Tilted Forum Project Discussion Community - View Single Post - China vs. the United States in an Economic War?

pedro padilla · 12-15-2004, 03:51 PM

The US economy is in shambles. The Bush administration is currently spending money which will be repaid by your grandchildren.
China has every reason to back away from their long time support of the dollar. Not so much economic war but ecomomic self preservation is the issue.
Life in the US is rapidly going to resemble that of Argentina. There is a major and basically inevitable meltdown around the corner.
China questions dollar slide
(Agencies)
Updated: 2004-11-29 16:26
Chinese Premier Wen Jiabao has criticized the United States for not taking measures to halt the slide in the dollar and insisted that China will not revalue the yuan under pressure.
"We have to ask a question. The US dollar is depreciating and it is not managed," he told reporters in Laos late Sunday when asked about pressure to change the yuan's decade-old peg to the dollar.
"What is the reason for that? Shouldn't the relevant parties adopt measures?" he asked.
Turning the tables on the United States, he contrasted the lack of US attention to its currency with China's attitude during the Asian financial crisis seven years ago.
"China is a responsible country," he said. "In 1997, during the financial crisis, we maintained the basic stability of the yuan and made the kind of contribution that we should."
At the time, many hailed Beijing's decision to keep the yuan unchanged, providing a rare oasis of relative strength and certainty while all around the region one currency after another collapsed.
Now US exporters complain that the yuan, pegged at about 8.3 to the dollar since 1994, is undervalued and gives China an unfair advantage by making Chinese exports cheaper.
"Honestly speaking, the more speculation (about a yuan revaluation) there is in society, the more unlikely it is that the necessary measures can be undertaken," Wen told journalists.
Chinese analysts estimate that this kind of speculation has allowed up to 30 billion dollars of "hot money" to enter across China's borders as investors hope for a revaluation of the currency.
Their gamble is that China's central bank will revalue the yuan, giving them an immediate overnight profit.
However, a decision to adjust the currency policy after a decade of stability was not to be taken lightly, the premier indicated.
"You must consider the impact on China's economy and society and also consider the impact on the region and the world," he said.
A series of important conditions would have to be in place before any major changes could take place, he said.
"The most important thing is that we need a stable macro-economic environment, a healthy market mechanism and a healthy financial system," he said.
"We will continue to push forward the reform on the yuan exchange rate, while maintaining overall stability in our economy," Hu was quoted as telling Bush ahead of the Asia-Pacific Economic Cooperation*forum talks.
He indicated that China would seek to prevent wild fluctuations in the yuan exchange rate if and when the peg was loosened.

India, China and other countries start dumping US dollar and buy Euro
Bala Vaddi, Special Correspondent
November 27, 2004
The India, China and other countries have started dumping US Dollar quietly and buying Euro. That put a very serious pressure on US Dollar. Chinese and Indian central bank officials denied such reports. But Foreign exchange traders say they are quite convinced of Indian and Chinese moves. According some traders, there are many other countries specially oil rich Middle Eastern countries running away from dollar.*
Reserve Bank of India (RBI) Governor Y.V. Reddy said the composition of the country's foreign exchange reserves could change when asked on Wednesday if the bank was considering boosting its holdings of the strengthening euro. The central bank does not give a breakdown of its reserves -- the world's fifth largest -- but analysts said it may already have reduced the proportion of dollar holdings and would likely continue to do so. India's reserves, which comprise dollars, euros, sterling and yen in undisclosed proportions, have risen by nearly $23 billion so far in 2004 to a record $123.5 billion. "The question of composition of reserves ... it's a very dynamic situation. You can’t take a view on a daily basis," Governor Y.V. Reddy told reporters on the sidelines of a news conference. The dollar has long been held as a reserve currency, but the single European currency hit a record high against it on Tuesday, and again on Wednesday, after the Russian central bank said it could review the share of euros it holds among its $113 billion in reserves. Asian central banks have been among the largest buyers of dollars as the economic tide turned in their countries'' favour leading to massive investment and trade inflows. These banks were partly looking to build up their ammunition following a crisis in 1997 and to protect their trade competitiveness. But the U.S. unit has declined sharply because of doubts about the fundamentals of the U.S. economy, which is running wide fiscal and trade deficits. It has fallen nearly 4.5 percent against the euro so far in 2004.*

If we have promised more than our economy has the ability to deliver [in Social Security and Medicare expenses], as I fear we may have, we must recalibrate our public programs so that pending retirees have enough time to adjust through other channels. If we delay, the adjustments could be abrupt and painful.”
- Alan Greenspan
**Chairman, Federal Reserve Board*Forbes

“Buffett said the transfer of the country's ‘net worth’ abroad would eventually lead to ‘major trouble.’‘In effect, our country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4% more than we produce - that's the trade deficit - we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own.'”
- Warren Buffett
**CEO, Berkshire Hathaway & 2nd Wealthiest Person in the World
**Running on Empty

The outlook for the global economy is the most uncertain for 20 or 30 years, according to Bill Gross, the influential chief investment officer of Pimco, the world\’s biggest bond fund manager. ‘Too much debt, geopolitical risk and several bubbles have created a very unstable environment which can turn any minute…. With all this consumer debt, business debt, government debt, smaller movements in interest rates have a magnified effect…a small movement can tip the boat…. The US dollar is being supported by the kindness of strangers – Japan and China. It should be 20% lower than it is.”
- Bill Gross
**Chief Investment Officer, Pimco
**Financial Times

this is also an interesting, simply worded analysis of the current situation:
http://economist.com/opinion/display...ory_id=3446249

