The Empire Strikes Back: China Daily Warns About Currency War, Blames Dollar

Tyler Durden's picture

You didn't think China was just going to do the rockaway and lean back, lean back, lean back. Nope - China Daily says: "A currency war is spreading as the dollar's value against major world currencies has continued to decline in recent days" and calmly confirms what everyone esle knows: "It is the dollar that triggered the currency war. Seemingly a market move, the depreciation of the dollar is actually active." Check to you, Tim Geithner and your currency manipulation report. What is remarkable, is how simply and accurately CD writer Li Xiangyang captures absolutely everything that Bernanke is trying to achieve.

From China Daily:

A currency war is spreading as the
dollar's value against major world currencies has continued to decline
in recent days. Some developed countries have begun to intervene in
their exchange rates. The recovery of the global economy will suffer a
negative impact if this trend is not checked.

It is the dollar that triggered the currency war. Seemingly a market move, the depreciation of the dollar is actually active.

The
U.S. Federal Reserve's statement that it might restart quantitative
easing — a policy central banks use to increase money supply — triggered
the depreciation of the dollar. The dollar's value against the basket
of currencies has decreased by 7 percent since the U.S. Federal Reserve
began talk of possible quantitative easing.

The move nominally
aims to further drive down the interest rate in America to prevent the
occurrence of a double dip.
But it will affect the value of the dollar
too, prompting the dollar's devaluation. In light of the history low
short-term interest rates in the United States, a further decrease in
the interest rate will drive the flow of short-term capital toward
markets of emerging economies, quickening the appreciation of their
currencies.

Second, the U.S. government's strategy to double its
exports within five years needs the considerable depression of the
dollar. For America, boosting exports is a must in the post crisis era,
because it cannot pin its hope for economic growth on the prosperity of
its real estate market and consumption based on borrowing money.

Obviously
boosting exports relying on the competitiveness of U.S. companies is
not realistic in the short term. Nor is it possible to be realized by
the strong demand of its trade partners. None of America's trade
partners — except those emerging economies — are able to achieve growth
independently. Judging from the course of history after World War II,
considerable depreciation of the dollar is the sole possible option that
enables America to realize the goal. In this sense, driving down the
value of the dollar has become an important choice in policy for the
United States to recover the sluggish economy..

The last but the
most important point is that in the long run the considerable
depreciation of the dollar will help America to transfer its debts to
others. If we say the international financial crisis nationalized the
private debts, then in the post-crisis era, the United State sees an
urgent need to internationalize its debts.

A great amount of bad
debts of American financial institutions have been converted to
government debt through government aid measures. In 2009, America's
fiscal deficit stood at 1.42 trillion dollars, 3.1 times the 2008 level.
The deficit ratio surged from 3.2 percent in 2008 to 10 percent to a
new high since World War II. The debt of the federal government
increased to 6.7 trillion dollars, representing 47.2 percent of its GDP.
In 2010, the fiscal deficit is expected to be around 1.32 trillion
dollars. How America retains economic growth while reducing the deficit
is a big problem for the country.

Historic experiences show
debt-to-GDP ratio is not directly linked with economic growth and
inflation (even devaluation) in most countries. But the United States is
an exception because the dollar serves as the world currency. For
instance, the ratio decreased from 121.2 percent in 1946 to 31.7 percent
in 1974. Of that number, inflation accounted 52.6 percentage points,
economic growth contributed nearly 56 percentage points and federal
surplus contributed negative 21.51 percentage points. Even if the United
States denies its motives to transfer their debts, it will unavoidably
happen in reality.


Given a sluggish economy and huge amount of
debts, driving the value of the dollar down is in line with America’s
interests, both in short term and in long term. The international
community ought to stay vigilant about the strong motive for active
devaluation under the guise of a market-based move.

By Li Xiangyang, translated by People's Daily Online

Who would have guessed those Chineses know exactly what the Fed is doing...

h/t Geoffrey Batt

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Ragnarok's picture

Then start openly selling Treasuries and start buying gold and let's be done with it already.

Max Hunter's picture

That's what i'm saying... Let's get it on..

Out of the ashes will come a new..

Ragnarok's picture

The fact that they don't tells you their economy (and by extension their control structure) is hanging on by a bees dick as well. M.A.E.D.

Rahm's picture

China, MAN UP, BITCHEZ!  Talk is cheap!!!

Hansel's picture

Talk is cheap +1.  We have a bunch of teenage girls who love to gossip running the world.  You're a currency manipulator.  No, you are.  No, you are and we really mean it this time... oh wait, just kidding.  STFU!

Missing_Link's picture

It's all for show.  The US and China are just trying to hide the fact that they're neck deep up each other's asses so the middle east won't see China's military buildup coming until it's too late.

http://yfrog.com/nbchinameg

Crime of the Century's picture

 You didn't think China was just going to do the rockaway and lean back, lean back, lean back.

