Deep Thoughts From Paul Tudor Jones On The Sino-US Relationship

Tyler Durden's picture

And following up on the previous post demonstrating the escalating war of words vis-a-vis the increasingly hostile stance on Sino-US monetary relations, is the following recently released letter by Paul Tudor Jones in which the legendary traders discusses the critical relationship (among many other things) of the USD-CNY: "As someone who has traded foreign exchange since 1980, I believe the
RMB/USD rate is currently the single most important of all exchange
rates. It not only drives the largest foreign trade relationship in the
world, it also drives virtually every other exchange rate globally.
Dozens of other emerging market countries suppress their exchange rate
against the US dollar because the RMB is effectively pegged to the
dollar. And what is remarkable is the lack of any concrete policy initiative in the US to change this."
In other words, we are stuck in an impasse that will not change for a long, long time, as both countries are terrified to really "defect", and neither country has a material advantage in any one regard, plus are entwined, despite all the jawboning, in a symbiotic relationship whose status quo is more valuable than standalone existence. Sorry Schumer.

From Paul Tudor Jones

Our extraordinary times offer extraordinary opportunities, but as with most opportunities, there will be winners and losers.

Economies in the developed world find themselves with unemployment levels not seen since the Great Depression. The response from respective governments has been massive fiscal stimulus in conjunction with monetary easing. And now many of these governments, having exhausted all fiscal stimulus measures that are politically feasible, are about to embark on another round of quantitative easing. The Bank of England, the Bank of Japan and the US Federal Reserve have implemented, or are considering implementing, significant rounds of government securities purchases.

Will these measures actually succeed in lowering the chronically high levels of unemployment? Or are the unemployment problems of these countries so structural in nature that these policies will have only limited impact?

We’ve enlisted modeling and forecasting firm Macroeconomic Advisers, LLC to assist with answers to these questions.

But, first, a story: About ten years ago I had an acute case of plantar fasciitis in the left foot, a condition in which the fascia, or the covering right beneath the skin, had become highly inflamed. I asked Pete Egoscue (, a renowned postural specialist but one without medical training, to take a look at my foot. Pete had, after all, healed a number of people I knew, including my wife. Because Pete was self-taught, I was a skeptic— as any good trader would be.

Pete said that he did not need to look at my foot because my foot was not the problem— a response that suggested I was dealing with a quack. But I was patient and continued to listen. He proceeded to explain that the pain in my left foot was the consequence of a structural, postural deficiency in my hip alignment. My right hip was rotated in such a fashion as to make the left side of my body do all the work and bear all the weight, culminating in the inflammation of my left foot. “The pain you feel in your left foot is just the symptom,” Pete said. “If you treat it symptomatically and ignore the structural issue, you will never solve the problem.” I did not immediately grasp the full meaning of his words, but I followed his prescription,and in a few days the pain was gone. Some time later I realized that those words were probably the wisest I have ever heard from any human being, and that they apply to more than just the human body.

The developed world, and the United States in particular, is suffering an economic malaise the likes of which we’ve seen  only rarely in the last 100 years. Policy makers are searching for solutions, but they are too focused on the painful symptoms of unemployment to see the misshapen structure causing it. In so doing, they are presenting some of the more wonderful trading opportunities in quite some time: winners and losers.

The root cause of the unemployment woes is quite obvious. In the United States alone, in the last two decades, nearly six million jobs in manufacturing have been lost overseas. This equates to nearly four percentage points of the current 9.7% US unemployment rate. As importantly, the migration of these jobs contributed to the most unsustainable economic imbalance in the world today—China’s persistent bilateral trade surplus with the United States. During the last decade, China accumulated almost $1.4 trillion of US debt and at least $2.3 trillion in global assets. These figures could grow to $3.8 trillion and $7 trillion, respectively, over the next decade if the current renminbi/US dollar (RMB/USD) exchange rate continues to be artificially suppressed from appreciating.

One entity owning this much debt of one debtor, let alone a foreign government, creates too much risk concentration, and has possibly repressed volatility for debtor and creditor alike. The risk may seem manageable now, but who knows what the nature and temperament of the Chinese and American leaders will be in ten years? Isn’t it possible that either side could weaponize financial imbalances to the detriment of domestic and global stability?

