If there were any warning signs that the US economy is in more trouble than it already is, the devaluation of the yen has signaled to the Chinese that they want to secure their economic dominance. In an effort to assert that its exports remain more attractive to foreign consumers, the devaluation of the yen was a key advocate for doing just that. It is important to note that, unlike the United States, China is not burdened with the huge debt that now strangles the American economy. But, the negative side of China is the fact that it has very serious internal problems that could prolong the dominance of the US dollar. However, the imminent demise of dollars depends on whether China can cope with and resolve some of its most pressing crises today.
Its internal problems are practically universal in any industrialized nation. But, the fact is that China faces a greater range of difficulties even in light of the fact of the devaluation of the yen. China today has one of the worst environmental records to date. Too many of its waterways, rivers and lakes are so polluted that much of China faces an acute shortage of fresh water. Air pollution in so many cities like Beijing, the population on many occasions is forced to wear face masks to go out on the streets. The smog is so dense at times that reported illnesses have put a constant strain on much of its 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 of communist leaders, there is a widening income disparity gap in China right now. Although this gap is not as pronounced as in the United States, it grows more each year.
When we look beneath the surface of the yen’s devaluation, we find that China’s labor costs have made it very lucrative for companies, especially American ones, to operate in China. Lower cost labor and the devaluation of the yen make it really cheaper for China to boost its economy through its exports to all corners of the world. This move from China has made it more affordable and profitable for Chinese to harvest more economically. With the Fed still holding interest rates at zero or close to zero, we have done nothing to stimulate economic growth here in the U.S. Sure, interest rates near zero sound attractive for businesses to borrow more. But that indebtedness has not translated into expansion and growth. Despite all the QE measures from the government and the Fed, economic expansion has yet to take place. Many companies have built up that infusion of capital or used it to relocate their operations outside of the US for cheaper labor costs and higher profitability.
What China has done is essentially pressure on the United States if the United States wants the dollar to remain the world’s first currency. To avoid an imminent financial catastrophe that is currently unraveling, there has to be an almost radical total reform of monetary policies. We have to remember that China, even with all its internal problems, is now the world’s number one gold holder. They have been collecting large amounts of gold for years. This while the United States has been selling almost all of our gold reserves. When assets such as gold are sold, a business or, in this case, the United States invariably loses more credibility than it gains monetarily from its sale. Our current fractional reserve banking system has only lowered the value of our own dollar, increased inflation, and brought the economy to a virtual standstill. So when China devalues the yen while accumulating large tons of gold in reserves, it is a real indication that the yen will indeed become strong while the dollar will lose its credibility because there is nothing to really back it up.
Believe it or not, manipulating the Chinese currency by devaluing the yen has actually had the opposite effect, as the yen has risen more than 33% in exchange rates. Devaluing the yen is actually a way to make room for market-based prices. But, beneath this outward display of tax maneuvering by China, lies a more disturbing scenario that is unfolding. One that embodies the collusion between the IMF, IMO, China and Russia, they all have a plan, if successful, it will replace the dollar with a gold-backed currency, namely the yen. A plan that would be devastating for the American economy.
It is well known that Chinese leaders are very pragmatic and patient. With this in mind, we have to ask ourselves, with all the gold that China has accumulated, whether it is more than conceivable that the Chinese are actually moving their monetary policies away from fractional reserve banking practices now in place in virtually every country in the world that they use the dollar. to the Yen’s gold return coin? This in an all-out effort to stabilize financial markets away from the US dollar. It is interesting to note that it was the Chinese who used the Fiat currency for the first time in the 11th century. We have to understand that current monetary policy is universally fiat money. Basically, it is an inherently useless paper money created for the specific purpose of making financial transactions more feasible than if those transactions were made using real hard currency such as gold or silver. Physical limitations have made fiat money banking more practicable. But, since the 1930s, the dollar has not been backed by gold or any other precious commodity. As a result, the only thing keeping the dollar somewhat solvent is the promise that the United States will be able to pay its debts. With the enormity of our debts combined today, many nations have realized that the United States without complete financial reform will never be able to pay its debts.
What is happening now is that China has already started trading with South Africa, Russia and Australia using the yen as the currency of choice there bypassing the dollar. The foreign policy of the United States has opened a kind of Pandora’s box in the sense that our economic sanctions imposed against Russia, where many in Europe are totally against it, has caused the eurozone to sink deeply. Meanwhile, the United States continues to act like a bull in a Chinese cabinet by continuing with sanctions against Russia. The currency manipulation that China has done simply shows that US foreign policies and sanctions have only cost American jobs and kept our own economy away from the expansion that was expected. The opposite of what was intended has happened with the interventions of our government and the Fed.
All the trade deals of the last 35 years have made imports cheaper to buy here and raised the cost of products made by American workers in the US This has made our exports more expensive in the countries to which sent. This is the single biggest factor why our trade deficit has increased and made it more lucrative for more manufacturers and companies to relocate overseas or close here in the US What we’ve already seen is that our trade deals have already they have cost millions of jobs in America. With this TTP deal set to be a fixture of American foreign policy, the prospects for the United States are devastating. China will not be the only country to engage in currency manipulation. Japan and many other Asian countries are now poised to follow China’s lead in propping up their own economy.
It has been the failure to address the manipulation and undervaluation of the currency that has been the main cause of the enormity of our trade deficit and the continuing decline in salaried jobs of the manufacturing middle class. If the United States makes its way and proceeds to ratify the TTP, our economy will only worsen, while China’s economy will stabilize as long as they can resolve their most severe domestic crisis. It has been the failure of our legislators to truly understand how devastating currency manipulation can be to our own economy. Is it any wonder why China has now embarked on a policy in favor of national economic growth?
It is also interesting to note that the TTP Agreement is actually modeled after the US-Korea trade agreement, 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 eliminated tens of thousands of American jobs. Once again, the exact opposite happened of what that trade deal was originally designed to do. More questions must be asked: How is it possible that our state leaders are so inept at negotiating foreign policy that they don’t actually offend or do more harm than good? With world leaders meeting at the United Nations in September, many of whom are now prepared to sidestep the US dollar by using China’s gold-backed currency as the currency of choice, it is imperative that the United States undertake reforms and offer in-depth solutions to the growing discontent that US foreign policy has been doing to the world’s economies. It is a known fact that Australia refuses to accept the TTP because that agreement will eliminate any possibility of continuing its own trade with China.
Will we ever get it right for the dollar to regain its credibility or are we doomed to suffer the consequences of the shortcomings of our policy makers? One thing is for sure is that the United States cannot continue to advance down the path we are on. The huge implications of our failed attempts to corner the market in trade and our continued insistence that the dollar remain the world’s first currency when there is really nothing to support its value are an illusion. It is time to implement the Ten Articles of Confederation of the National Economic Reform before it is really too late.
