Dollar Drops as China to Diversify Holdings

MoneyNews ^ | November 10, 2006

[GodGunsGuts]

Dollar Drops as China to Diversify Holdings

MoneyNews Friday, Nov. 10, 2006

LONDON -- The dollar sank to a two-month low on Friday after further comments from China's central bank governor Zhou Xiaochuan on the bank's plans to diversify its $1 trillion in currency reserves, while European and Asia shares fell amid soft economic data.

Already under pressure after a weak reading of U.S. consumer sentiment, the dollar extended Thursday's losses after Zhou said China had a clear plan to diversify its FX reserves.

Zhou, speaking at a meeting of central bankers in Frankfurt, said diversification would include different currencies and investment instruments. Although Zhou said there was no change to China's long-standing diversification policy, many traders took his comments to mean China might buy fewer dollars as the country's massive current account surpluses swells its coffers.

"Undoubtedly, the dollar has weakened on the comments. But on the basis of the comments in and of themselves, I wouldn't expect the dollar to continue weakening," said Todd Elmer, currency strategist at Citigroup.

"I'd expect the trend of reserve diversification to be unfavourable for the dollar over time, but we have to be cautious. I'm not sure this rhetoric means you should chase the dollar weakness, but I wouldn't expect significant dollar rebound in the near term," Elmer said, citing interest rate differentials in the coming weeks that are unlikely to be dollar-positive.

The dollar hit its lowest level in more than two months against a basket of major currencies and touched a 2-1/2 month low against the euro at $1.29 per euro.

The dollar and other currencies also came under pressure against the yen overnight after Bank of Japan Governor Toshihiko Fukui said he was concerned about a sharp unwinding of carry trades in which investors borrow the low-yielding Japanese currency and buy higher yielding currencies.

The dollar was buying 117.35 yen.

SHARES DIP

The FTSEurofirst 300 was down 0.1 percent at 1,465.3 points, off Thursday's 5-1/2 year high as weakness in pharmaceutical stocks in particular weighed.

Concerns that drug companies may eventually face price controls from the U.S. government have arisen since Democrats won both the House of Representatives and the Senate in U.S. mid-term elections.

"The view is that for the next little while, that will be a headwind to drug companies in the U.S. It's a sentiment thing," said Stephen Dowds, head of international equities at Northern Trust.

AstraZeneca was down 2.2 percent and rival GlaxoSmithKline fell 1.7 percent.

However, equity markets overall looked attractive, with solid growth and reasonable company earnings, Dowds said.

"Corporate balance sheets are very strong, people are looking for growth and there's a lot of cash sitting on the sidelines in either private equity hands or even in quoted companies' balance sheets."

Data showing the French economy unexpectedly stagnated in the third quarter did equities few favours, while weaker-than-expected machinery orders in Japan helped push the Nikkei to a one-month closing low of 16,112.4 points.

EURO ZONE BONDS FIRM

The prospect of China diversifying further out of dollar denominated assets proved a boost for European government bonds on hopes they might attract more Chinese buying, but analysts noted it was a gradual process.

"It's been an issue for months. We are certainly seeing some diversification into euro zone bonds, but I don't think it's on as big a scale as many people think," said ING's Padhraic Garvey.

The December Bund future rallied to test key resistance at 118.00, up 18 ticks, while the 10-year note was yielding 3.718 percent.

Gold edged up as the dollar weakened and as investors speculated China would diversify into bullion or other commodities.

Zhou said diversification included currencies and investment instruments including emerging markets but asked if this included gold, he said: "That's a separate thing."

Spot gold was trading around $634 an ounce, having touched a two-month peak around $636.50.

Oil prices retreated, giving up most of Thursday's gains as traders booked profits. The International Energy Agency (IEA) noted that inventories in OECD nations had risen at a rate of 1.15 million barrels per day during the third-quarter, the highest third-quarter build in 15 years, but also predicted a jump in demand during the current quarter.

