peaked at $10 per hour in 1969 in terms of 2008 prices, is now less than $7. Incidentally, the unemployment rate in 1969 was just 3.5 percent, among the lowest in US history.

If the real wage fails to grow as fast as productivity, then over time, a wage-productivity gap develops and



Supply > Demand



Then how do you maintain the indispensable economic balance? This is where the special genius of Greenspan, along with that of conventional economics, came into play. This is where liberal and conservative economists alike, some of them Nobel Laureates, preached their gospel and in the process failed the world.

There is another way through which demand can be raised—new debt. It is an artificial way, and cannot be used forever, but it can postpone the problem for a long time, while the potential economic imbalance builds and cumulates. From 1981 on, U.S. budget deficits, with Greenspan and company advising President Reagan, grew apace. Economists called it fiscal policy, but in reality it was a debt-creating policy. This is how the supply-demand balance was maintained in the presence of the rising wage gap. Thus, for a while, economic balance occurs when



Productivity growth = growth of the real wage plus debt

and

new debt = supply – demand

Originally posted by stevegmu
. I know China is buying up Panama, but I can't imagine Panama switching currency from the US dollar to the Yuan.

Besides, the dollar had been getting stronger of late.

If they are "buying up Panama" its with some of their excess dollars.

The problem is as bad as the dollar is, most other currencies are worse. There are sufficient dollars floating around the world to actually do business in dollars. This isn't the case with the Yuan. They have to do much of their business in Dollars. Their reserves aren't in Yuan, they are in dollars...

reply to post by Leo Strauss


I've made this argument several times as well. I've read Ravi Batra. The man really understands macroeconomics. Yes, free-trade agreements need to be either re-written or eliminated for better trade laws.

And I have always said that as long as wages trail behind production or vice-versa we will never dig out of this hole we're in. But people like us who understand this will NEVER be heard.

USA became reserve currency because of saudi arabia agreeing to accept dollar ,

with peak oil , coming the next big energy is natural gas , of which Russia is largest holder of , so they accepting yuan for payments , means that yuan is becoming a reserve currency

In my recent post about the Yuan above, alot of people have mistaken what I've said. Many disagree and say that the Yuan will not become the Global Reserve Currency. I would fully agree with this. But I was not saying that. I was saying that the Yuan will become the ASIAN REGIONAL RESERVE CURRENCY - much like the Euro in Europe.

And this is entirely possible.