Exactly - and it's the America lean forward, lean forward, lean forward that's gonna hurt...

Conrad Murray's picture

The pigdogs over at MSNBC have their idiot audience's lips wrapped so tight around their Statist shaft they don't realize what they're supporting:

http://en.wikipedia.org/wiki/Great_Leap_Forward#Consequences

nmewn's picture

Like totally...fer shur.

"The Treasury Department delayed a much-anticipated decision on whether to label China as a currency manipulator until after the U.S. congressional elections on November 2 and a Group of 20 leaders summit in South Korea on November 11."

http://www.reuters.com/article/idUSTRE69E0OB20101016?feedType=RSS&feedNa...

See Timmy run.

Run run run...LOL.

knukles's picture

Like uh, you know, uhhhh like, what would Snookie doooooo?

william.smith61's picture

Oil Pump Such a demand would cause me to immediately begin proceedings to withdraw from the EU.  But then, if I were in charge of Germany, I would have done that long ago.

Dadoomsayer's picture

I  agree so what if they know what the US is doing.  If you aren't willing to do something about it then shut the hell up.  China can't do shit about it till they have more people making 10k+.  That doesn't look like that will happen for a long long time.

redvetttes's picture

start dumping the 30 year 1st

Long tmv

redvetttes's picture

start dumping the 30 year 1st

Long tmv

Sugar Bear's picture

Be aware , DXY @ 100   Coming soon....

Shameful's picture

Will be a hell of a thing when this kicks into high gear.  Waiting for China to really start unloading dollar based financial assets.  Let the Fed take the coveted #1 for holding treasury paper.  That surely must be a good sign for America's future...

the rookie cynic's picture

I'm not a geo-political expert, but think about this:

A bold move would be to immediately sell all their U.S. bonds now, corner the gold market, and invade the Middle East and divide the rest of the oil with Russia.  They could probably pull it off if they thought we'd think twice about nuking Beijing and Shanghai and Moscow, but they're scared of Petraeus I imagine.

But why bother with a shooting war?  In the U.S. the  suicide-bankers are already in self immolation mode. Maybe they're content to let nature take it's course and win the war without firing a shot.

The Chinese have a lot of their wealth tied up in dollar, however. If the unload it too fast they risk shooting themselves in the foot, at least in the short-term.  Right?

It's more likely to evolve over time: Tim is engaged in a diplomatic shouting match at present, next will be tariffs, capital controls, and then maybe some military skirmishes.

China can wait. They're not bleeding, the U.S. is. (And all bleeding stops eventually, one way or the other.)

No one knows what could push the Chinese over the edge, however, but anything close to parity yuan-to-dollar or high tariffs and they will sell it all. They'll eventually tire of Ben's secondary inflation of their economy.

Quite a game of chicken. It's a question of who blinks first?

Shameful's picture

The smart play for China is to let the USA burn itself up.  Now if China was to kick the legs out from under the treasury by letting it slip "BTW we don't hold any more US treasury paper" then it would cause a response.  The Fed could go in with damage control but the dollar burns to the ground in fairly short order.  Now China would not invade the middle east.  No point in it.  They are far better suited with them as a trade partner and economic ally.  Like selling them weapons to fight the remainder forces from the US.  After all the US will not be able to support it's military machine and the banking oligarchs when the dollar gives way, guess one gets abandoned?

China has been unloading out of dollars and they can afford to take a hit.  Their economy has problems but with a way of nationalism from shaming the US would ease the peoples emotions and show the "wisdom" of the CCP.  "Our great leaders have outsmarted the Americans and done what the Soviets could not".  China is on a clock because as the US further destabilizes they are pushed to move their currency or suffer local inflation, and pushed to find new markets for goods.

Now it is likely that China will fight someone.  My guess is Taiwan or Vietnam.  It's a war they can win to distract their people, gain something tangible, and use some of the excess young men and industrial capacity.  It's also not an overly dangerous fight for them after the US has sunken fully into insolvency.

Arkadaba's picture

Wonder who the US will fight to "distract their people, gain something tangible, and use some of the excess young men and industrial capacity" - oh shoot, forgot already doing that.

Bananamerican's picture

"If they unload it too fast they risk shooting themselves in the foot, at least in the short-term.  Right?"

...if they wait too long the risk heads somewhat "north" of their feet;)

laosuwan's picture

chinese are patient. they will let obama destroy america for them. china uses proxy armies, terrorist groups in phillipines, nepal, india. chip away at other countries territory and resources here and there but avoid direct conflict. one exception; they will invade taiwan someday because they have too many nationalistic young men with nothing to do at home; too much risk in that for the government. they will do a provocation and blame it on the us or taiwan as excuse to go in, but it will be a long time before china ever thinks of going back into vietnam. the last SE asian country on china's shopping list is Vietnam. Mostly likely they will take over Laos and Myanmar first. either by force or by force of money.

