Originally posted by poet1b
reply to post by projectvxn
Ah, but is this good news or bad news for U.S. workers? I think it is good news for U.S. workers and bad news for U.S. bankers. The U.S. currency as
the global exchange currency is bad for U.S. workers in that it raises the cost of U.S. workers, while it gives an advantage to U.S. based IC's,
aiding them in exporting U.S. jobs.
I'm afraid you are underestimating China's financial know how.
And there's also a few things you're not considering:
For instance, as our auto industry collapses China's well, look for yourself:
China March Car Sales Rise 10% on Stimulus, Tax Cuts
April 9 (Bloomberg) -- China’s passenger car sales rose 10 percent in March from a year earlier after tax cuts and government subsidies boosted
demand, narrowing the gap with the U.S. as the world’s largest car market.
Sales of cars, minivans and multi-purpose vehicles rose to a record 772,400 in the month, according to China Association of Automobile Manufacturers.
Sales of cars and light trucks in the U.S. plunged 37 percent last month to 857,399 vehicles.
Demand for minivans surged 40 percent last month as the government began giving out 5 billion yuan ($731 million) in subsidies to help rural residents
buy vans and light trucks. Sales growth in China for General Motors Corp., Daimler AG and other automakers contrasts with plummeting sales in the
U.S., Japan and Europe.
“The sales surge was mainly caused by government policies and China may overtake the U.S. as the world’s biggest auto market this year,”
said Yu Bing, an analyst at Ping An Securities Co. in Shanghai. “Still automakers’ profitability is not growing at the same pace as their sales
since most growth coming from small vehicles.”
Secondly you're underestimating the importance of Monetary policy, and how the the Chinese use the Fractional Reserve system. The OP has a good
explanation on what that is if you don't already know.
The Chinese purchases of US sovereign debt may seem like a small part, but it is no surprise that the Federal Reserve holds the vast majority of US
debt, as they are the ones who supply the money at cost to the Treasury. But foreign government interjection in the US sovereign debt market is is the
other way the US creates money. It's how we wound up creating money for a world reserve system after Bretton Woods in 1945.
US Government debt in the US is at just over $11 trillion.
The total US money supply as of April 2nd of this year is just over $8 trillion dollars(M2 growth rate of 9.2% since this time last year).
Interestingly enough, even I expect growth at the end of this year. I expect consumer spending to go up 2.3% at year end, but with hoarding going on
and books being kept under a tight lock and key in the US it is impossible to REALLY know how much money is in the supply. If consumer spending goes
up even 1% by years end then it translates into a 20 percent drop in USD value. How? Because(if we could look at M3) we would know that the total US
money supply over the last year has been largely financed by China and the Federal Reserve monetizing the Treasury(Which is historically the last
thing central banks do before going out of business). The Chinese and Fed financed dollars are being hoarded by Banks, people, and other institutions.
The ONLY entity in the US really spending money right now is the US government as they try to reflate a burst bubble.
The idea here is to get out as the consumer spending level increases. This is why we have seen returns in t-bill, but long term bonds have been taking
a hit. Recently the Fed stepped in to reflate the the 30y bond bubble by monetizing our debt to the tune of $300 billion, and again this week to the
tune of $1.15 trillion.
What does this mean?
It means the dollar is crashing soon and China knows it. So they're buying short term debt instruments and using the dollars to buy gold.(Ever wonder
why we had a huge spike in gold prices?) Those gold prices are coming down now, but that's because it is winding down. And to illustrate my point:
(PDF commodities report as of Mar 27 2009)
Why would they bother with gold? Because the Yuan is a silver backed currency and they are looking to diversify it's value in the metals market. I
expect Chinese monetary policy to change soon after consumer spending in the US goes up. By which time they will have long announced their "inability
to continue to purchase US Debt".
Dollar crashes, yuan, having been printed just slightly over the amount of silver and gold reserves declared
by China so as to hold down their
currency to the right moment. As I said they will take over the World Reserve system by currency swaps. They are already moving in that direction:
China, Argentina Agree to Currency Swap(Wall St. Journal March 31 2009)
BUENOS AIRES -- Argentine officials are hopeful that a new currency swap deal with China will bolster confidence in the peso while giving the
monetary authority greater power to defend the currency.
"This should boost confidence," said an Argentine Central Bank official who asked for anonymity. "Even if none of this money is ever used, its mere
existence should serve to boost confidence in the currency."
The two nations agreed to a three-year currency swap totaling 70 billion yuan, ($10 billion).
These actions are important to note. You need to let go of the "US is the most needed nation" myth and start looking at real data.
To answer your original question. This is BAD for the US worker, as this will bankrupt the nation. You seem to think that China needs us, and what
China REALLY wants is a level playing field with the yuan as the goalie. And they're succeeding because we have bumbling fools running around
Washington thinking this is the 1930s all over again.
[edit on 9-4-2009 by projectvxn]