- Economic Investment HelpPosted 73 days ago
- Economic Turnaround with Absolute Wealth and Guy Cohen’s Updated ProgramPosted 107 days ago
- Economy of OnePosted 107 days ago
- Turnaround TraderPosted 108 days ago
- Online Investors Don’t Need to Be Affected by Every Market Twist and TurnPosted 199 days ago
- Trade with Investment Expertise Using Absolute Wealth’s New ProgramPosted 237 days ago
- Online Investing Program Takes Beginners to Pro Level SuccessPosted 240 days ago
- Stock Markets Don’t Require Luck with the “Trade the Banks” ProgramPosted 244 days ago
- Stock Market Trading Made Easy with “Trade the Banks” from Absolute WealthPosted 247 days ago
- Investment Opportunities Using “Trade the Banks” and Its Advanced IndicatorsPosted 251 days ago
US Forces China's Inflation
Is that really news?
It shouldn’t be too surprising…
After all, even the Chinese know that all good things must come to an end…
A well-worn phrase to be sure, but for good reason…
It’s a truism that has stood the test of time. Nothing goes on forever. Things change over time.
And the test of time is now having its way with China.
Because it now appears that the Chinese economic juggernaut is losing some of its mojo.
To put it bluntly, China’s economy is slowing down.
The Chinese economic slowdown isn’t happening in a vacuum, however…
It has some effect on the US economy as well…
The Dow has fallen in response to China’s latest economic figures.
The China story is quite fascinating, especially when you see it in the context of US monetary policy…
Because it’s not just time in the sense of the economy “maturing” that is causing China’s economy to slow down, although that is a part of it…
There are other definite causes and reasons for it.
One of the main reasons is that China is getting their head handed to them by none other than Tim Geithner and Ben Bernanke.
Well let’s take a look at recent events…
You will recall that one of the biggest charges leveled at China for the past several years has been its practice of currency manipulation…
They have pegged the yuan to the dollar, and refused to let their currency appreciate against the dollar as much or as fast as many in the US think would be appropriate.
What does this mean?
It means that by keeping the yuan undervalued relative to the dollar over the past several years, Chinese manufacturing costs have stayed low relative to those in the US.
This has meant that China has been able to extend their time as an exporter of cheaper goods to their major trading partners…the Eurozone and the US...
At the expense of both the US and Eurozone economies.
Of course, it’s no secret that the US trade imbalance has not only cost the US money, but it has also cost us jobs…millions of jobs.
It has also caused a decade-long outflow of manufacturing from the US to mainland China.
In the meantime, the cost of labor has gone up in China, even though its domestic market in terms of GDP has not improved.
Given this condition, the US lobbied China for years to allow their currency to go up in value, but to little avail.
And then…disaster struck.
As the Financial Meltdown hit in 2008 and worsened in 2009, drastic measures were deemed necessary by the Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner.
Remember, capital markets were sluggish at best—even frozen, the Dow had crashed down to 6,500, losing about half its value, and the economy was shedding hundreds of thousands of jobs a month. A Great Recession hit the US, and most of the world, very hard.
So what did Ben and Tim decide to do?
At the 2010 G20 meeting, Bernanke called for “rebalancing” of the two largest economies in the world, the US and China, as a way to spur economic growth in the US and pull the country out of recession.
In many ways, the US and Chinese economies were—and remain--mirror images of one another. The US had a huge domestic market that made up 70% of GDP, with large trade imbalances. The Chinese, on the other hand, had a small domestic market and huge trade surpluses.
The idea was to “balance” this situation out by having China buy more US goods, and have the US make more goods to sell to the Chinese.
Cheaper--and very plentiful--dollars would be a way to accomplish this goal.
Ben and Tim figured that if the Chinese refused to re-value the yuan closer to the value of the dollar, that they would simply devalue the dollar, which would have the same effect.
Thus came about quantitative easing. Not only did QE 1 in 2009, and QE 2 in 2010 rescue banks that were failing around the world, but it also forced China’s currency hand.
Because in order to try to maintain the lower value of the yuan in the presence of trillions of additional dollars around the world, China would have to print more yuan to keep the ratio close to the same.
And they did.
But, as anyone who has had economics 101, when a government prints more money, inflation is the likely result.
But wait—Why isn’t there rampant inflation in the US?
There is some inflation, for some of the same reasons.
But in the case of the Chinese, it’s because, we are exporting it to them.
And just how does that happen?
Well, in simple terms, the Federal Reserve is “forcing” China to print more yuan, and, since most commodities are sold on the world market, and since the dollar is the currency of most international trade, it is costing China more yuan to buy things. That is, China is experiencing US-imposed inflation at the official rate of 5%.
But, the way China report its economic data, an upward adjustment on that figure is more than called for.
And China’s motivation for fudging their true inflation rate? They don’t want to admit the impact that QE 1 and 2 are having on their economy…and admit the power that Ben and Tim truly have.
Furthermore, even though the yuan is not as strong as some would like it to be, there has been some re-valuing upward, say about 4% or so.
When that 4% currency appreciation is combined with at least a 5% inflation rate, it means that real costs have gone up at least 9% in China…
And it also means that Chinese goods are not the deal that they used to be.
This is just part of a larger trend against Chinese manufacturing, which also includes the cost of shipping, time delays, supply problems, and of course, state-sponsored theft of intellectual property on a massive scale at every level of enterprise.
Which is why US manufacturing looks like it’s making a comeback…
Should this be a surprise?
But what the hell? We’ll take it all the same.
And those are…The Gorrie Details.