The War Has Started
By Erick San Juan
In recent years, Japan, the U.S. and Europe have been accused of fomenting currency war by employing monetary stimulus that drove down their currencies. These accusations were off base: by boosting domestic spending with easier monetary policy, everyone, including their trading partners, benefited.
But China’s move this week to devalue the yuan is an exception. Because, its action was not part of a broader monetary boost, the effect will be to siphon demand from its trading partners while giving nothing in return. It is a zero-sum game and thus the first shot in a currency war. (Source: http://blogs.wsj.com/economics/2015/08/13)
Basically, the hype that Chinese economy is doing great and that it had so much money to be spending much on military upgrades were all just simple hype. Sounds familiar? Remember my article about how the Soviets in the 90's were gypped by Gorbachev's 'Perestroika' and 'Glastnost' and his globalists counterpart that USSR is the next economic miracle? It was only during the chopping of the Berlin wall which I witnessed in November 1989 that the world found out that the eastern establishment had already collapsed (pls read it at ericksanjuan.blogspot.com).
In China, growing domestic problems, the infighting among the princelings, too much corruption at the top level, pay back time for overseas Chinese who have supported mother China to be great but conniving with some corrupt members of top Politburo officials in their alleged money laundering operation, President Xi Jinping's alleged corruption was even exposed by Bloomberg and his counter move of blame game and jailing former and present leaders of China he perceived as corrupt, the latest freefall of China's stockmarket, housing and infrastructure bubble that cannot be kept secret anymore pushed its leaders to start the currency war.
In an interview with Rajiv Biswas, Asia-Pacific chief economist at HIS by Al Jazeera, focusing on China's yuan and a potential global currency war, Biswas cited the following – “China's decision to devalue the yuan against the US dollar reflects concerns about the weak performance of the Chinese export sector this year... The sector has faced a perfect storm of sluggish global demand for its exports and eroding competitiveness due to rising Chinese manufacturing wages, as well as the depreciation of the euro, yen, and many other emerging markets' currencies against the US dollar this year.
With the US Federal Reserve expected to begin lifting its policy interest rate soon, which would have put further downwards pressure on the euro, yen and emerging markets' currencies, pressure had built up for the Chinese government to allow the yuan to move lower against the US dollar before the Fed rate hike.
Although President Xi and Premier Li Keqiang have made economic reforms and a transition to domestic demand-led growth policy priorities, the sharp economic slowdown and stock market crash have forced them to take measures to stabilize the Chinese economy. The export sector has been a key growth engine for the economy...
While China will continue to make a gradual transition from an economy driven by investment and exports towards an economy driven by domestic consumption, this transition will take many years. Meanwhile during the current cyclical slowdown, the government is again having to resort to boosting its traditional growth engines of investment and exports to try to stabilize the economy, using its toolbox of currency devaluation to improve export competitiveness, and fiscal and monetary stimulus to boost domestic demand.”
The years that it will take for China’s economy to bounce back could raise discontent among its citizenry and may create an internal conflict in the process. Such situation may lead to what we have been saying all along that in order to pacify the growing frustration from the Chinese populace against its government, they have to go to war to unite them towards an outside enemy. Pundits believe that the illusionary 9 dash line and bullying could be the pretext for war to unite the angry Chinese people.
As I have been saying, the growing tension in the South and East China Sea, if not handled with diplomacy and by cooler heads might lead to a regional conflict. And with the alliances already in place, such conflict can trigger a global war.
Finally, from Mike Larson of Money and Markets - "this move is sure to worsen U.S.-China relations. U.S. manufacturers have already been suffering from a rising dollar, and politicians have lambasted China in the past for manipulating its currency to give its companies a relative advantage. This is going to increase those tensions significantly, and raise the possibility of retaliatory 'trade war' type actions."
Bottom line: The capital markets were already getting more volatile and risky, as I’ve been warning for several months. Now China is launching its most aggressive currency war in decades – threatening to add even more uncertainty and risk to the mix. So if you haven’t taken protective action, now may be a very good time to do so.
