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Despite US Pressure, Beijing Stands Firm in Currency Spat

Posted by Admin on March 29, 2010

Despite US Pressure, Beijing Stands Firm in Currency Spat

by: Kit Gillet  |  Inter Press Service

Beijing – China may be under international pressure, especially from the United States, over the valuation of its currency, but is unlikely to back down in the short term given its worries about its export sector and the jobs that depend on it.

Thus far, the lines have been drawn in the disagreement between China and the United States over the yuan – and neither side seems willing to back down.

China pegged its currency at approximately 6.8 to the dollar in July 2008, mainly to aid the country’s export industry that was badly hit by decreasing global demand and the financial crisis.

On Mar. 15, 130 members of the U.S. Congress signed a letter urging the White House to label China a currency manipulator in its Apr. 10 treasury report, which would be the first step in imposing trade tariffs on Chinese export goods.

The letter stated, “The impact of China’s currency manipulation on the U.S. economy cannot be overstated.” It went on to suggest that the current exchange rate gave an unfair subsidy to Chinese companies at the direct expense of their U.S. counterparts.

China’s Commerce Minister Chen Deming has said the country would “not turn a blind eye” if it was labelled a manipulator, and that it might, in that eventuality, seek to litigate under the global legal framework.

Both countries’ leaders have also weighed in on the issue.

Yet China is unlikely to allow a rapid appreciation of the yuan, which some suggest is undervalued by as much as 40 percent.

“China believes that that a modest revaluation of its currency would have a scant effect on U.S. trade deficits, and that once it made an adjustment, it would be pressed again and again to do more,” wrote Jeff Garten, Juan Trippe professor of international trade and finance at the Yale School of Management, in a recent note.

As the world’s largest exporter, China’s growth depends substantially on its export sector. Any strong revaluation could hurt this industry, which accounted for roughly 27 per cent of Gross Domestic Product in 2009.

“It is in nobody’s interest – China’s, the United States’ or other countries’ – to see big ups in the renminbi (yuan) or big downs in the dollar,” Vice Commerce Minister Zhong Shan told the U.S. Chamber of Commerce in Washington on Wednesday.

“There is no need for us to discuss if it (the yuan) should be appreciated. What we should be concerned about is when and how it is,” Wu Xiaoqiu, assistant president of Renmin University and director of China’s Finance and Securities Institute, said in an interview with IPS. “The government needs to consider the competitiveness of companies in labour-intensive sectors,” he said.

The leading business publication ‘The 21st Century Business Herald’ reports that several government ministries, including the ministries of commerce and information, have been conducting pressure tests to gauge the impact of appreciation in key labour-intensive sectors, but none of their findings have yet been made public.

“Most export companies would rather have the yuan appreciate in one go rather than face the uncertainty of guessing the timing and the degree of gradual appreciation,” said Zhang Bin, a researcher at the Institute of World Economics and Politics, Chinese Academy of Social Sciences.

But Zhang expressed concern that some exporters might report fake figures in order to protect their own interests.

China’s export industry suffered in the wake of the economic crisis, and while numbers picked up near the end of last year, Chinese officials are now suggesting that March 2010 could be the first month since 2004 that the value of the country’s imports exceeded that of its exports.

Cheaper competition from developing nations such as Vietnam and Bangladesh, along with a 2008 labour law that increases wages across China, has already hurt the Chinese export industry. Talk of a revaluation is seen by some as a hurdle too far.

“In the words of some of our members, the United States is ‘sharpening its knives and has a murderous air about it,’” said Zhang Yujing, president of the China Chamber of Commerce for Import and Export of Machinery and Electronic goods, at a press conference last week. “I expect many companies won’t be able to bear an appreciation now.”

Zhou Dewen, vice president of the China Middle and Small Enterprises Association, told the ‘Oriental Morning Post’ that the Chinese government should withstand pressure from abroad for at least two or three years.

“If the government fails, a large amount of middle and small Chinese enterprises, which have suffered from the ongoing financial crisis, will be closed and the workers will lose their jobs,” he said in an interview published in the ‘Post’ this week.

Not all share Zhou’s pessimistic view.

“An appreciation will hurt exports. But if appreciation is gradual and modest (we are talking about five to six percent here), I think the impact should be relatively small,” Wang Tao, head of China Economic Research for Union Bank of Switzerland (UBS) Investment Bank here, told IPS.

Wang suggested that yuan appreciation, along with more flexibility, can help promote domestic consumption in China, and divert investment from export-oriented industries.

Chinese exporters are estimated to make a return of three to five percent on sales. Any substantial appreciation of the yuan could see the closure of many factories and would add to China’s unemployment rate, which a recent China Academy of Social Sciences report put at 9.4 percent.

It would also force the raising of export prices, which would in turn affect U.S. consumers, by far the largest buyer of China-made products.

Decades of free spending by U.S. consumers has left the U.S.-China trade deficit standing at roughly 227 billion dollars, down from a high of 268 billion dollars in 2008.

Chinese state media and many of its politicians have suggested that the U.S. government is merely looking for someone else to blame for its current woes. “They should not blame the problems they have by finding a scapegoat in China,” China’s new ambassador to the United Nations, He Yafei, told a briefing in Geneva earlier this month.

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Dismantling America’s Financial-Military Empire

Posted by Admin on February 18, 2010

De-Dollarization:

Dismantling America’s Financial-Military Empire


The Yekaterinburg Turning Point

By Prof. Michael Hudson

Global Research,

June 13, 2009

The city of Yakaterinburg, Russia’s largest east of the Urals, may become known not only as the death place of the tsars but of American hegemony too – and not only where US U-2 pilot Gary Powers was shot down in 1960, but where the US-centered international financial order was brought to ground.

