It seems China has won the war against u.s. without firing a shot. *link*

[pud]

http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=53311



U.S. dollar facing imminent collapse?

Fed in bind as Paulsen, Bernanke head to China

Posted: December 10, 2006 5:38 p.m. Eastern

This week, in an unusual move, the Bush administration is sending virtually the entire economic "A-team" to visit China for a "strategic economic dialogue" in Beijing Dec. 14 and 15.

The Bush administration wants to get China's cooperation in preventing a dollar collapse. That's the conclusion of John Williams, an experienced professional econometrician, who writes the "Shadow Government Statistics" blog.

China today now is holding a historically unprecedented $1 trillion in foreign exchange reserves. During the Thanksgiving holiday, an announcement by China that their central bank planned to diversify foreign-exchange holding away from the dollar caused the dollar to drop in value on international currency markets. Since then, the dollar has hit a 20-month low against the euro.

"There will be a central bank, most probably in Asia, who will start the move away from the dollar and when it happens, you're going to see other central bankers covertly trying to follow. The move will magnify very quickly and it could become a full-fledged panic and a dollar collapse."

The Fed is struggling right now to contain inflation and stimulate economic growth. All the Fed is doing right now with all their grand policy shifts is using a lot of propaganda and market massaging to try to prevent a financial panic."

"You could take a 30 percent decline in the value of the dollar," Williams argued, "and it wouldn't make much of a dent in our trade deficit with China, not as long as Bush administration trade policy continues to one-sided in favor China."

"The Fed is faced with an impossible circumstance with the trade and budget deficits being run by the Bush administration," Williams told WND, "and they are just playing games with the markets and the public by not publishing M3, the broadest measure of money supply and the best indicator we have of long-term activity."

[LaoSexMachine]

OMG WorldNet Daily. I'm burying my gold and oiling my guns for Anarchy in America.

[Kitsune]

Hopefully this doesn't get serious. Although it might. In any case, Chinese threats that endanger the value of the dollar would hit them hard as well: as the text mentions China now has something like a thousand billion dollars stored in its bank vaults. And if the American currency drops to half the value it has today because of a panic the Chinese create, they themselves would lose 500 billion bucks. So, they should be the last people on Earth to be interested in a falling dollar. Not to mention that if the US economy goes down the drain they would lose their best customer.

[Kilgor]

As kitsune as pointed out, it defies logic for the chinese to screw the US dollar.

The level of economic co-operation is about the same level of mistrust it seems.

[askDNA]

So let me get this straight. They have $1trillion in USD. By golly, that means they can buy $1trillion of USA goods.

I think this calls for a Fox News alert...

http://www.foxnews.com/images/111195/1_2_terror_alert_orange.jpg

[Banko]

What stops them converting that trillion into the Euro for example?

[askDNA]

What stops them converting that trillion into the Euro for example?

When you say "convert that trillion" do you mean them purchasing Euros? To do that they'd have to trade the USD to the europeans for their Euros, and then the Europeans would have that trillion in USD, and China would have XXX amount in Euros.


You can't just turn a currency into another without giving up something, there's always a trade-off. The dollars will come back American SOMEHOW by people using those dollars to buy US goods. What is China going to do with the dollars? Destroy them? Then that means they just exporte to us a bunch of goods and they got a bunch of paper.

Dumbed down example:

USA buys toys from china. US has to acquire chinese currency and does this by buying the yuan on the international currency market. So say we have 500 yuan and whoever sold us that yuan has 100usd. Now if that country wants to buy goods from the US they don't need to convert anymore of their money, they have the 100usd to directly buy from america.

[Abolith]

Hopefully this doesn't get serious. Although it might. In any case, Chinese threats that endanger the value of the dollar would hit them hard as well: as the text mentions China now has something like a thousand billion dollars stored in its bank vaults. And if the American currency drops to half the value it has today because of a panic the Chinese create, they themselves would lose 500 billion bucks. So, they should be the last people on Earth to be interested in a falling dollar. Not to mention that if the US economy goes down the drain they would lose their best customer.

bingo! our economies are tied together now... if one goes the other does too. the ONLY reason china is seeing high double digit economy growth is trade with the us... screw that over and they would see massive unemployment...and all the fun things that go with it.

[alfigel]

What is China going to do with the dollars? Destroy them?

Lend them to the US. China is already the biggest creditor to the USA.

[Kitsune]

What stops them converting that trillion into the Euro for example?

China is somewhat in a pickle here: the dollar is weak because of the large US trading deficit, which for a good part is as big as it is because of the trade with China. So, it is exactly the ongoing trade with America which erodes the value of the US currency which the Middle Kingdom earns with that trade.
Since most experts seem to assume that the dollar will continue to fall, the Chinese might want to do nothing more than to exchange their dollars to euro. But it ain't that easy: as on any other market, the value of the dollar or the euro on the currency market is determined through availabilty and demand. And if the Chinese would now start to yell: "we want to sell 1000 billion dollars, want to buy euros for it" all hell would break lose. The dollar would take a nose dive while the value of the euro would sky rocket and this all would happen BEFORE China had sold any decent part of their trillion bucks. The best way is to silently and stealthily diversify into euros and Japanese yen over time to minimize the losses because of a likely further decreasing value of the US currency in the future. Which seems to be exactly what the Chinese are doing.

[Doublethinker]

If the US forced its companies to stop all outsourcing activities, the quality of life of american citizens and american economy itself would suffer greatly.
The US would have to give up most of the social programmes it gained during the Roosevelt-era, but at least they'll begin to improve then.

