[quote=partypup]’BEIJING (Reuters) – The United States has plundered global wealth by exploiting the dollar’s dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.
The front-page commentary in the overseas edition of the People’s Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies.
A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said.”
This is huge, IMO. A, what do you think the chances are that dollar dumping (the kind that would devalue it by 50% or more) could occur in panic mode over a period of weeks, rather than a long, slow dumping over a period of months or years?[/quote]
First off, being out here China right now, a few things….. You have to realize a state run paper typically publishes things like this more out of an PR thing about China’s economy right now relative to everyone else… The press was along the lines of the Euro-Asian Economic summit that was held over that weekend in Beijing, which focused on China’s economy and it’s relation to the rest of the world. (Interestingly, last year European nations were pretty vocal about criticism toward China during the meeting…This time, being that most of those nation’s economy are up a creak, they pretty much just shut up and listened…)
I would venture to say that this is rather more of an editorial comment rather than an official government policy (in the short term at least)
In the short term/middle term, the world economy is too intertwined with U.S. consumers to severe ties with USD or the US economy right now. What the US brings to the table is a pool of consumers that often spend $2 for every $1 they have, and there is no other pool of consumers in the rest of the world that can substitute that in the short term.
Second, one thing that came out of the euro/asia economic meeting is that China is attempting to establish a more diverse consumer base among other nations and domestically, to mitigate a dependency on one set of consumer basis in the future. BUT, this is going to be a long, gradual transition. It consists of a two prong approach.
It described during this summit meeting that china’s short term economic strategy is to use is huge capital reserves to raise the living of the more rural/peasant population. The plan calls for GDP growth during this global economic crisis through work/jobs in building out domestic infrastructure in the rural areas, and to raise the standard of living for those areas. Apparently, the strategy is to turn China’s large population into a large consumer base over time, such that internal consumption can drive a good portion of China’s economy, along with consumption from europe and asia.
In the short/middle term though, China, rest of Asia, and Europe knows they are heavily dependent on US consumers to power their own economy.. They any drastic measure from such nations (such as dumping US treasuries, or a rejection of the USD) is only going to be self-defeating in the short/mid term.
Folks that routinely do business with the US (directly/indirectly) realize this. For example, a few friends that I’m meeting here that run export businesses are getting hit, not necessarily with reduced consumption by US, but also in Taiwan, Europe, and other parts of Asia. It’s an intertwined food chain, and goes like this. Business X in China that sells to consumers/businesses Y in Taiwan are seeing slowdowns because Taiwan business Y that sold to a much larger business/consumer base in the US had to cut back. Hence the domino effect of a pyramid with the US at the bottom of the pyramid (ironic, isn’t it?). Despite the rest of the world wanting to be less dependent on US, there currently is no other larger consumer base than US.
In sort of the world stage, the analogy is between drug dealers and junkies. U.S. consumers are junkies for the drug dealers of the world. The dealers can’t really say they don’t need the junkies. And if they want to get rid of their current junkies, they’ll need to find junkies elsewhere that are more inclined to pay them the same for their stuff. Currently, there is no larger population of junkies than ours…
Now if China over the next decade is able to provide that huge consumer base from it’s now peasant/rural class, then that’s a considerable different game, purely just on the fact of China’s enormous population and market opportunity for commerce.
BUT, even so, it remains to be seen if China’s population can match the consumption levels of U.S. consumers in a decade+. Culturally, this may be a challenge, because culturally, concepts such as buying things on “credit” and “having bad(non-investment based) debt” is the antithesis of tradition. It’s gonna be hard to get folks to starting thinking in terms of “layaway” or “buy now, pay later”….But that remains to be seen.
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Tongue and cheek, I was thinking a short term fix would be for the European and Asian nations to pool together a $1 trillion economic stimulus package and give it to the U.S. consumers directly.
Because, when it’s all said and done, most likely, they’ll get close to $1.5 trillion worth back from our consumption, since overall, we’ll probably spend more than we get. Then when the effects wear off, they should then take that $1.5 trillion they get back, and put it into next year’s economic stimulus package for U.S. consumers. By the end of next year, we’ll have sent $2 trillion back post consumption.
To fund this bailout, they could even package the bailout package as a “high grade investment bond” and sell it to our pension and 401k plans 🙂