Challenging America will be the prime focus of extended meetings in Yekaterinburg, Russia (formerly Sverdlovsk) today and tomorrow (June 15-16) for Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization (SCO). The alliance is comprised of Russia, China, Kazakhstan, Tajikistan, Kyrghyzstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia. It will be joined on Tuesday by Brazil for trade discussions among the BRIC nations (Brazil, Russia, India and China).

The attendees have assured American diplomats that dismantling the US financial and military empire is not their aim. They simply want to discuss mutual aid – but in a way that has no role for the United States, NATO or the US dollar as a vehicle for trade. US diplomats may well ask what this really means, if not a move to make US hegemony obsolete. That is what a multipolar world means, after all. For starters, in 2005 the SCO asked Washington to set a timeline to withdraw from its military bases in Central Asia. Two years later the SCO countries formally aligned themselves with the former CIS republics belonging to the Collective Security Treaty Organization (CSTO), established in 2002 as a counterweight to NATO.

Yet the meeting has elicited only a collective yawn from the US and even European press despite its agenda is to replace the global dollar standard with a new financial and military defense system. A Council on Foreign Relations spokesman has said he hardly can imagine that Russia and China can overcome their geopolitical rivalry,1 suggesting that America can use the divide-and-conquer that Britain used so deftly for many centuries in fragmenting foreign opposition to its own empire. But George W. Bush (“I’m a uniter, not a divider”) built on the Clinton administration’s legacy in driving Russia, China and their neighbors to find a common ground when it comes to finding an alternative to the dollar and hence to the US ability to run balance-of-payments deficits ad infinitum.

What may prove to be the last rites of American hegemony began already in April at the G-20 conference, and became even more explicit at the St. Petersburg International Economic Forum on June 5, when Mr. Medvedev called for China, Russia and India to “build an increasingly multipolar world order.” What this means in plain English is: We have reached our limit in subsidizing the United States’ military encirclement of Eurasia while also allowing the US to appropriate our exports, companies, stocks and real estate in exchange for paper money of questionable worth.
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Are Major Countries Preparing to Financially Dismantle the United States and its Empire?

Posted by Admin on February 18, 2010

Are Major Countries Preparing to Financially Dismantle the United States and its Empire?

By Richard Clark (about the author)

For OpEdNews: Richard Clark – Writer

Here are the main points of an important answer to that question by economist and former Wall Street honcho, Michael Hudson:

The six-nation Shanghai Cooperation Organization (SCO) is comprised of Russia, China, Kazakhstan, Tajikistan, Kyrghyzstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia. It was joined recently by Brazil, for trade discussions among the BRIC nations (Brazil, Russia, India and China), all of which seek a multi-polar world.

If it’s not a move to make US hegemony obsolete, then what’s the purpose of this new organization? US diplomats may well wonder. After all, this is exactly what a multi-polar world means: no hegemony by any one country. Another clue as to what’s about to happen: in 2005 the SCO asked Washington to set a timeline to withdraw from its military bases in Central Asia.

It seems that the US has inadvertently driven Russia, China and their neighbors to find common ground by developing an alternative to the dollar as a dominant or reserve currency, and hence an end to the US ability to run balance-of-payments deficits ad infinitum.

Mr. Medvedev called for China, Russia and India to “build an increasingly multi-polar world order.” What this means in plain English is: We have reached our limit in subsidizing the United States’ military encirclement of Eurasia while also allowing the US to appropriate our exports, companies, stocks and real estate — in exchange for paper money of questionable long-term worth!

“The artificially maintained unipolar system,” Mr. Medvedev says, is based on “one big center of consumption, financed by a growing deficit, and thus growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks.” At the root of the global financial crisis, he concluded, is simply that the United States manufactures too little and spends too much. Especially upsetting to Russia is U.S. military spending, such as the stepped-up US military aid to Georgia, the NATO missile shield in Eastern Europe and, to all the other BRIC and SCO members as well, the huge US military and commercial buildup in the oil-rich Middle East and Central Asia.

The main worry of all these countries is America’s ability to print unlimited amounts of dollars. Overspending by US consumers on imports (way in excess of US exports), US buy-outs of foreign companies and real estate, and the many billions of dollars that the Pentagon spends abroad . . all end up in foreign central banks. These central banks then face a hard choice: either recycle these dollars back to the United States by purchasing US Treasury bills, or to let the “free market” force up their currency relative to the dollar thereby pricing their exports out of world markets and hence creating domestic unemployment and business insolvency.

So, when China and other countries recycle their dollar inflows by buying US Treasury bills to “invest” in the United States, this buildup is not really voluntary. It does not reflect faith in the U.S. economy enriching foreign central banks for their savings, or any calculated investment preference, but simply a lack of alternatives. “Free markets,” US-style, has maneuvered many countries into a system that forces them to accept dollars without limit. But now they want out.

Central banks now hold $4 trillion of U.S. bonds in their international reserves and these huge loans to the U.S. have financed most of the US Government’s domestic budget deficits for over three decades! Consider that about half of US Government discretionary spending is for military operations including the operation of more than 750 foreign military bases as well as increasingly expensive operations in the oil-producing and oil-transporting countries.

The international financial system is organized in a way that finances the Pentagon, along with US buyouts of foreign assets expected to yield much more than the Treasury bonds that foreign central banks hold. Therefore, the main political issue confronting the world’s central banks is this: How to avoid adding yet more dollars to their reserves and thereby financing ever more US deficit spending including military spending on their borders.

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