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by Ashraf Laidi
Posted: Feb 22, 2010 5:00
Comments: 2338
Posted: Feb 22, 2010 5:00
Comments: 2338
Forum Topic:
USD
Discuss USD
also, i dont think muslim people can bear hard work like chinese. naturally, low latitude weather make people hard to concentrate.
in iraq and africa, chinese manufactory owners are used to hire chinese people.
http://www.johnmauldin.com/frontlinethoughts/a-bubble-in-complacency
but I think US makes an ally not an enemy of Muslim world.
Consider demography:
Russia and japan ageing population...as well as dead. Useless.
China ...one child politics...ageing. useless.
Drop China. Dementia, seniors.
Drop Europe but give them a few more years. They are diligent, hard-working and very stupid.
And ageing.
But Muslim demography...the population gets younger day by day.
Give oil which is already depleted to muslims scrap Saudi royals.
Make Iran an US ally.
Muslim world the next workhorse.
The rise of the redback
China will have to open its financial market if it wants the yuan to rival the dollar
The Economist
In 1965 Valry Giscard dEstaing, then Frances finance minister, complained that America, as the issuer of the worlds reserve currency, enjoyed an exorbitant privilege. Chinas president, Hu Jintao, does not have quite the same way with words. But on the eve of his visit to America this week he told two of the countrys newspapers that the international currency system was a product of the past. Something can be a product of the past without being a thing of the past. But his implication was clear: the dollars role reflects Americas historical clout, not its present stature.
Mr Hu is right that Americas currency punches above its economys diminished weight in the world. Americas share of global output (20%), trade (only 11%) and even financial assets (about 30%) is shrinking, as emerging economies flourish. But many of those economies, such as South Korea, still sell their exports for dollars; many, including China, still peg their currencies to the greenback, however loosely; and about 60% of the worlds foreign-exchange reserves remain in dollars.
This allows America to borrow cheaply from the rest of the world. Its government has been able to overspend, secure in the knowledge that its IOUs will be bought by foreign central banks, which are not too fussy about price. America would show more self-discipline, many Chinese believe, if the dollar had a little bit more competition.
Related itemsChina's currency: Stranger than fictionJan 20th 2011The rise and fall of the dollar: Go with the flowsJan 20th 2011
Could the yuan become a rival? Chinas economy will probably surpass Americas in outright size within 20 years. It is already a bigger exporter. It is prodding firms to settle trade and even acquire foreign companies in its own currency. That is adding to a pool of redbacks outside its borders. These offshore yuan are, in turn, being tapped by borrowers, issuing dim sum bonds in Hong Kong (see article).
But as the dollars history shows, economic clout is not enough without financial sophistication (see article). If foreigners are to store their wealth in yuan, they will need financial instruments that are safe, stable and easily sold. Dim sum makes for a tasty appetiser. But the main feast of Chinas financial assets is onshore and off-limits, thanks to its strict capital controls. The government remains deeply reluctant to let foreigners hold, buy and sell these assets, except under tight limits. Indeed, it is barely ready to give its own people financial freedom: interest on bank deposits is capped; shares are largely owned by state entities; and bonds are chiefly held by the bankswhich are, in turn, mostly owned by the state.
Over time China will relax its financial grip. But even if it could usurp the dollars role as the worlds currency, it will not replicate the American set-up. The United States takes advantage of the dollars position to borrow cheaply from the rest of the world, selling its assets in return for goods. China is a mirror image of this. It runs a trade surplus, selling goods in return for financial claims on foreigners. Its firms, households and government save more than they can invest at home.
A different kind of perk
Rather than seeking to borrow in its own currency, China may harbour the opposite ambition: to lend in its own currency. The exorbitant privilege it may covet is a lower foreign-exchange risk on its savings. On top of the trillions China has lent to Americas treasury, it also holds stakes in Australian mines, African farms and Swedish car companies. But because none of these assets is in yuan, China suffers a capital loss whenever its currency strengthens. It would no doubt like to share some of this risk with the rest of the world. The model is not America, but Germany, an international creditor which holds 70% of its foreign assets in euros.
There is a catch, though. No one will want to borrow in a currency that is only ever going to strengthen, increasing the value of their debts. So if China wants to yuanify some of its claims on the rest of the world, it will need a currency that can go down as well as up. To make people believe the yuan can fall tomorrow, China will have to loosen its currencys peg and let it rise faster today. China is different from America: it is a rising economic power and a thrifty one. But one rule still holds: China will have to open its financial system to the world if the yuan is to be the dominant currency.
The big point, however, is that China cannot pursue its mercantilist strategy and also avoid accumulating dollar liabilities of doubtful long-term value. This is the Triffin dilemma, named after the Belgian economist, Robert Triffin, who pointed out, in the 1960s, that in a fixed-rate system the supplier of reserves will end up running deficits in its basic balance of payments (before monetary financing). These must threaten the systems stability, as Mr Hu argues.
The solution for China is to stop buying dollars on the current scale and allow the renminbi to rise faster. That would surely create adjustment problems. But those adjustments are in Chinas own interests. Otherwise, it will end up accumulating vastly more reserves, continue distorting its own financial system and even risk losing monetary control. Now, with inflation a concern, the case for allowing the currency to adjust much more rapidly upwards is surely overwhelmingly strong.