How did we get here? On January 1, 1994, China devalued its currency by 50% in a single day, and since then has experienced a manufacturing boom. After 15 years of impressive productivity gains relative to its trading partners, though, it now resists the smallest appreciation. (The IMF implies the RMB could be as much as 30% undervalued taking 2000 as a base, but absolute purchasing power parity would argue that undervaluation is even greater— possibly as much as 60%.) Clearly, there is a direct correlation between the six million manufacturing jobs lost in the US and the close to twelve million manufacturing jobs gained in China over the last two decades. Robert E. Scott, a Senior International Economist and Director of International Programs at the Economic Policy Institute, estimates that the growing trade deficit with China, a partial consequence of the undervalued RMB, cost the US 2.4 million jobs between 2001 and 2008 alone, the equivalent of 1.6% of the current unemployment rate.

As someone who has traded foreign exchange since 1980, I believe the RMB/USD rate is currently the single most important of all exchange rates. It not only drives the largest foreign trade relationship in the world, it also drives virtually every other exchange rate globally. Dozens of other emerging market countries suppress their exchange rate against the US dollar because the RMB is effectively pegged to the dollar. And what is remarkable is the lack of any concrete policy initiative in the US to change this. For several years, the US Treasury has threatened to name China as a currency manipulator but has always found a basis for avoidance. Even if Treasury cited China, it would just set in motion more negotiations that would likely go nowhere. The lone serious attempt to impose a cost on China’s distortion of global financial markets this year was congressional action on the Currency Reform for Fair Trade Act, known as the Ryan Bill, which would allow US companies to file complaints against China’s currency policies with the Commerce Department, and would empower the Department to levy tariffs and countervailing duties on imports from China.

The Ryan Bill passed in the House of Representatives a few weeks ago by a vote of 348 to 79 but is stalled in the Senate. It drew immediate ire from the Chamber of Commerce as well as from eight former US Trade Representatives to China. But it was the very advocacy of the Chamber of Commerce and those Trade Representatives that led us to our current trade deficit. As Einstein said, “Problems cannot be solved by the same level of thinking that created them.”

That so many Americans continue to accept this suppression of a variety of exchange rates against the dollar is probably a function of the fact that for so long this suppression provided benefits such as cheap goods and cheap credit. In addition, for a while, manufacturing jobs seemed to be replaced by jobs in the service economy and construction industry without any economic disruption or any rise in the unemployment rate. However, the bursting of the credit bubble exposed the true structural decay that had occurred in the US economy. But, like zombies, many Americans still cling to the naive belief that we can return to the good times of the 90s and the earlier part of this decade, unable or unwilling to recognize that those high times were a debt-driven anomaly.

This delusion is fueled by a myriad of financial pundits who warn about the dangers of disrupting free trade. They are quick to point out that the Ryan Bill is contrary to rules of the World Trade Organization. Incredibly, in the WTO’s rules of governance, there is not one reference in any of its documents to the underlying bilateral exchange rate between two countries when trying to reconcile trade differences. It is like trying to referee a World Cup match with a soccer ball that only the players can see. In the case of a controlled or manipulated exchange rate, it is patently unfair if the currency of one partner is grossly misaligned, as the RMB/USD rate is.

Any serious attempt to address the structural imbalance is met with a chorus of boos from financial industry pundits who rail against “protectionism.” In discussions involving the Ryan Bill, these pundits have few qualms with lobbing into the mix, like grenades, those most dangerous of words: “Trade War.” They often invoke the specter of Smoot-Hawley, the infamous US tariff act that triggered a trade war in which American exports and imports were slashed by half, leading a number of economists to argue that its passage contributed significantly to the Great Depression. But what they fail to see, or neglect to acknowledge, is that in modern times there never has been free trade with China; the US has already been in a trade war for nearly two decades; and it is the only time in this nation’s history it surrendered without ever firing a shot.

The United States lost six million jobs, indebted itself to China by $1.4 trillion, and received in return a host of consumer goods, many of which now reside in landfills across the country.

“Trade War” is a very dangerous phrase. Clearly, China and the US are commercial competitors and not enemies. There is no reason for “combat” in any sense of the term. The Chinese have set the RMB/USD peg artificially low because they believed it was necessary in order to shift from an agrarian to an industrial-based economy. The United States also  protected its nascent industrial sector when it did the same thing in the 19th century. Developing a significant export-oriented manufacturing base was part of an ambitious plan to relocate hundreds of millions of rural Chinese to cities where they could obtain manufacturing jobs and pursue a better life. It worked. China’s coasts now burst with export-dependent factories and cities. But now and going forward, China’s export strategy is completely unsustainable. In the intermediate term, much less the long term, it is becoming clear that the main buyer of China’s exports—the United States—can no longer foot the bill. A much better policy would be finding the right balance between domestic demand and exports through a stronger currency. Brazil did this brilliantly between 2005 and 2007. Their currency appreciated 34% against the dollar yet the economy grew 2% more than the prior three years and above what was thought previously to be the speed limit. The incoming Chinese administration of 2012 will be forced to contend with a population that has been relocated and retrained for jobs that may one day disappear, much as they did in the United States, all because China engaged in a futile attempt to avoid an inevitable re-equilibration of exchange rates. After all, one way or the other, the real US and Chinese exchange rate will find equilibrium– either through nominal movement or through relative inflation rates.