U.S. light crude was down 72 cents at $60.44 a barrel.

[GSlob]

"I'm all for the rich getting richer. Just as I am for the middle and lower classes getting richer."
Prescription for a disaster. Imagine a society in which everyone is a millionaire [well, if one is to count in pennies, then we are already close to it, for very few people have net worth below $10.000] - the result would be atrocious inflation, for if everyone is a millionaire [in the present - normal - sense of the word], then nobody could be found to perform dangerous, noxious, unpleasant, menial or boring jobs. Thus let the rich get richer, the middle class get middler, and the lower class get lowerer... ([mis]spellings intentional). And whoso does not like it, is welcome to climb into a higher class.

[Petronski]

OOOOOOOOOOOOOOOOPS.

You saw what you wanted to believe and then you spoke frankly about those deep-seated longings.

Paging Dr. Freud. Please pick up the white courtesy phone Dr. Sigmund Freud....

[Toddsterpatriot]

What I'm saying is it suggests that we have a very unbalanced economy that is shriking our middle class.

Define middle class. From what income to what income. Then we'll see if it's shrinking and if it is, we'll see why. Ping me if you ever get any real stats.

[Petronski]

"Suggests" is the weasel-word he will use to run from any commitment to his dialectic.

[GodGunsGuts]

I'm not saying that everyone should become millionaires. I'm saying that a shrinking middle class is a bad thing. Every conservative economist/political philosopher I have ever read explicitly state that the middle class is essential to maintaining freedom (ie limited government).

[expat_panama]

the income share of everyone below the top 1% (or the bottom 99%) dropped 2.2%, while the income share of the top 1%... 

--and most people would rather have 1% of everything then have 100% of nothing; just like most people didn't think they were better off during the malaise daze even if it meant they got their fair share of the malaise. 

Then again, the libs and the Center on Budget and Policy Priorities preferred Carter to Reagan; --some light reading::

• ^ Why the Center on Budget and Policy Priorities Is Wrong about the Cost of Bush's Tax Plan The Heritage Foundation, February 16, 2001
• ^ An Analysis of Misleading Attacks on Colorado's Taxpayer Bill of Rights Tax Foundation, March 25, 2005
• ^ Analysis of the Center on Budget and Policy Priorities' Criticism of Tax Freedom Day and State-Local Tax Burdens Tax Foundation, March 30, 2006
• ^ A "Nonpartisan" Report, My Assets! Citizens for Limited Taxation & Government, May 22, 2000
• ^ Income Distribution National Center for Policy Analysis, August 10, 1999

That last link directly attacks the CBPP's calls for income equality.

Something else, that wasn't  a direct Mr. Bubbles quote in you link;  --in fact, it didn't even exactly quote the full Washington Times, just that idiot Patty Hill rehashing what the Dems remembered from Mr. Bubbles verbal comments.  In the actual submitted written Greenspan Testimony, he emphasized how in 2005 wages and income soared ("increases in employment and income..." "...gains in efficiency have buoyed real incomes.").

[GSlob]

yes and no. It depends on the occupational spectrum. If one is to define the middle class as those who have, or might have, a decent standard of living but have to work for it [luxurious standard of living while having to work for it - upper class. Without having to work for it - the financially independent and the rich, correspondingly], then this has been traditionally connected with not too broad spectrum of occupations. So, to some extent, the workforce occupational spectrum defines the class numbers. And if there are no slots, then there cannot be people filling them. One cannot artificially create a middle class any more than one could make everyone a millionaire by printing a lot of money.

[GodGunsGuts]

I don't believe in income equality. But you can use income gain distributions to determine the overall health of your economy. For instance, let's say a significant number of traditionally middle class jobs are being shipped overseas and there are no replacement jobs. And let's say the financial sector is flying high because they are benefiting from emerging markets, etc. It's all well and good that the financial sector is booming, but what about the people who can't compete with Chinese slaves? When trading with a foreign country, you are supposed to have a mutual comparative advantage in order to make the arrangement mutually beneficial. The problem is, we have no comparative advantage with Communist China. And yet we are exporting large numbers of middle class jobs to the same. I would argue that this is not only stupid, it's immoral (when you feed your enemy the dragon, the dragon gets stronger).