In a speech before Mr Hus visit, Tim Geithner, US Treasury
secretary, noted that since June of 2010, when Chinese authorities announced they would resume moving toward a more flexible exchange rate, they have allowed the currency to appreciate only about 3 per cent against the dollar. This is a pace of about 6 per cent a year in nominal terms, but significantly faster in real terms because inflation in China is much higher than in the United States. We believe it is in Chinas interest to allow the currency to appreciate more rapidly in response to market forces. And we believe China will do so because the alternative would be too costly for China and for Chinas relations with the rest of the world.
The analysis is surely right. But the evidence suggests that China is still willing to move only very slowly. That is a mistake. My advice to Mr Hu is simple: if China wants to escape from the tyranny of that dreadful dollar, stop buying. Please.
My entirely algebraic method - chart analysis EW candles.. in general pattern detection is geometric - rests on a simple , I think the most simple question: traders buy low and sell high. Thus they trade difference. The difference is liquidity and eventually , cash. How is the value of the difference determined?
My thesis is that all buddies talking about capitalism are dead wrong. The system is mercantilism. In capitalism, buy low and sell high is IMPOSSIBLE because the value of money as cash is a constant ( an invariant) of the system. Neither inflation nor deflation can happen in capitalism.
China and Russia are not "turbo-capitalism" systems rather they are turbo-mercantilism systems.
In capitalism, the price of oil cannot be higher than the added value that can be gained from
using oil in industry. That were a very low price below 30 USD/bbl.
FED is preparing capitalism.
By Martin Wolf
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The current international currency system is the product of the past. Thus did Hu Jintao, Chinas president, raise doubts about the role of the US dollar in the global monetary system on the eve of last weeks state visit to Washington. Moreover, he added, the monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the US dollar should be kept at a reasonable and stable level. He is right on both points.
In criticising US fiscal and monetary policies and, in particular, the Federal Reserves policy of quantitative easing, Mr Hu was following a well-trodden path. In the 1960s, Valry Giscard dEstaing, then French finance minister, complained about the dollars exorbitant privilege. John Connally, US Treasury secretary under Richard Nixon, answered when he described the dollar as our currency, but your problem. The French and now the Chinese desire exchange rate stability but detest the inevitable result: an open-ended commitment to buying as many dollars as the US creates. Both want to discipline US policies. Both have failed. Are things likely to be different this time? No.
The Chinese and other heavy interveners have a peculiar way of showing their distrust of the dollar. Between January 1999, just after the Asian financial crisis, and October 2010, the global stock of foreign currency reserves increased by the staggering total of $7,450bn. China alone added $2,616bn. During the recent financial crisis, global reserves did provide a cushion to holders, falling by just $473bn from July 2008 to February 2009 (6 per cent of the initial stock). But then purchases restarted: between February 2009 and October 2010, reserves rose by another $2,004bn.
The dollar is not the only reserve currency. But it remains the most important. In the third quarter of 2010, the allocation of only 56 per cent of global reserves was known. Of that, 61 per cent was in dollars and 27 per cent in euros. China does not reveal the composition of its reserves. But it must be heavily invested in dollars, too.
Why have relatively poor countries made these huge investments in the low-yielding liabilities of the worlds richest countries and, above all, of the US? Why has China, in particular, purchased vast quantities of debt from a country whose policies it distrusts more than $2,000 for every Chinese and some 50 per cent of gross domestic product?
The answer is that this is the by-product of efforts to keep the currency down and exports competitive. It is no longer, if it ever was, the product of an effort to purchase insurance: the risks to Chinese wealth created by its huge reserves are surely greater than any insurance benefits. That is probably now true of other heavy interveners.
Is there a plausible reform of the international monetary system that would solve the Chinese dilemma? If, for example, the world were to go on to the classic gold standard, as some recommend, the US would be experiencing a gold outflow and would be forced to adjust via deflation. China might prefer that, although it would not be good for its exports. But to state this outcome is to indicate why it has next to no chance of happening. Since the first world war no important country has tolerated that method of external adjustment. The US is not Estonia.
Some, including Chinese officials, talk of a shift towards SDRs (special drawing rights) as a reserve asset. But the SDR is merely a basket of major currencies. Any reserve holder can grasp that basket today. The SDR is not a currency and cannot replace the currencies of which it is made. For the conceivable future the global currency regime will depend on national fiat (man-made) currencies. SDR issuance may be a supplement; it will not be a replacement. The Chinese do not seem to disagree.
What about turning the renminbi itself into a global reserve currency? In the very long run, this must happen. But any swift move in that direction would raise two difficulties for China. First, it would only make sense if the currency were to be unpegged from the dollar, in which case the mercantilist strategy would collapse. Second, for a currency to become global it must be freely convertible and traded in deep and liquid financial markets. China would have to abandon exchange controls and liberalise its financial system. It would become impossible to force Chinese people to hold vast quantities of low-yielding bank deposits. Above all, the authorities would lose their most important source of economic control: the banking system. This