Just as the Chinese elite have become dangerously wed to an unsustainable export-driven manufacturing model, the US elite have become indifferent to mercantilist assaults on the global trade framework. In mid-September, when the Bank of Japan intervened to suppress the value of the yen against the dollar, there was no response from America’s political, financial and media leaders. While these interventions might have been understandable six years ago, when Japan’s economy was relatively less well off than that of the United States, they are far from necessary today: Japan has an unemployment rate that is half that of the United States and it still runs a trade surplus. Nonetheless, Japan intervened to protect its export industry, and the United States, incomprehensibly, responded with not even a whimper, let alone a bang.

h/t Richard via Deal Breaker

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Rodent Freikorps's picture

I like Mark Steyn's characterization of this.

We are the new "native Americans." We are selling our country, and its resources, for trinkets.

Rodent Freikorps's picture

Just makes one want to cry.

Does rage come before, or after, grief? I can't tell anymore. I've been in a constant state of rage since 2006.

IBelieveInMagic's picture

The explanation in this article is simplistic and does not address the real issue -- it is perceived by other nations that the USD provides the US an unfair advantage -- China will continue to peg their currency to the US to level the playing field and will result in subjecting the US economy to the one pain that it can't avoid, that of massive job loss. If the US is so keen to devalue, easiest way is to encourage SDR or gold or some other commodity backed currency to be serve as reserve currency. Or this issue will be resolved when the system reverts back to bilateral trading system as it was before -- already it is happening in the margins with China - Brazil signing bilateral deals, etc.. 


Rodent Freikorps's picture

I'd totally agree the pain is coming.

However, I can live without Chinese products. Really, I can.

LowProfile's picture

SDR?!  That is war.

Commodity currency?  Maybe.

Gold?  Hell yes, as a store of wealth and clearing currency.

traderjoe's picture

Interesting how Rolling Stone has had some actually interesting journalistic articles lately...

Panafrican Funktron Robot's picture

All this said, a 2% move in the RMB/USD shakes a lot less earth than a 2% move in the EUR/USD.  The media focus seems to be really focusing on the RMB, but the EUR/USD looks poised for a pretty big move over the next couple of weeks that will catalyze the rest.

Turd Ferguson's picture

Again, this is extremely funny and appropriate. Ignore the extra text.

traderjoe's picture

I like the part on the clunkers payment... - same clip as above without the text...

Oh regional Indian's picture

First a war or words, then war.

The similarities from the late 30's early 40's is really startling to me.

German might was effectively created on American funds and tech (prescott bush, standard oil etc. etc.). 

First they built it up, then they had a bunch of other people fight their frankenbaby, then they went in and ritually slaughtered their own spawn.

Rhyming, not repeating history and I'm sure the tri-lateral division will become obvious soon enough.

But the dragon is breathing fire while the US is yelling FIRE!


Rodent Freikorps's picture

In 2003, the Anti-Defamation League said:

“ Rumors about the alleged Nazi 'ties' of the late Prescott Bush ... have circulated widely through the internet in recent years. These charges are untenable and politically motivated. Despite some early financial dealings between Prescott Bush and a Nazi industrialist named Fritz Thyssen (who was arrested by the Nazi regime in 1938 and imprisoned during the war), Prescott Bush was neither a Nazi nor a Nazi sympathizer.[3][5]

That link is bad, but you can find it here it you give a shit about the truthl.


Non Passaran's picture


I'm sick and tired of conspiracy bozos...

Johnny Dangereaux's picture

That would be a Capital B, Jack Ass   adl....yeah, there's an unbiased "source"  

Oh regional Indian's picture

Are you serious Ratman? You and the guy below? 

The ADL as a source??? About the German Question? Really? Do you even know your source? You must be seriously programmed (yes, Mr. Bozo commentor below, you too).

Prescott Bush and his allies were successfully charged with Trading with the enemy. That is on congressional record. Their assets were confiscated. 

You should really study something, deeply even before putting your foot in your mouth like this. I won't even give you a link list, if you are an educated american, you should know. The enemy is within your doors.