[GodGunsGuts]

But we can stop shipping our "middle class slots" to a nation of slaves (Communist China), the dictatorship of which is actively seeking our demise.

[Toddsterpatriot]

And yet we are exporting large numbers of middle class jobs to the same.

You sound like Lou Dobbs (that's not a compliment) with fewer facts. How many jobs did we ship to China? Link? Source? Anything? Try to avoid CBPP and EPI, if you can.

[GSlob]

Not too much. Only the national security connected slots cannot be shipped, and those in local services. And btw, what was the population structure at the time of the Founders? Large planters and great merchants - upper class [by definition small], smaller shopkeepers and the professional people [physicians and attorneys] - middle class [plus the officers of a small army, and elected officials- not that many of them, either]. Everyone else - lower class, but aspiring to move higher. And that very aspiration, IMHO, provided all the necessary social cohesion. Same here. If we somehow [by a magic wand - a thought experiment, after all] inculcate into our existing lower and middle classes the financial virtues of saving and investment normally associated with the first generation immigrants who arrive in the United States with nothing - that would provide sufficient social cohesion. GWB was talking of something very similar when he was waxing eloquent about "ownership society".

[GodGunsGuts]

I think we should boycott Red China on moral and national security grounds. We should not be sending wealth created in freedom to a Communist dictatorship no matter how tempting the returns. I think we are hastening our own demise by trading with Communist China.

[durasell]

What do you have against low prices?

[durasell]

http://usinfo.state.gov/ei/Archive/2005/Jan/12-31762.html



Study Documents Negative Impact of U.S. Trade Deficit with China
Job losses hit all states, high-tech industry, U.S.-China commission says



A new study has found that the United States' growing trade deficit with China has had an increasingly negative impact on the U.S. economy, causing job losses that reach into the most technologically advanced industries in the manufacturing sector and affect every state, according to a January 11 press release by the U.S.-China Economic and Security Review Commission (USCC).

Robert Scott, director of international programs at the Washington-based Economic Policy Institute (EPI), prepared the study, "U.S.-China Trade, 1989-2003," for the commission. EPI is a nonprofit, nongovernmental research organization that focuses on the economic conditions of lower and middle-income American workers.

"In the rapidly changing big and broad economic relationship with China, it is crucial to have a full, comprehensive understanding of the facts and scope of the relationship," USCC chairman C. Richard D'Amato said. "With such data, we can begin to assess the impacts China is having on our economic health and our national security."

Using a methodology that determines the number of jobs needed to produce exports and imports, the EPI study found that 1.5 million jobs were lost to lower-wage Chinese competition in the 14-year period between 1989 and 2003. During that time, the U.S. trade deficit with China rose twenty-fold, from $6.2 billion to $124 billion. It is expected to increase another 20 percent in 2004, to $150 billion.

The study noted that the pace of job loss has more than doubled since China entered the World Trade Organization (WTO) in 2001, and that China's exports to the United States of sophisticated electronics and communications equipment requiring skilled labor are growing much more quickly than its exports of low-value, labor-intensive products.

"The assumptions we built our trade relationship with China on have proven to be a house of cards," Scott said. "Everyone knew we would lose jobs in labor-intensive industries like textiles and apparel, but we thought we could hold our own in the capital-intensive, high-tech arena. The numbers we're seeing now put the lie to that hope -- as China expands its share even in core industries such as autos and aerospace."

Scott's research found that the 1.5 million lost job opportunities over the course of 14 years were distributed throughout all 50 U.S. states and the District of Columbia, with employment losses of roughly 1.5 to 2.5 percent in the hardest-hit states.

The U.S.-China Economic and Security Review Commission was created in October 2000 to monitor, investigate, and submit to Congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and the People's Republic of China, and to provide recommendations, where appropriate, to Congress for legislative and administrative action.