By Erick San Juan
In recent years, Japan, the U.S. and Europe have been accused of fomenting currency war by employing monetary stimulus that drove down their currencies. These accusations were off base: by boosting domestic spending with easier monetary policy, everyone, including their trading partners, benefited.
But China’s move this week to devalue the yuan is an exception. Because, its action was not part of a broader monetary boost, the effect will be to siphon demand from its trading partners while giving nothing in return. It is a zero-sum game and thus the first shot in a currency war. (Source: http://blogs.wsj.com/economics/2015/08/13)
Basically, the hype that Chinese economy is doing great and that it had so much money to be spending much on military upgrades were all just simple hype. Sounds familiar? Remember my article about how the Soviets in the 90's were gypped by Gorbachev's 'Perestroika' and 'Glastnost' and his globalists counterpart that USSR is the next economic miracle? It was only during the chopping of the Berlin wall which I witnessed in November 1989 that the world found out that the eastern establishment had already collapsed (pls read it at ericksanjuan.blogspot.com).
In China, growing domestic problems, the infighting among the princelings, too much corruption at the top level, pay back time for overseas Chinese who have supported mother China to be great but conniving with some corrupt members of top Politburo officials in their alleged money laundering operation, President Xi Jinping's alleged corruption was even exposed by Bloomberg and his counter move of blame game and jailing former and present leaders of China he perceived as corrupt, the latest freefall of China's stockmarket, housing and infrastructure bubble that cannot be kept secret anymore pushed its leaders to start the currency war.
In an interview with Rajiv Biswas, Asia-Pacific chief economist at HIS by Al Jazeera, focusing on China's yuan and a potential global currency war, Biswas cited the following – “China's decision to devalue the yuan against the US dollar reflects concerns about the weak performance of the Chinese export sector this year... The sector has faced a perfect storm of sluggish global demand for its exports and eroding competitiveness due to rising Chinese manufacturing wages, as well as the depreciation of the euro, yen, and many other emerging markets' currencies against the US dollar this year.
With the US Federal Reserve expected to begin lifting its policy interest rate soon, which would have put further downwards pressure on the euro, yen and emerging markets' currencies, pressure had built up for the Chinese government to allow the yuan to move lower against the US dollar before the Fed rate hike.
Although President Xi and Premier Li Keqiang have made economic reforms and a transition to domestic demand-led growth policy priorities, the sharp economic slowdown and stock market crash have forced them to take measures to stabilize the Chinese economy. The export sector has been a key growth engine for the economy...
While China will continue to make a gradual transition from an economy driven by investment and exports towards an economy driven by domestic consumption, this transition will take many years. Meanwhile during the current cyclical slowdown, the government is again having to resort to boosting its traditional growth engines of investment and exports to try to stabilize the economy, using its toolbox of currency devaluation to improve export competitiveness, and fiscal and monetary stimulus to boost domestic demand.”
The years that it will take for China’s economy to bounce back could raise discontent among its citizenry and may create an internal conflict in the process. Such situation may lead to what we have been saying all along that in order to pacify the growing frustration from the Chinese populace against its government, they have to go to war to unite them towards an outside enemy. Pundits believe that the illusionary 9 dash line and bullying could be the pretext for war to unite the angry Chinese people.
As I have been saying, the growing tension in the South and East China Sea, if not handled with diplomacy and by cooler heads might lead to a regional conflict. And with the alliances already in place, such conflict can trigger a global war.
Finally, from Mike Larson of Money and Markets - "this move is sure to worsen U.S.-China relations. U.S. manufacturers have already been suffering from a rising dollar, and politicians have lambasted China in the past for manipulating its currency to give its companies a relative advantage. This is going to increase those tensions significantly, and raise the possibility of retaliatory 'trade war' type actions."
Bottom line: The capital markets were already getting more volatile and risky, as I’ve been warning for several months. Now China is launching its most aggressive currency war in decades – threatening to add even more uncertainty and risk to the mix. So if you haven’t taken protective action, now may be a very good time to do so.
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