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Politics : Dutch Central Bank Sale Announcement Imminent? -- Ignore unavailable to you. Want to Upgrade?

To: The Vet who wrote (22090)	12/4/2004 11:39:08 PM
From: philv	Read Replies (2) \| Respond to of 81142

" because China is not playing by the rules, the floating rate system on a global basis is breaking down." I am certainly no expert at monetary rules, but my understanding is that the currency peg works by printing the appropriate amount of renminbis (in China's case)to keep the conversion rate static. China and Japan have proven they have some damn good high speed printing machines, capable of keeping up to the American model. China is not the first country to peg her currency to the dollar. It means they do not have an independent monetary policy, and cannot therefore use monetary policy for political purposes. They are tied to the whims of the FED reserve. So, if the US is sinking into oblivion, it is taking China along with it unless it lets go of the peg. But I agree, these are accepted rules, which at times do not suit some people. As far as I am concerned, every country is manipulating foreign exchange to their advantage. The Europeans are being criticized for not being "accommodative" enough. In other words, lowering interest rates to encourage borrowing. Everyone should get in the same leaky ship! And forget about the Maastricht rules. Get in the ship, now! Nigel Maunde makes some observations: "Mr. Greenspan is a man in a crisis with no levers to pull. He cannot raise rates as the bond, equity and real estate markets would collapse." "What is China going to do with this vast depreciating pile of essentially worthless FIAT paper? What would you do with it? Spend it on hard assets? .... well, this is precisely what China is doing. It has its eyes cast wide on gold, silver, nickel, iron and copper mines in Canada, Mexico, Chile, to mention but a few, and oil fields around the world." He also makes some not so oblique references to the mid-east conflict. news.goldseek.com Btw. Japan will soon have 1 trillion dollars of US assets sitting in their foreign exchange account. Is that a lot?

To: The Vet who wrote (22090)	12/5/2004 8:18:46 AM
From: sea_urchin	Respond to of 81142

Mr Vet > what that really means is that China is playing by exactly the same rules as the US keeping their rates at US levels. If China was actively devaluing their currency, then it could be considered to be unfair. But it is not; it is just playing by the US rules and maintaining its currency at the same level to the US dollar China has pegged its currency to the dollar but at a fraction of its value. Indeed, the renminbi must be the most undervalued currency in the world. And as the USD gets cheaper, so does the renminbi. And together with the cheap Chinese labour the effect is that no-one can compete with China when it comes to selling manufactured goods. As far as the US is concerned, its relationship with China is a double-edged sword. The US gains the cheap imports and that is anti-inflationary -- but at the expense of domestic non-production and unemployment and, of course, considerable debt. However, the Chinese then invest the profits they have made in US debt and this enables the game to continue a while longer. Truth is that the US is, I hate to say it -- like a prostitute, addicted to Chinese trinkets and dependent on Chinese money. The US feels they are buying the trinkets with paper, and maybe they are, but that paper is bleeding them to death. Indeed, to carry the analogy further, the prostitute has contracted a STD. So, even if the Chinese revalue the renminbi, I don't see how the US can easily come out of the bind? Yes, imports will be more expensive than they are but can the US match the Chinese prices even then? Devaluation doesn't automatically confer a market on the one who devalues. Enormous costs have to be incurred in plant and equipment before competitive production can be started and staff have to be trained. I contend that if the US has to do this after a renminbi revaluation it will be even worse for the Americans than it already is. > US can continue the game of cheating the overseas holders of their debt by devaluing the value of that debt without an act of overt default by the US. Sure, that's what they are doing but the problem is, like an addict, the US can't stop the game once they have compromised their creditors. For that to happen, the American people must stop spending and borrowing and their government must stop playing war -- but they can't. To settle the score and become solvent again, the US actually has to bring about a recession/depression and formally announce a default which they won't do. All the game playing is doing is merely postponing the evil day. So I imagine in time, maybe already, the world will learn to stop playing the US game and do business with only those who are able to honour their commitments. But who knows?