China’s President, Hu Jintao, came to Washington last month with his game face intact. While there was puffery from the likes of New York Senator Charles Schumer about the need for China to let their currency float on the free market, Hu smiled, attended the state dinner in his honor, and stopped by Chicago on his way out of town and signed a deal by which China’s largest bank (and by some measures the largest bank in the world), the Industrial & Commercial Bank of China Ltd. agreed to acquire buying the Bank of East Asia which has branch networks in California and New York. There is no Financial Crisis in China.
All the bluster in Washington was just that, bluster. Let’s not kid ourselves, China is our banker. At least they have been. They own more US debt than any other country. That said, it is no surprise they have stopped buying our IOUs because of the appalling lack of fiscal discipline in Washington.
How in the world does Schumer find the gall to criticize China’s financial policies when they have $3 trillion in reserves and we are $14 trillion in debt?
China’s financial policies have also resulted in a remarkably strong currency, called the Yuan, also called the Renminbi or RMB. It is, of course, true that the Chinese government has intentionally suppressed the value of the RMB to keep the cost of its goods cheap on world markets.
This is what Charlie Schumer was blowing smoke about. But let’s be brutally honest, we are no longer in a position to muscle China around. The US is still trading on more than half a century of being king world. Sorry, we have buried ourselves in so much debt, that our stature is rapidly declining.
Meanwhile, the Chinese are flourishing and prospering and aren’t about to take a bunch of advice from the Godfather of Fannie and Freddie – the aforementioned Chuckie Schumer.
Meanwhile, as covered in Crisis by Design, I have long been a fan of the RMB. This currency is a strong because a currency reflects the confidence that people have in the country that issues it. And people do have a strong (and growing) confidence in China’s economic fortunes.
A strength of a currency represents a country’s production. And the people of China produce.
The Chinese government has suppressed the real value of the RMB because if the RMB appreciates to its real value, the cost of Chinese goods would go up dramatically and China’s export markets would stall. So they are letting it increase gradiently.
In my opinion, this increase will become more and more pronounced as the months and years go on. People can diversify out of dollars and open an RMB accounts here in the US now. This can be done with Everbank in Florida (www.everbank.com). And just recently, branches of the Bank of China here in the US have made RMB deposit accounts available.
As long as China stays productive the RMB will continue to appreciate against the dollar. One way to restore confidence in the dollar would be to tell your elected officials in Washington to stop the spending and borrowing and start whittling the federal government down to size.
Do that, and keep your powder dry.
Thanks for the information. What advice do you have for someone interested in following banks central and commercial?
Watch the machinations of the Bank for International Settlements. They are calling the shots.
Best,
John
Well, China’s yuan will probably supercede the US dollar as the reserve currency on planet earth – they are wisely setting themselves up for just that. They have raised interest rates over there and the touch of inflation they have they will handle. Raising interest rates will do just that – while the Fed refuses to do that over here. My prediction is that the powers that be are deliberately wrecking the dollar – why? They want the Amero. That’s my bet. They know exactly what they are doing and nothing happens by accident.
They’ve already got the Euro and that zone wrapped up with it’s own parliament… it’s the American side next… can you see the writing on the wall? One world could be a great idea – but not with the nuts running things. It will not be for anyone’s good.
So, all you folks aware enough to read this blog, I suggest dumping your US dollars into precious metals and riding that bull market til it peaks, then moving to the next undervalued asset class… cash flowing real estate?
Keep your eyes open, and watch the game play out – but don’t be a spectator and miss your own key plays.
Al
Great response, Al.
Agree with almost all of it. But it’s the SDR, not the Yuan that will be (and is being implemented as I write this) the reserve currency of the planet.
And the Amero, is a Red Herring. You’ll have the dollar, the Euro and the Yuan or some kind of Asian currency. THAT’S what the TRI-lateral commission is all about.
Meanwhile, the precious metals bull market is not over.
Best,
John