Signs of the time; it's time to learn economics!

John Mauldin in The Market Oracle "Back to the 1998 Crisis, Subprime's to Impact for a Longtime"


Even though all the pro-Obama voters (and non-voters the world over) have experienced an anti-climax "bleh" after the whole election kerfafle was done, I do know, we are far from being out of the woods. There are forces at work to the conspiracy theorists, who are determined to undermine and undo the American dollar. Globally, financially, we are connected to whatever, whomever, where ever, a stock market or industry would collapse.

Most recently, US Treasury Geithner accused China of manipulating their currency. However, what has been common practice in most American administrations, republican or democrat is having a discussion be two way. 'Cause apparently, the Obama administration hasn't been listening.

Simon Smelt, New Zealand economist



Here is Simon Smelt, writing for "Seeking Alpha";

"China’s leadership likes to communicate by brief but loaded signals, both to its own population and beyond. They are less inclined – have less need - to posture than politicians in the West. That is, they mean what they signal.

Whilst China is reliant on the U.S. as its biggest market and for the investments it has made there, the U.S. is reliant on China for ongoing cheap credit and goods. Given this inter-dependency, what is China signalling about its intent amidst current market turmoil?

The signals are clear but don’t seem to have been well picked up by the media. I suggest that there are three loud “No”s to be found in what China has been saying on the international stage, as well as some quieter “Yes”s."

Here are Simon's three 'NO's':

1 - "...In 2005 a bilateral Strategic Economic Dialogue (SED) between China and the U.S. was set up. Reportedly, Beijing has put a lot of effort into this and sees the SED as the primary channel for dealing with pressing economic issues. It is the mechanism for dialogue between the G2 on strategic issues, including those of worldwide importance.

What all this boils down to is that China expects to be involved in the big decisions. The message is:

No more U.S. hegemony in the financial world

Lacking a suitable multi-national mechanism (memo from China: “don’t blame us – we’ve been calling for one”), the G2 will do fine instead."

2 - "...The U.S. has long run a trade deficit with China. The U.S. fiscal deficit by the government is more recent. It stems from the Bush years and is about to get much worse due to the various bail-out and stimulus packages. The Chinese can scarcely object to the trade deficit – they have funded it for years. So, the message is: don’t rely on us to buy your extra bond issues caused by your economic mismanagement.




So, the second Chinese “No”:

No extra U.S. bond purchases by China above the normal level"

3 - "...China will voice its concerns over U.S. government finances and the potential for a weaker dollar when Secretary of State Hillary Clinton visits China on Feb. 20. The idea has been floated that a guarantee might be “one of the prerequisites for more (bond) purchases”.

What’s going on here? The Chinese know full well that “guarantees” in the normal sense of the word can’t be given. What they are communicating is more than a bit of anxiety. It is the third “No”:

No policies that could lead to sharp depreciation of the U.S. $"

Read the whole, very well explained financial relationship and US/Chinese exchange on the current financial situation at Seeking Alpha's "China's Three No's to the U.S.: Is Washington Listening?"

Well people, time to stop being an unconscious consumer and use the time to learn some economics instead!