Shameful's picture

I mentioned Vietnam because it was on my mind because of the current dispute over the sea territory.  It need not be them, it just needs to be a target they can beat, so really anyone will do.  The best thing Taiwan could do it try to get some kind of autonomy arraignment like Hong Kong.  Because after the US can no longer project the CCP is really going to be eyeing them. I'm not for China doing any of this, just my read on the situation.

Ludwig Van's picture

 

Who wouldn't complain about taking hits on margins you'd like to keep high? If the "newspiece" truly is a translation of one generally disseminated, it explains well and simply to comrades not just the impediment to a rapid rise in their living standard, but also who to blame, i.e. not us Red ruling guys.

 

I can't see China letting the U.S. burn. We're the terminal cancer patient who still takes their treatment, still racks up the bill, and still owes them. They'll keep us on life support for as long as it makes sense to them, which I don't see as strictly limited to economic sense.

 

 

RecoveringDebtJunkie's picture

The problem for China is that they rely on the US consumer to support their export-driven growth. The "growing" middle class in China has their savings tied up in stocks and RE that will lose a lot of value in coming years. Without US public spending, there is no US consumer, and so the Chinese need us to simultaneously finance our deficits at affordable rates but also prop up the dollar's value relative to the yuan. In this world, predicaments abound.

Shameful's picture

Would you work for an employer that pays you in IOUs?  And when the IOUs are due they offer you more IOUs?  When do you realize "Hey this guy is never going to pay me, I need a new job", or do you just work for them forever and build a hoard of worthless IOUs?  They know they are stuck, we will NEVER pay.  But they don't need that insane level of growth everyone says, the people will forgive much if the CCP looks like a winner.

RecoveringDebtJunkie's picture

That's what I'm saying... they know they are in a predicament, and are beginning to realize they just need to cut their losses and get out of this destructive relationship with the US. China has many problems to face, but they will probably end up significantly better off than we will simply because they have at least some courage and can face reality.

espirit's picture

Tell me again what China needs from the U.S?

RecoveringDebtJunkie's picture

Noone really needs anything from anyone. China wants to continue high levels of economic growth like any other large country, and they have billions of people counting on that to some extent or another. It won't be pretty over there when that doesn't materialize, but at least they have an understanding of the problems and are starting to make some sensible preparations.

Ludwig Van's picture

Communist rulers need the U.S. like old U.S. rulers needed the U.S.S.R, and like recent U.S. rulers need... well, hell, anyone will do -- if now devolved to thin gruel.

"Hey, little kid, where's your big brother?"

"I don't have a big brother."

"Uh-huh. Gimme your lunch."

"But it's all I have to eat today!"

"Be grateful you ate yesterday."

 

 

trav7777's picture

HUH?  WTF...China can face reality?

this is a nation that has a 30-year history of currency and export ponzi and who is building totally EMPTY cities just for the sake of building something!

They are even MORE disconnected from reality than anyone.

BrosMacManus's picture

Truth to power Trav.

What's that old Trump addage? Something like "If I owe the bank $1 million, I have a problem. If I owe the bank $100 million, the bank has a problem."?

All this talk about China having us by the short hairs I think is a reflection of our own self loathing (of our political class, TBTF, consumer/debt-based existence), and not really a reflection of our desire, or reality.

Yes, I'm as sick of our current system as anyone, but projecting our desire for it to end with China taking center stage as the eminent world power seems foolhardy. As USA goes, so goes the world. Until, that is, the players pick sides and slug it out. Right now we, the Chicoms, EU, Russia and ME are just talking about how big each of our respective units are, without actually whipping them out and proving it.

RecoveringDebtJunkie's picture

Look, everyone has been caught up in the global debt ponzi scheme to some extent. China is no exception. But they also don't have a global empire that constantly uses military force to secure resources. They make bilateral deals and are also focusing on alt energy development and infrastructure. They actually have a manufacturing base, trade surpluses and are hoarding gold as well. Also, the economic commentary of Chinese officials that leaks out from time to time is infintely better than anything I've heard from the tools here.

Lucius Cornelius Sulla's picture

Exactly.  In reality, China is already more powerful than the USA economically.  Their farms, mines and industrial capacity are all much bigger.  The main component of the USA's GDP is the service sector which largely depends on the debt ponzi scheme.  Personally, I think the GDP is in for a real thumping.  Probably on the magnitude of a 30% decline.  When the music stops playing, China is way better off because they have real wealth.