The full EPI report can be downloaded from the USCC Web site at:

http://www.uscc.gov/

Following is the full text of the USCC press release:





U.S.-China Economic and Security Review Commission

COMMISSION RELEASES STUDY ON THE JOB EFFECTS OF THE RISING U.S.-CHINA TRADE DEFICIT

Report finds these effects being felt in every state and in high-tech industries once considered "safe"

FOR IMMEDIATE RELEASE

January 11, 2005

Contact:

Kathy Michels

202-624-1409

kmichels@uscc.gov

Web site: www.uscc.gov

Washington, D.C. -- The U.S.-China Economic and Security Review Commission today released a new study titled "U.S.-China Trade, 1989-2003: Impact on Jobs and Industries, Nationally and State-by-State." The study was prepared for the Commission by Dr. Robert Scott of the Economic Policy Institute.

The United States' trade deficit with China increased twenty-fold over the last 14 years, rising from $6.2 billion in 1989 to $124 billion in 2003. Moreover, it is expected to have increased by more than 20% in 2004 to over $150 billion. This deficit is impacting an ever-broadening segment of U.S. manufacturing, including advanced technology industries like semiconductors once thought immune to lower-wage Chinese competition.

Using a state of the art input-output methodology that determines the number of jobs needed to produce exports and imports, Dr. Scott calculated that 1.5 million jobs have been displaced over the period 1989-2003 as a result of the growing trade deficit with China. The report also calculates jobs lost by individual states and by specific industrial sectors.

Commenting on the report, Commission Chairman C. Richard D'Amato said, "In the rapidly changing big and broad economic relationship with China, it is crucial to have a full, comprehensive understanding of the facts and scope of the relationship. With such data, we can begin to assess the impacts China is having on our economic health and our national security. This report makes an important, groundbreaking contribution to developing that understanding."

Dr. Scott summarized the report findings as follows: "The assumptions we built our trade relationship with China on have proven to be a house of cards. Everyone knew we would lose jobs in labor-intensive industries like textiles and apparel, but we thought we could hold our own in the capital-intensive, high-tech arena. The numbers we're seeing now put the lie to that hope -- as China expands its share even in core industries such as autos and aerospace."

The report's key findings are:

-- The rise in the United States' trade deficit with China from 1989 to 2003 caused displacement of production that supported 1.5 million U.S. jobs. The loss of jobs due to the growing trade deficit with China has more than doubled since it entered the WTO in 2001.

-- China's exports to the United States of electronics, computers, and communications equipment, along with other products that use more highly skilled labor and advanced technologies, are growing much faster than its exports of low-value, labor-intensive items such as apparel, shoes and plastic products.

-- The U.S. trade deficit in Advanced Technology Products (ATP) with China is now $32 billion, equal to the total U.S. ATP deficit.

-- China is also rapidly gaining advantage in more advanced industries such as autos and aerospace products.

-- The 1.5 million job opportunities lost nationwide are distributed among all 50 states and the District of Columbia, with the biggest losers, in numeric terms:

California (-211,045)

Texas (-106,262)

New York (-87,037)

Illinois (-74,070)

Pennsylvania (-73,612)

Florida (-65,733)

North Carolina (-65,279)

Ohio (-61,914)

Michigan (-54,313) and

Georgia (-49,589)

-- The ten hardest-hit states, as a share of total state employment, were:



Maine (-15,396, or -2.54%)

Arkansas (-19,859, -1.74%)

North Carolina (-65,279, -1.72%)

Rhode Island (-7,840, -1.62%)

New Hampshire (-9,878, -1.60%)

Indiana (-45,285, -1.56%)

Massachusetts (-48,086, -1.51%)

Vermont (-4,426, -1.48%)

Wisconsin (-41,150, -1.48%) and

California (-211,045, -1.46%)

The full report can be downloaded from the Commission's web site: www.uscc.gov.

