| Jianshuowang, thanks for bringing attention to this in a separate thread. Just an update for you-- our unemployment report in the USA just come out today (our Friday), and it shows that US unemployment increased tremendously, losing about 100,000 jobs in August alone. Even this dismal report is an underestimate-- unemployment data in the USA do not take into account "temp workers" or those who have become frustrated and given up looking for jobs, so the real job losses are estimated by economists to be close to 150,000 to 200,000 people. (The economic reports in the USA often use models that deliberately make the statistics look better than they actually are-- the so-called "birth-death model" for unemployment is one example, and the GDP numbers are artificially elevated by failing to adequately consider inflation. It's a lot like the Enron "cooking-the-books" scandal at the level of our government, and the press often fails to report on this-- so it's even worse in an election year.) In other words, the USA is very clearly in recession. China and Arab countries really do need to move their savings out of Treasury Bills and other dollar-denominated assets, especially debt instruments. Again, do it slowly so that you can gradually reduce the economy's dependence on exports, invest in infrastructure-- but by all means, don't trust the dollar so much, spread China's currency reserves out into a variety of other currencies, especially yen, ringgit, won, Euros, rubles and Swiss francs. Henry CK Liu's articles on excellent, and he especially has provided a coherent plan on leaving the dollar and more sensibly investing China's savings. Some of the solutions I wrote about above are similar to Mr. Liu's ideas-- transferring dollar holdings partially into yen and won (as the yen and won will eventually be rising unlike the dollar) as well as peso countries can preserve the value of China's dollar holdings, since these currencies have thus far not appreciated much against the dollar. For example, in 2005 (just for argument's sake), one dollar might have equalled about 105 yen and, say, 200 pesos (the peso is used by many countries in Latin America and varies from country to country). Now, the dollar has plummeted in value against the Euro and most other countries-- but not against the yen (1 dollar = 107 yen), since the yen is being artificially held down by Japan's central bank, with upward pressure. One still has to take into account inflation-- but overall, exchanging some dollars for yen, with subsequent yen appreciation (and then perhaps exchanging a portion of the yen for RMB) would preserve much of the dollar's original value. Similarly, the Latin American peso-using economies tend to be rich in natural resources, and in many countries, the peso has fallen against the dollar even as the dollar has fallen against the Euro and other currencies. In these cases, the Chinese dollar reserves still preserve much of their original value and get even more pesos than before, to purchase Latin American natural resources. Again, this only works for Latin American countries that have not had too much inflation-- if inflation is high, then of course, something that cost 200 pesos in 2005 might cost 300 pesos in 2008. But some peso-using countries have had reasonably low inflation. I realize that China can't allow the RMB to rise too quickly-- this would jeopardize exports, so it has to happen gradually. But again, when China obtains foreign currency reserves, the key is to diversify the reserves, not just dollars but Euros and other currencies. (FWIW, most oil-exporting countries will now accept Euros and rubles, as in Russia-- the Germans, for example, buy much of their oil in Euros.) But the Chinese central bank has to get serious about this, because the US Federal Reserve Bank plans to "deal with" the massive US deficits via hyperinflation. The plan is to lower US interest rates which would drive down the value of the US dollar even more, and spark massive inflation. This would, of course, hurt US consumers, since our savings would be worth little. But it would also hurt countries like China by "exporting inflation"-- since with massive inflation in the USA, your dollars would be worth even less, and buy even less in the USA. In other words, the United States has driven itself deeply into debt through the foolish War in Iraq, spending far too much on weapons and poor fiscal management-- but the USA wants to make you, the Chinese, pay for our profligacy by exporting inflation. Again-- "don't be taken for suckers." Quietly, and gradually, but steadily move out of dollars, and refuse to buy up Treasury Bills if interest rates here are dropped too low. This will also put pressure on the US Federal Reserve not to reduce interest rates too much, as foreign governments would refuse to buy US Treasury Bills. But slowly, but surely, move out of US dollar-denominated assets. I'd strongly recommend almost any other currency basket-- yen, won, Euros, rubles, ringgit and Swiss francs-- as a better alternative. |
China-US Economy Discussion