Rodent Freikorps's picture

Union Banking was owned by a Dutch bank, Bank voor Handel en Scheepvaardt N.V., which was "closely affiliated" with the German conglomerate United Steel Works, according to an Oct. 5, 1942, report from the federal Office of Alien Property Custodian. The Dutch bank and the steel firm were part of the business and financial empire of Thyssen and his brother, Heinrich Thyssen-Bornemisza, the report said.


No charges were brought against Union Banking's American directors. The federal government was too busy trying to fight the war, said Donald Goldstein, a professor of public and international affairs at the University of Pittsburgh.

"We did not have the resources to do these things," Goldstein said.

Fritz Thyssen broke with the Nazis in 1938 over their persecution of Catholics and Jews, and fled to Switzerland. He later was arrested and spent 1941 to 1945 in a Nazi prison. His brother lived in Switzerland from 1932 to 1947 but continued to operate businesses in Germany.

The best lies are half-truths, huh? Die besten Lügen sind halbe Wahrheiten

Any other bullshit you'd like to sell?

Sincerely, Freikorps Truth Brigade.,2933,100474,00.html


Fuck you, you Brahmin Elitist Fuck.

Oh regional Indian's picture

If you believe all that, you probably also believe that Bernie Madoff is suffering in Jail and that Ken Lay is actually dead.

Also, first you quote the ADL and follow it up with your Coup de grace from Fox news?

You need an education and anger management Ratman. 

My sympathies to your friends and family.


kato's picture

any bush is a fucking facist idiot

DaveyJones's picture

Uh... it's not as simple as two paragraphs. And how exactly do you define a sympathizer? Last time I checked, the US defines a "terrorist sympathizer" as anyone who assists financially. Wasn't that your defintion and justification for the Iraq invasion the other day? And their asisitance did not end right away:

Rodent Freikorps's picture

Fritz Thyssen (search) was an early financial supporter of Hitler, whose Nazi party Thyssen believed was preferable to communism.

Just in case you missed it the first time:

Fritz Thyssen broke with the Nazis in 1938 over their persecution of Catholics and Jews.

Do you not realize the giant set of brass balls it took to BREAK with the NAZI party, in Europe, in 1938?

NAZI = National Socialist Party.

Get a clue, or be a useful idiot.

Nazi adj. of or pertaining to the Nazis; of Nazi beliefs, pertaining to Nazism; resembling Nazi ideas or behavior (History)
  n. member of the German National Socialist Party that governed in Germany under the leadership of Adolf Hitler from 1933-1945; fascist, one who adheres to ideas of Nazism (History) E. Roland Harriman, the bank chairman and brother of former New York Gov. W. Averell Harriman (search), held 3,991 shares. Bush had one share. What a fucking shock that Averell was a Democrat. I'm really starting to hate you dumb fucks, because I think you are just paid liars.
DaveyJones's picture

Keep cussing and using useless words like "democrat," that adds to the objectivity and historical credibility 

Rodent Freikorps's picture

I take it you accept the facts then?

jesusonline's picture

These so-called "facts" that you keep spewing around are nothing more than bullshit coming straight out of your delusional and demented brain. Telltale signs of your rabies: foaming at the mouth, aggressive behavior, circling. The disease you've developed there is beyond help and can only be cured by a bullet to your mug.

Stuck on Zero's picture

The Author is astute.  Never tell China what to do.  We must not tell them what to do to change our economic problems.  If we are going to act it must be internally.  First add a value added tax onto all products entering the country.  Use the proceeds to fund our exports.  Secondly, reject most Chinese (mercantilist) products at our ports for the bad quality they represent.  Protect our consumers from tainted merchandise.  Third, without advertising the fact, let our companies know that they are to buy from U.S. suppliers or they'll never get another U.S. contract. Fourth, target ten key industries for R&D and subsidies and make sure we become the world leaders in these areas.  Fifth, make foreign companies operating in the U.S. pay taxes. Sixth, unjam the patent system. Lastly, make sure that bank loans are targetted at productivity exports, not M&As or real estate.

Do all this and the U.S. is on the way to recovery.  Vote for incumbents and it's third world USA.

traderjoe's picture

I like-y some. Take away the tax on foreign countries manufacturing here. Shouldn't matter the owners, just that they create jobs here. 

And I'd add that all foreign-held capital by US businesses can be re-patriated for free.

ThreeTrees's picture

Here is a domestic solution to this problem that can be set in motion unilaterally:  Stop printing money.


Massive imbalances of trade cannot, repeat, cannot form without inflationary credit expansion.  Stop focusing on the trees.

Kayman's picture

China not a currency manipulator- Tiny Tim.