If the US doesn't, then they keep accumulating debts and becoming more and more dependent on China, till their trade policy catches up with them one way or another.

All in all, it seems to be a loose-loose situation. The day USD stops being an internationally accepted cornerstone currency, the same day american economy takes a serious and probably lethal hit.

[oldsoak]

Its hardly a win situation for China. Its like handcuffs - where one goes, so does the other.

[annihilation]

So let me get this straight. They have $1trillion in USD. By golly, that means they can buy $1trillion of USA goods.

I think this calls for a Fox News alert...

http://www.foxnews.com/images/111195/1_2_terror_alert_orange.jpg


China buys **** from America, ever since we got that stupid trade agreement under the clinton years, its been one sided.

[annihilation]

There was an article that said OPEC and Russia are diverifing the oil $$$ from the dollar to the euro. Opec went from a hold of 67% dollars to 65% dollar and raised the euro holding from 20% to 22%. So everyone is trying to get out of the dollar. But don't worry, 2008 it will all reverse.

[Lerclair]

Here's an interesting article... China's not allowed to buy high value US tech products because of US restrictions (or China can produce cheaper themselves).. perhaps just Soya beans and Airliners.. how do you expect them to even out the trade imbalance.... and whose surplus is it anyway ?


US Trade Politics and China's Trade "Surplus": Look to the MNCs!

Summary
This month Congress may vote on two rival bills (Schumer-Graham vs Grassley-Baucus) designed to force China to revalue in order to reduce her trade surplus. We are not apologists for China, but feel that globalisation has left trade balances behind. As elsewhere, multinational corporations in China are at the root of her growing surplus. Pass this on to your policy friends, especially our US readers: antiquated trade balance accounting fosters ill-founded, pointless and uncommercial animosity!

Whose Surplus Is It Anyway?

Everyone reads of increasingly strident calls by politicians for China to tame its ballooning trade surplus. Particularly U.S. politicians urge her to revalue her currency in order to achieve this objective.

When blaming “undervalued” exchange rates, we wonder why Japan and Germany, whose currencies have strengthened over the decades, have achieved ever-larger trade surpluses – while America, with its weakening dollar, has accumulated widening trade deficits. There must be more at play than mere exchange rates.

Perhaps the focus should be less on mercantilist-inspired headline trade surpluses, and more on a modern way of interpreting them.

Amazingly, globalisation has left trade balances behind. We all read about, see and are involved with foreign multinational corporations (MNCs) daily– but their own trade flows are never accounted for in traditional trade balance analysis.

There are at least three simple ways to modernise the interpretation of trade balances.

One modernisation is to see what proportion of total trade flows MNCs account for. Once this happens, the headline trade surplus gets a radically different meaning.

In 2005, China’s exports were $763 bn. Of this, those of Foreign Funded Enterprises (FFEs), our only proxy for MNCs in China, were $444 bn., or 58% of total exports. Of China’s total imports of $660 bn., FFEs’ were $388 bn., or 69% of all imports. Of China’s total trade surplus of $102 bn., the FFEs’ surplus of $56 bn. accounted for 54%. So, if China had no FFEs, her trade surplus thus would have been $45 bn., or less than half the popular headline figure.

A second modernisation is to integrate what FFEs are buying in China itself into the trade balance interpretation: at the extreme, FFEs’ local purchases could be bought from abroad, thus demolishing China’s headline trade surplus. For instance, in 2004 (sadly, the most recent year that such data are available), FFEs bought $296 bn. worth of goods in China itself. Had they imported these instead, total imports of $561bn. would have increased by 52%, to $857bn. Subtract these now from total exports of $594 bn., that would have created a trade deficit of $263 bn. – vs. 2004’s headline surplus of $33 bn.

A third modernisation is to integrate what FFEs are selling in China into the trade balance interpretation. At the extreme, were no FFEs in China, she would have to import such goods from the parent MNC. This increases China’s imports, thus demolishing her headline visible trade surplus even more. In 2004, FFEs sold $360 bn. worth of domestically-produced goods in China itself. Had China imported these instead, total imports of $561 bn. would have increased by 64%, to $921 bn. Subtract these now from total exports of $594 bn., that would have created an even wider trade deficit of $327 bn. – vs. 2004’s headline surplus of $33 bn.

So whose surplus is it anyway? FFEs account for over half of China’s trade surplus. And her 2004 trade surplus of $33 bn. would become a deficit of $263 bn. – were FFEs to import instead of buying locally. Furthermore, that deficit would bulge to $327 bn. – were domestic companies to import instead of buying FFEs’ local output.

Should these politicians be accusing China’s domestic companies – or perhaps their own, domestic corporations who are producing in and exporting from China? Have these politicians ever wondered why MNCs are leaving home and going to China in the first place? Blaming China’s surplus on an “undervalued” currency clearly leaves globalisation behind.
http://www.enziosclock.com/node/283

[exarmyguard]

Better start learning chinese folks.

[Noble713]

Better start learning chinese folks.

我会说一点儿 汉语。One step ahead of you. :)

[I'mOnlyHalfPolish]

everything would be ok if the chinese wouldnt have a "floating" currency, f**king their importing partners (i.e. the USA)

[Fade]

Seems theres some truth to this, guys like Bill Gates and Googles top brass are dumping all their shares in record amounts. They know the US economy could tank anytime as well.

"Analysts say a take-the-money-and-run flight from their own companies signals a growing lack of confidence in the economy's future course, as well as fears of a possible global meltdown if the Iraq crisis escalates across borders."


OMG NYPost (http://www.nypost.com/seven/12072006/business/top_level_insiders_selling_their_stock_business_paul_tharp.htm)