12-15-2004, 03:51 PM	#12 (permalink)
pedro padilla Insane	The US economy is in shambles. The Bush administration is currently spending money which will be repaid by your grandchildren. China has every reason to back away from their long time support of the dollar. Not so much economic war but ecomomic self preservation is the issue. Life in the US is rapidly going to resemble that of Argentina. There is a major and basically inevitable meltdown around the corner. China questions dollar slide (Agencies) Updated: 2004-11-29 16:26 Chinese Premier Wen Jiabao has criticized the United States for not taking measures to halt the slide in the dollar and insisted that China will not revalue the yuan under pressure. "We have to ask a question. The US dollar is depreciating and it is not managed," he told reporters in Laos late Sunday when asked about pressure to change the yuan's decade-old peg to the dollar. "What is the reason for that? Shouldn't the relevant parties adopt measures?" he asked. Turning the tables on the United States, he contrasted the lack of US attention to its currency with China's attitude during the Asian financial crisis seven years ago. "China is a responsible country," he said. "In 1997, during the financial crisis, we maintained the basic stability of the yuan and made the kind of contribution that we should." At the time, many hailed Beijing's decision to keep the yuan unchanged, providing a rare oasis of relative strength and certainty while all around the region one currency after another collapsed. Now US exporters complain that the yuan, pegged at about 8.3 to the dollar since 1994, is undervalued and gives China an unfair advantage by making Chinese exports cheaper. "Honestly speaking, the more speculation (about a yuan revaluation) there is in society, the more unlikely it is that the necessary measures can be undertaken," Wen told journalists. Chinese analysts estimate that this kind of speculation has allowed up to 30 billion dollars of "hot money" to enter across China's borders as investors hope for a revaluation of the currency. Their gamble is that China's central bank will revalue the yuan, giving them an immediate overnight profit. However, a decision to adjust the currency policy after a decade of stability was not to be taken lightly, the premier indicated. "You must consider the impact on China's economy and society and also consider the impact on the region and the world," he said. A series of important conditions would have to be in place before any major changes could take place, he said. "The most important thing is that we need a stable macro-economic environment, a healthy market mechanism and a healthy financial system," he said. "We will continue to push forward the reform on the yuan exchange rate, while maintaining overall stability in our economy," Hu was quoted as telling Bush ahead of the Asia-Pacific Economic Cooperationforum talks. He indicated that China would seek to prevent wild fluctuations in the yuan exchange rate if and when the peg was loosened. India, China and other countries start dumping US dollar and buy Euro Bala Vaddi, Special Correspondent November 27, 2004 The India, China and other countries have started dumping US Dollar quietly and buying Euro. That put a very serious pressure on US Dollar. Chinese and Indian central bank officials denied such reports. But Foreign exchange traders say they are quite convinced of Indian and Chinese moves. According some traders, there are many other countries specially oil rich Middle Eastern countries running away from dollar. Reserve Bank of India (RBI) Governor Y.V. Reddy said the composition of the country's foreign exchange reserves could change when asked on Wednesday if the bank was considering boosting its holdings of the strengthening euro. The central bank does not give a breakdown of its reserves -- the world's fifth largest -- but analysts said it may already have reduced the proportion of dollar holdings and would likely continue to do so. India's reserves, which comprise dollars, euros, sterling and yen in undisclosed proportions, have risen by nearly $23 billion so far in 2004 to a record $123.5 billion. "The question of composition of reserves ... it's a very dynamic situation. You can’t take a view on a daily basis," Governor Y.V. Reddy told reporters on the sidelines of a news conference. The dollar has long been held as a reserve currency, but the single European currency hit a record high against it on Tuesday, and again on Wednesday, after the Russian central bank said it could review the share of euros it holds among its $113 billion in reserves. Asian central banks have been among the largest buyers of dollars as the economic tide turned in their countries'' favour leading to massive investment and trade inflows. These banks were partly looking to build up their ammunition following a crisis in 1997 and to protect their trade competitiveness. But the U.S. unit has declined sharply because of doubts about the fundamentals of the U.S. economy, which is running wide fiscal and trade deficits. It has fallen nearly 4.5 percent against the euro so far in 2004.* If we have promised more than our economy has the ability to deliver [in Social Security and Medicare expenses], as I fear we may have, we must recalibrate our public programs so that pending retirees have enough time to adjust through other channels. If we delay, the adjustments could be abrupt and painful.” - Alan Greenspan *Chairman, Federal Reserve BoardForbes “Buffett said the transfer of the country's ‘net worth’ abroad would eventually lead to ‘major trouble.’‘In effect, our country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4% more than we produce - that's the trade deficit - we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own.'” - Warren Buffett CEO, Berkshire Hathaway & 2nd Wealthiest Person in the World Running on Empty The outlook for the global economy is the most uncertain for 20 or 30 years, according to Bill Gross, the influential chief investment officer of Pimco, the world\’s biggest bond fund manager. ‘Too much debt, geopolitical risk and several bubbles have created a very unstable environment which can turn any minute…. With all this consumer debt, business debt, government debt, smaller movements in interest rates have a magnified effect…a small movement can tip the boat…. The US dollar is being supported by the kindness of strangers – Japan and China. It should be 20% lower than it is.” - Bill Gross Chief Investment Officer, Pimco Financial Times this is also an interesting, simply worded analysis of the current situation: http://economist.com/opinion/display...ory_id=3446249 Last edited by pedro padilla; 12-15-2004 at 04:03 PM..