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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: RealMuLan who wrote (58508)	1/8/2005 12:39:41 PM
From: BubbaFred	Read Replies (1) of 74559

Floating the currency is in the "basic GATT/WTO principles and agreements". However they are often reneged for periods of time. It takes two years to resolve complaints, and that's plenty of time to help with "special protection" to domestic industies - examples are the tarifs on imported steel, the boycott of Canadian beef, and one more on Europe (I forgot what that issue was). That doesn't include US farm subsidies which will remain so for many decades. China may have inferred they will do so by 2007 to give them time to make proper adjustments. They can still loosen it in increments and counter any potential destabilizing impact of yuan speculation and manipulation by using a basket of currencies. When China does so, and if they are successful, there will be other complaints. There are forces that want to destabilize the currency because it is one way of destabilizing China's economy and the progress. Free floating yuan is not likely in the next 20-30 years, not until China's economy has gained enough strength to speculation and manipulation. That's how it should be. Currently US has no leverage because the power behind US economy is largely dependent on financial sector, and not broad based. So alienating China will have greater negative impact on US economy. China's manufacturing products are keeping the low inflation in US, and mitigated the impact of higher energy prices. I think the high energy cost in last four years had been a test of China's and US economies. It is also a gauge on how much China's economy (all inclusive manufacturing and land/sea transportation) can absorb the impact of high energy cost. And how US economy can absorb it. It turns out the greatest impact is on Europe. Otherwise it could result in severe stagflation in the US where hyper inflation exists in a stagnant economic environment, where US consumers' buying power will be substantially reduced and US standard of living would be lowered. The rest of the world (Europe, China, Japan, Canada, etc) don't want such drastic reduction in US consumers' buying power.

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