WILL CHINA LEAD A STAMPEDE OUT OF THE US DOLLAR? (Very informative charts!)

FinacialSense ^ | November 29, 2006 | Gary Dorsch

[GodGunsGuts]

I'm not waiting for the end of the world. I'm profiting form a dollar bear. When things turn around, you will find that I have completely changed sides. I don't place any stock in the idea that we should be either permanent bulls or permanent bears.

[Moonman62]

When gold gets to $1350? I don't think anyone of us will live that long.

[winodog]

I suspect Bush's refusal to stanch the Latin flood is because he is a globalist.
The only way he will prevent a revolution in Mexico is by letting them have it here.

[maui_hawaii]

But what motivates them is that it's an off-budget export, job and development subsidy. They don't have to account for it domestically because they don't mark to market. Even if they pile up a trillion dollars in reserves and take a 40 percent loss on it, as they surely will over the next decade, nobody is going to call them to account for that.

P.79

[stripes1776]

If China launched economic warfare, the U.S., with the stroke of a pen, would cancel the debt they hold!

I don't quite understand what you said. What would be the specific actions?

[arthurus]

Most folks think inflation is the increased nominal cost of the coke in the convenience store.

[Mariner]

Eventually these gyrations reach equalibrium.

Once the dollar falls low enough, the european economies will begin to hurt...forcing their banks to lower interest rates and dropping the value of the euro vs dollar.

The same can be said of the Pound...and ESPECIALLY the yen.

Rubles and Yuan are irrelevent. However, gold may still have a play as these reserve currencies become less attractive...what else to hold as a FX reserve?

Remember, currencies and reserves are not capital, they just represent capital for as long as the issuer is trusted to pay.

And, the US still owns and produces the lions share of the worlds capital...and has the biggest market to boot. Combine that with a DOMINANT military and the dollar is safe in the long term. Any flight is temporary.

[arthurus]

Perhaps he thinks he is directing the grand flow of History, Kissinger redux.

[maui_hawaii]

Regarding the above mentioned 40% evaporation....if anything, this is what is moving China to want to 'diversify' its holdings.

Their gravy train is going to come to an end and they are gonna have to figure out something new pretty damn soon here.

[Pelham]

Loan someone a few hundred thousand dollars and you own them.

Loan someone a few hundred billion dollars and they own you.

The Chinese have loaned us a tremendous amount. They have a lot of reasons to want to keep the dollar strong vs the yuan.

[Pelham]

The revolution's over. They won California.

[wodinoneeye]

"Very well put. Has anyone ever considered the fact that Red China may someday do just that ON PURPOSE?
"

Oh they no doubt will but only if there is no threat of something like a complete American embargo of all Chinese trade which would knock their entire economy for a loop.

[wodinoneeye]

"I suspect Bush's refusal to stanch the Latin flood is because he fears a Mexican revolution if we don't drain off the disaffected population. So we are getting the restless millions here. At some point I think those millions will realize that conversion to Islam will give them Aztlan from the Rio Grande to Kennebunk. Then we will go to 40-100 million saracens in a couple of years and sharia will be a looming presence."

I doubt that they will convert to Islam, it took centuries to convert them to Christianity (and still effectively hasnt millions of them to this day). The immigration issue will come to a head pretty soon -- probably the next President will be the one that promises to close the borders (and probably drive out a large number of the illegals already here, as well).

[Rockitz]

Ditto.

[n-tres-ted]

Gary Dorsch has informative charts and quotes of central banking figures, but he errs in a fundamental respect. He accepts the Keynesian-based theory of the Fed that raising the funds rate target strengthens the dollar, while lowering the rate target weakens the dollar. The reverse is the case.

Raising the funds rate target weakens the economy by reducing demand, reducing production and reducing employment with the objective of reducing labor's leverage for higher wages. This is to no avail because, as Milton Friedman informed us, "inflation is always and everywhere a monetary event." When inflation occurs, it is in the dollar's loss of value, not in the worker's loss of earning power or in the producer's loss of pricing power when costs rise.

Raising the funds rate target reduces the willingness of producers to invest in production, because the margin of profit will be less due to the increased cost of capital. That means dollars already in the economy will be less in demand, so some dollars will become excess liquidity. This excess liquidity is inflation, because the Fed does not drain it from the economy. In fact, the Fed has been injecting more liquidity by buying T-bonds, even while raising the funds rate target since June, 2004.

The dollar crisis is serious, but it can be fixed. The requires policy change at the Fed, which will be hard to achieve, short of a run on the dollar. There is no assurance that the Fed would respond as it should.

[Orange1998]

Their may be some truth in the statement. Recently I stopped at the convenience store for a 20oz coke. The price rose from 1.09 to 1.19 plus tax. The store said coke went up across the board because of transportation cost, ie: gasoline.

[staytrue]

Tough sh!t, Mr. Gang. That's the risk you ran when you decided to peg your worthless currency to the U.S. dollar.

FYI, if the chinese currencey is pegged to the dollar and the chinese currency is worthless, that would mean THE US DOLLARS ARE WORTHLESS TOO.

[staytrue]

It goes back to China's REFUSAL to purchase our exports.

Exactly what do we export that china is refusing to buy ?

[MNJohnnie]

A very stupid article. They have to have someone to sell to. Why is it the Economic Isolationists on the Right NEVER seem quite able to grasp the basic fundmental workings of the Market system? In order to SELL someone must BUY. Very well let the Chinese divest themselves. Who will be buying them after the Chinese just got done bad mouthing them?

"Oh we have these really bad investments that are only going to get worse, buy them from us". The Chinese are far better merchants then that.

[chuckles]

The whole idea behind globalization is to make us all be interdependent so we won't screw each other. The problem is, when China or some other economy doesn't need us anymore because they have an alternative. What I mean by that is, what if, we, (that is the US), started to drill for oil everywhere, and I mean everywhere. The Hugo Chavez's of the world,along with the raghead's, would soon lose their importance,and even suck up to the US, longing for "the old days". This is the mistake we are making today. To solve all these world problems that are plaguing Bush,....drill for oil. Iran would collapse, Chavez would lose power, Putin would be an afterthought, Iraq could start their own government without interference, and the US trade deficit would collapse so we could buy even more crap from China and Japan. These country's only exist to provide America with crap for US consumers to buy. There are no consumers to speak of in the rest of the world. Americans throw away better stuff then most of the rest of the world has. China would collapse if we didn't buy their stuff. It isn't like Vietnamese couldn't build the same crap. If our economy suffers, the rest of the world suffers, it's just a matter of degree. If China started to have troubles, N. Korea may not get their help. Russia cut off Cuba when the Soviets failed. Now Chavez is propping them up, ...with oil!

Cheap, plentiful oil is the answer to many of our woe's. I understand it doesn't have to be oil but can be any energy form that we can substitute, but we have oil also. Our dependence on oil and cheap labor will be our downfall. Bush should just DO IT, for national security. If Clinton could stop a coal mine with a stroke of a pen, then Bush could drill ANWAR the same way. Our country's freedom depends on it. I'll bet the country would support him if he presented it as a matter of national security. We do not want to be under the heel of the ragheads forever. I don't think I can pull my boat with a mo ped and that's what's coming if we don't snap out of it soon. Cheap, plentiful energy is the ticket.