If there was any warning signs that signaled the US economy is in more trouble than it already is the Yen’s devaluation has signaled the Chinese mean business in securing their economic dominance. In an effort to assert that their exports remain more attractive for foreign consumers the devaluation of the Yen was a key proponent in doing just that. It is important to note that unlike the United States China is not saddled with the enormous debt that is now strangling the US economy. But, the down side of China is the fact that they do have very severe internal problems that could very well prolong the dominance of the US dollar. The dollars imminent demise though hinges on whether or not China can come to grips and solve some of their most pressing crisis of today.
Their internal problems are pretty much universal of any industrialized nation. But, the fact is that China is facing a much more expanse of difficulties even in light of the fact of the Yen’s devaluation. China today has one of the worst environmental records to date. Too many of their waterways, rivers, and lakes are so polluted much of China is faced with acute fresh water shortages. Air pollution in so many cities like Beijing the population on many occasions are forced to wear face masks in order to just go outside. The smog is so dense at times the reported illness have put a constant strain on much of their medical communities. Then there is a housing bubble that could burst at any moment. The similarities between the United States and China today are striking. Much to the chagrin to the Communist leaders there is an income disparity gap widening at this moment in China. Though this gap is not as pronounced as it is in the United States but, it is growing more every year.
When we look beneath the surface of the Yen’s devaluation we find that Chinas labor costs have made it very lucrative for business especially American to operate in China. Lower cost labor and the Yen devalued make it really more economical for China to spur their economy through their exports to every corner of the world. This move by China has made it more affordable and profitable for the Chinese to reap more financially. With the Fed still keeping interest rates at or near zero have done nothing to spur economic growth here in the US. Sure, near zero interest rates sound appealing for businesses to borrow more but, that borrowing has not translated in expansion and growth. Through in all the QE measures from the government and the Fed still that economic expansion hasn’t happened. Many businesses either have hoarded that infusion of capital or used it to move operations outside the US for cheaper labor costs for more profitability.
What China has done is essentially but the pressure on the United States if the US wants to have the dollar remaining as the worlds first currency. In order to avoid an impending financial catastrophe that is currently unraveling there has to be a total almost radical reform of monetary policies. We have to remember that China even with all their internal problems is now the worlds number one holder of Gold. They have been scooping up vast amounts of Gold for years. This while the US has been selling almost all our gold reserves. When assets like Gold are sold a business or in this case the United States invariably loose more in credibility than what is gained monetarily by its sale. Our fractional reserve banking system today has only decreased the value of our own dollar, increased inflation, and has made the economy all but stand still. So when you have China devaluing the Yen while amassing vast tons of gold in reserves is a real indication that the yen will in fact become strong while the dollar will loose it’s credibility because there is nothing really to back it up.
Believe it or not China’s currency manipulation by devaluing the Yen actually has had the reverse effect in that the Yen has risen by over 33% in exchange rates. Devaluing the Yen is actually a means of making room for market based pricing. But, underneath this outward display of fiscal maneuvering by China lies a more disturbing scenario that is taking place. One that embodies collusion between the IMF, IMO, China and Russia all have a plan if successful will replace the dollar with gold backed currency, namely the Yen. A plan of which would be devastating for the US economy.
It is well known that the Chinese leaders are highly pragmatic and patient. With this in mind we have to ask with all the gold that China has amassed is it more than conceivable that the Chinese are actually moving their monetary policies away from the fractional reserve banking practices now in place by practically every country around the world using the dollar to gold back currency of the Yen? This in an all out effort to stabilize the financial markets away from the US dollar. It is interesting to note that it was the Chinese that first used Fiat currency back in the 11th century. We have to understand that today’s monetary policies universally is fiat money. Basically it is an intrinsically useless paper currency created for the specific purpose to make financial transactions more feasible than if those transactions were made using actual hard currency like gold or silver. The physical constraints have made fiat monetary banking more practicable. But, ever since the 1930’s the dollar has not been backed up by gold or any other precious commodity. As a result the only thing that is keeping the dollar somewhat solvent is the promise that the US will be able to pay it’s debts. With the enormity of our combined debts today many nations have now come to realize that the United States without complete financial reform will never be able to pay down it’s debts.
What is occurring now is that China has already begun trading with South Africa, Russia, and Australia using the Yen as the currency of choice there by bypassing the dollar. The United States foreign policy has opened up a sort of Pandora’s Box in that our imposed economic sanctions against Russia where many in Europe are totally against has made the Eurozone take a deep dive. Meanwhile the United States continues to act like a bull in a china cabinet by continuing sanctions after sanctions against Russia. With the currency manipulation that China has done just shows that the United States foreign policies and sanctions have only cost American jobs and have kept our own economy from the expansion that was expected. The exact opposite from what was intended has occurred from the interventions of our government and the Fed.
Every trade agreement for the past 35 years has made imports cheaper to buy here while driving up the cost of goods made by American workers in the US. This has made our exports more expensive in countries where they are shipped. This is the biggest factor why our trade deficit has increased and have made it more lucrative for more manufactures and companies to either move overseas or close up shop here in the US. What we have already seen is that our trade agreements have already cost millions of US jobs. With this TTP agreement ready to be a fixture of American foreign policies the prospects for America are devastating. China will not be the only country engaging in currency manipulation. Japan, and many other Asian countries are now poised to follow China’s example to shore up their own economy.
It has been the failure to address currency manipulation and undervaluation that has been the major cause the enormity of our trade deficit and the continued decline of manufacturing middle class wage jobs. If the United States bullies its way and proceed to ratify the TTP our economy will only get worse while China’s economy will stabilize providing they can solve their most sever internal crisis. It has been the failure of our policy makers to really understand how devastating currency manipulation can be for our own economy. Is it any wonder why China has now embarked on a pro domestic economic growth policy?
It is also interesting to point out that the TTP Agreement is actually modeled after the US Korea trade deal, the KORUS. Our well meaning bureaucrats in Washington said it would lead to the creation of tens of thousands of American jobs when in fact it further striped away tens of thousands of American jobs. Again, the exact opposite happened of what that trade deal was originally designed to do. More questions have to be asked: how is it possible that our leaders of state are so inept at negotiating foreign policy that would actually not offend or do more harm than good? With world leaders convening at the United Nations this September many of whom are now poised to circumvent the US dollar using the gold backed currency of China as the currency of choice it is imperative that the United States make reforms and offer in depth solutions to the growing discontent that American foreign policy has been doing to the economies of the world. It is a know fact that Australia is refusing to go along with the TTP because that agreement will eliminate any chance of continuing their own trade with China.
Will we ever get it right so that the dollar regains it credibility or are we doomed to suffer the consequences of the inadequacies of our policy makers? One thing is for sure is that the United States cannot continue to travel down the path we are on. The enormous implications of our failed attempts at cornering the market on trade and our continued insistence that the dollar remain the world first currency when there really isn’t anything backing up their value are a delusional. It is time to implement National Economic Reform’s Ten Articles of Confederation before it really is too late.