The Commission welcomes comments by researchers and interested parties on the contents, methodology and findings of the Economic Policy Institute report.

[durasell]

http://business.clemson.edu/cit/Documents/Mfg%20Employment%20Working%20Paper%20draft%208%202005.pdf

[durasell]

http://www.industryweek.com/ReadArticle.aspx?ArticleID=12834

Manufacturing Sheds 19,000 Jobs In September
It's the third consecutive monthly decline.

Tuesday, October 10, 2006
By John S. McClenahen

The manufacturing sector of the U.S. economy lost another 19,000 jobs in September, the third consecutive monthly decline, the U.S. Labor Department reported on October 6.

Not surprisingly, within the durable goods category, most of the job losses came in wood products, non-metallic mineral products and furniture, industries that are related to home building. U.S. home building has been in dramatic decline for several months.

Job losses continued to occur among several industries in the nondurable manufactured goods sector, namely textile mills, plastics and paper products.

Overall, the non-farm sector of the economy, of which manufacturing is a part, added jobs in September but fewer than half the 120,000 jobs that economists generally expected. What's more, the 51,000 jobs added in September were only about one-third of the 150,000 monthly average needed just to keep up with population growth.

The U.S. unemployment rate in September was 4.6%, down a tenth of a percentage point from August's 4.7%.

[durasell]

http://archive.chipcenter.com/TestandMeasurement/ed021.html

[Toddsterpatriot]

Using a methodology that determines the number of jobs needed to produce exports and imports, the EPI study

You had me, then you lost me.

found that 1.5 million jobs were lost to lower-wage Chinese competition in the 14-year period between 1989 and 2003.

Even your left wing, make that far left wing study shows that our economy only lost about 100,000 jobs a year due to trade with China. During that 14 year time frame, we still, somehow, managed to create a net 23,000,000 new jobs. Amazing!

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Data extracted on: November 13, 2006 (11:36:46 PM)

Employment, Hours, and Earnings from the Current Employment Statistics survey (National)

Series Id:     CES0000000001 Seasonally Adjusted Super Sector:  Total nonfarm Industry:      Total nonfarm NAICS Code:    N/A Data Type:     ALL EMPLOYEES, THOUSANDS
Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Annual
1989	107133	107391	107583	107756	107874	107991	108030	108077	108326	108437	108714	108809
1990	109144	109397	109618	109652	109801	109820	109773	109569	109485	109321	109175	109118
1991	108998	108698	108542	108325	108203	108283	108233	108252	108285	108293	108235	108261
1992	108313	108242	108301	108457	108584	108640	108714	108851	108888	109061	109205	109418
1993	109725	109962	109916	110223	110496	110660	110960	111119	111359	111638	111901	112203
1994	112473	112665	113133	113490	113829	114139	114498	114801	115155	115361	115786	116056
1995	116377	116588	116808	116971	116962	117189	117260	117538	117777	117926	118070	118210
1996	118192	118627	118882	119047	119376	119647	119875	120078	120296	120534	120826	121003
1997	121232	121526	121843	122134	122396	122642	122918	122911	123417	123756	124063	124361
1998	124629	124814	124962	125240	125641	125846	125967	126322	126543	126735	127020	127364
1999	127477	127873	127997	128379	128593	128850	129145	129338	129525	129947	130242	130536
2000	130781	130901	131377	131662	131882	131839	132015	132004	132122	132110	132326	132484
2001	132471	132551	132504	132209	132177	132047	131930	131776	131521	131191	130883	130721
2002	130608	130486	130441	130336	130330	130363	130258	130258	130211	130323	130307	130186
2003	130268	130119	129920	129852	129834	129841	129822	129797	129895	130097	130176	130298

 

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[durasell]

Compare it to population growth,i.e. replacement jobs.

[Toddsterpatriot]

Compare it to population growth,i.e. replacement jobs.

We created 24.5 million jobs, lost 1.5 million to China, obviously, we're doomed.