China not a Fascist Dictatorship - Kayman

So... every thing is just peachy... No....  ????

youngandhealthy's picture

Paul Tudor is talking BS. For an US citizen the RMB/USD might be the most important exchange rate in the world. But just as an example the total trade between EUR and China is bigger. The root cause of the RMB/USD problem is within the US itself. You borrow to much and liked to buy cheap shit...full stop.

kato's picture


youngandhealthy's picture

And you don't...because the Chinese balls are not limited to a place below's the whole body...that is how the Chinese politics works....peasant offers.

Rodent Freikorps's picture

Like hell.

Storm's coming.

Non Passaran's picture

Didn't we hear similar cra.. uh, predictions, about Japan in the 80's?

Zeilschip's picture

The US and China seem to have put something together.

That's why we probably haven't heard any rhetoric from China at the G20. It sounds logical, China can only increase GDP-per-capita by increasing domestic consumption.

frankTHE COIN's picture

Tudor, 1 Liberty Plaza Brother !

NOTW777's picture

"The root cause of the unemployment woes is quite obvious. In the United States alone, in the last two decades, nearly six million jobs in manufacturing have been lost overseas."

how can you call it "obvious" and then fail to id it.  US has super high cost of labor due to unions, over regulation, refusal to pass tort reform and bloated, corrupt social programs.  The cause is liberal politics - high tax, high regulation, bs political correctness and corrupt connection between politicans and unions.

TonyV's picture

Everything that you just said is true for Japan and Germany but yet they both have low unemployment and a trade surplus.

spartan117's picture

Neither country has a reserve currency that can be used to purchase imported goods and allow for the avoidance of inflation due to the demand for said reserve currency.

Bob's picture

I don't know about political correctness, but I'd have to guess that your math is incorrect, unless you think that Americans would, if not for the evils you so liberally cite, be happily and prosperously working for a competitive thirty cents per hour.  Or is that just more liberal bs? 


Conrad Murray's picture

Legal definition of a dollar (Coinage Act 1792): ~24.1g of pure silver
Commonly acceptable wage in FRN: 15/hr
Commonly acceptable wage in FRN converted to dollars: 361.5g (~11.6ozt)
Price of silver in FRN right now: 23.67/ozt
Commonly acceptable wage in FRN when held to dollar standard: 275.14
15 / 275.14 = ~0.05/hr

You see, Americans are happily working for far less.  They are just too stupid to know it.

Sean7k's picture

Ultimately, it is all just a game. Played by people too bored to care and willing to sacrifice the serfs of their individual kingdoms. 

We can be pawns or we can remove ourselves from the board and have our own game. One where our labor, savings and investment mean something. It will require a revaluation of our capital in something of real value- production, services and sound money- that everyone will want and trade for. 

It does not require a government. It does not require a central bank. It does not require taxes, tariffs or other distortions. 

It is the essence of exchange. In a free market. Without intervention or governmental theft. 

The solution is simple. It is non violent. It will require persistence and perseverance. It can be done by one, all or any number in between. It has consequences. It may require sacrifice. The numbers are with us.

We merely must refuse to play, acknowledge or respect the rule of criminals. 

lamont cranston's picture

Things sure have changed from 50 years ago when Bullwinkle The Moose used to take his wash to Ed Foo Young's Chinese Laundry in Shanghai.

Better exchange rate back then. Plus, free copy of Chairman Mao's Little Red Book with each $10 of dry cleaning.

Young's picture


But, like zombies, many Americans still cling to the naive belief that we can return to the good times of the 90s and the earlier part of this decade, unable or unwilling to recognize that those high times were a debt-driven anomaly.

That's right equity investors, keep dancing. Dance retardedly to the music playing only in your heads.

crosey's picture

US and China are like 2 colliding galaxies locked in each other's gravitational field.  We cannot escape each other unless a significant outside force interferes.

China can and will go as long as they want.  They deal with internal discontent very effectively.  When they have had enough of their capitalist experience, they can raise the drawbridge, and go back to the beginning.

China will always's their mindset.  Even if that means feudalism.  So I have learned from my Chinese friends.

Ratscam's picture

How can a planet with finite resources have an economic system based on DCF models which assume perpetual growth? Times will change ...

StychoKiller's picture

Is the surface of a planet the right place for an expanding
technological civilization?

Figure it out from there...

the rookie cynic's picture

I agree.

Even if stimulus worked most of the time, there’s still the final back-breaker:  Exponential growth of debt requires exponential growth of productivity.

Denial of this fact will result in an “epic fail.”  Exponential growth cannot go on forever. It’s a finite planet, with finite resources.