Lucius Cornelius Sulla's picture

Problems of early industrialization.  No worse than the USA in the early 20th century.  The point is, they produce way more than us.  Not how they do it.

trav7777's picture

China doesn't have the military capability to mount  naval invasion of Hong Kong, much less the middle East.

They'll tire of Ben's inflation of their economy?  WTF do you think their 30 years' worth of currency manipulation through the dollar peg have done??!?!?

BobPaulson's picture

No. The US just needs an excuse to convert one of its few remaining assets into value. That asset is their massive arsenal. A broke country with a huge military is not a stable thing. Add to this the fact that weapon systems depreciate quickly, so using them is the best way to realize their value.

I'd say the one thing holding the US back from lashing out is that the public doesn't have the stomach for losses, but that can change if people start getting hungry and the government is able to spin a narrative of a great big looming enemy somewhere causing their financial woes.

Lucius Cornelius Sulla's picture

That option worked out great for Japan, Italy and Germany.  But most of the generation that suffered from it are dead now.  Maybe it is time for history to repeat itself.

OddFieldIsStrong's picture

"I'd say the one thing holding the US back from lashing out is that the public doesn't have the stomach for losses"

Hence the need for robotic soldiers, auto-navigation vehicles, UAV etc. Lashing out and winning is the easy bit however, governing a conquered state does need real human on the ground. Of course US could try looting, and holding onto strategic assets only, i.e. oil fields/mines/etc.  It could work, especially with an arsenal of nukes as the ultimate threat.

Dadoomsayer's picture

The fed just announced QE II.  If I were China I would just sell them all their paper back.  They might not get their 8% growth a year, but they will have internal growth as their middle class starts to grow.  And guess what the US just did, they just locked themselves out of the fastest growing economy in the world.  I would say the US has much more to lose than China.  If only China had the balls to do something about it.

knukles's picture

Timmah;  Hey Ben we can just tell 'em; "Now rookie hele, who carring the wok brack.  No tickie no tradie.  No plefecshun of secluity intlest, no coupon payments."

Ben;  Timmy, you're a fucking moron. 

knukles's picture

Timmah;  But Ben, they’re the ones gotta get paid, and we gots the cash. (Sniggering)  So they better buck up and be on the nicie-ricie to us, ‘cause we’re the ones holding all the cards.

Ben; Tim, have you ever heard of the Paradox of  Un-Full Decks?  Well, of course not Timmah, because I just made it up, but you can think about it while I retire to the potty.  (Unzipping his pants and plopping down on the Gold Commode expropriated from J. Thain’s MLPF&S office.)

Timmah;  Ben keep the door open.  We need to talk, seriously.

Ben;  Seriously?  About what, seriously?  Nobody's talked about a goddamned thing seriously here for 2 years now.  So why now?  Or haven't you noticed, there are no full decks anymore, Timmah?

Timmah; About China and (loud noise emanating from commode, sounding as if the veritable Trumpets of Gideon were sounding the Second Coming) What the fuck is that?  Ben?!?!  You OK?

Ben;  No Timmah, I’m a very long way from OK.

Timmah;  But Ben, his Messiah wants to know what we should do?

Ben;  (Giggling)  Timmah, you know what the problem with a trade war with China is?

Timmah;  No Ben (Exasperated, knowingly playing along) I do not.

Ben;  Five minutes after it’s over Timmah, ya’ wanna have another one.  (Bellicose laughter)\

 

Fade out to another lost weekend while the world goes to hell in a neoprene Mao jacket.

Spalding_Smailes's picture

Better play nice or else ...


1. Of the USD 13.6 trillion of goods and materials traded worldwide per annum, 90% rely on letters of credit or related forms of financing and guarantees such as trade credit insurance. International shipping works on “letters of credit.” These financial guarantees are issued to buyers of bulk cargo by their banks. This system has greased the wheels of global trade for the last 400 years by transferring payments internationally from buyer to seller once shipments have been delivered. With the collapse of the credit market - and banks now sitting on their hands, refusing to lend - the fast-moving wheels of global shipping have come close to halt.

Monkey Craig's picture

Could you please give a date and time for this? Global banks (including B of A, TD and Santander are still regularly issuing these Letters. Lines of credit are used for purchases of inventory too.

Spalding_Smailes's picture

http://www.zdnet.com/blog/foremski/shipping-news-globalization-halted-by...

 

^^^ ...

No, this is from an article a few years back. I was just pointing out debt/credit markets control all. If China starts dumping, fear runs wild .... Import/exports stop, u.s.a is in better position to handle the crisis thats coming.

I think we ship china water also as her ships return home ...

We don't need most the crap china ships to us, they need us or someone to buy that crap cuz' they have way to much manufacturing, and lots of jobs that need to be created also ... 350 million coming online soon.