in the mean time, I find the N.Korean behavior amusing, in that they do not play according to any rules, and apparently does not respond to the usual push and pull.
Sociopathic behavior and a leaning toward political and economic self-destruction is amusing??
China's strongest lever when dealing with North Korea is the economic and fuel assistance it provides. Beijing fears a refugee crisis, however, if the North is completely cut off. By some accounts, China has already strengthened its defensive forces along the Korean border to prevent any potential exodus from North Korea.
Beijing has relied before on inducements for North Korea to return to the fold. However, the North Koreans deem anything short of a change in the banking restrictions unacceptable. China wants a stable region, particularly ahead of the 2008 Olympics, and a North Korean nuclear test will not help fulfill that wish. But neither would cutting off food and fuel to North Korea as the region's frigid winters approach. Beijing feels it has few other choices, though, with North Korea rejecting high-level visits and not sending its high-level officials to China just to hear Beijing berate North Korean for its actions.
I was just listening to "Bulls and Bears" and they were discussing whether we will be required to "pay off" both NK and Iran in some manner to prevent them "going nuke". Jimmie Rogers made the perfect point when he asked why this is the responsibility of the US?? China, Japan, and Russia are all right there and have the most to lose from instability caused by N. Korea. Let CHINA pay off any bribes to N. Korea. They can spend some of those tremendous dollar reserves they have collected from their trade surplus with the US.
Btw, what do you think about the premise, contained in the following article, that suggests that the Yuan was undervalued by 33%:
An obvious manifestation is Beijing's unprecedented foreign exchange reserves, now escalating toward a trillion dollars. They flow from China's accelerating trade surplus ·not the least based on the U.S.·staggering bilateral deficit. Granted Washington's problem is almost universal with the U.S. maw gulping imports and credit from all over the world.
But China accounts for something like a quarter of the total. Subsidies [along with cheap labor] back three-quarters of China's exports which are multinationals·assembly operations poducts. Chinese currency is undervalued to the dollar, by as much as a quarter, possibly a third. The result: skyrocketing Chinese exports and surpluses plus inflows of hot money. Speculators are betting Beijing inevitably would have to massively revalue.......
.......At stake may be stability of the system. Managing mushrooming reserves is increasingly difficult since they generate matching local currency leading to uncontrolled expansion and speculation. Most major Chinese cities, for example, have a real estate bubble where loose change is going. Liquidity reinforces growing loss of control by the center over regional Party leaders who plunge into huge infrastructure expenditures to meet growing unemployment. Money sloshing around inhibits reforms of banking, so inefficient they may have bad loans equal to the foreign exchange reserves! It encourages corruption, however iniquitous not just a moral and governance issue, but sapping as much as 13 percent of gross national product. According to government figures, almost $100 million was stolen from Chinese banks in 2005 alone!
One might ask, but isn't this a Chinese problem? If Beijing is willing to export its savings through underpriced products against an increasingly devaluing dollar and low-interest Treasury securities [supporting American low interest and inflation rates], why worry? True, the U.S. has sacrificed manufacturing jobs ·some would argue its industrial base ·but American unemployment remains low. Export of China's incredibly frugal citizens·savings [official statistics say 50 percent of GDP] is to the U.S. and the rest of the world's advantage, it could be argued.
The answer is, of course, as China increasingly meshes with the world, can this Ponzi scheme continue? Does it not represent a threat to all members of the increasingly interlaced world economy?
worldtribune.com
Yeah.. I know the source is controversial, but I've read numerous other articles specifying very similar concerns.
But it's indicative of the economic risk that China's monetary policy is presenting to the rest of the world. Should there be a major economic collapse of China's speculative bubble, one can only wonder if this would create the dramatic conditions necessary to create the revaluation of the Yuan.
And if that were to occur, it would instantly translate into severe inflation in the US economy, given our dependence upon products manufactured by China.
Guess I should keep my eye on WMT as a potential short after the 2008 Olympics (because Bejing will continue to prop up their economy and permit the madness to continue at least until then)
Hawk |
