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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Poet who wrote (11580)	1/30/2009 5:41:42 PM
From: John Pitera	1 Recommendation Read Replies (4) \| Respond to of 33421

Hi Poet, The talk by Geithner and Obama of China being a currency manipulator could become a big issue finally after several years the issue was stepped around. Sure, the US is the biggest economy and China appears have advanced to the 3rd largest economy. China is the biggest holder of US debt and US Dollar currency reserves. China is north of 1 Trillion on these. If the US hits China with a 27.5% tariff as Senator Schumer has suggested on several intervals over the past 2 years. One possible response would be for China to sell en Masse it's holding of US denominated assets especially their US Treasury securities. That would put upward pressure on US long term interest rates, this at a time when the US Government has a huge budget deficit, trade deficit and has also been "printing money" to fund the 23 US Treasury, FED, and Government programs with over 7.75 Trillion of US Dollars allocated to these vehicles. Other Nations may choose sides and expand a multi-axised global alliances, someone akin to the Nations that Russia has been cultivating relations with and engaging in joint military exercises this year. Beyond that, there are other possible geopolitical consequences that could well cost additional money and also further deteriorate global confidence. Confidence in the Global system has been severely shaken already. The lower it goes the more it induces everyone to reduce economic activity, reduce capital expenditure, personal consumption, Research and Development. It becomes a virtue-less downward spiral. Granted, the tariff would help with so US Jobs, but at the obvious cost that you should see prices of goods with tariffs go up at least 27.5% (if that were the actual number imposed). I'm sure we will be seeing a few new scholarly white papers on protectionisms role in the exacerbation of the 1930's Depression over the next several weeks, as this is a topic now being examined more intensively. hope you are not getting "too" much snow ;-) John