- Registration time
- Last login
- Online time
- 1223 Hour
- Reading permission
This post was edited by abramicus at 2015-7-4 02:41|
THE ANATOMY OF THE ECONOMIC DECEPTION OF CHINA BY WESTERN-TRAINED ECONOMISTS
The argument goes like this.
China's enormous trade surplus is not really good for China, they say. Why? China asks. Because what China used to call "TRADE SURPLUS" is really "CURRENT ACCOUNT SURPLUS", which by DEFINITION (wow, watch what they define carefully), is the NEGATIVE EQUIVALENT OF THE "CAPITAL ACCOUNT DEFICIT". So, China's year-on-year trade surpluses were actually capital deficits!!!
Jeez!!! You mean, all my predecessors in running up China's economy until it has earned 3.99 Trillion Dollars of foreign currency reserves, were wrong, and I, lucky and brilliant me, am going to do one better than them, and prove them wrong? This is political gun powder! Historic chance to be famous!
The Economic Hit Men now have their Chinese nomenklatura's rapt attention.
The "lecture" goes on like this . . .
"What your past leaders FAILED to appreciate is that while China was exporting goods and services, the US, Europe and Japan were exporting their currencies to China, often by merely issuing more money from their central banks, that end up as assets of their businesses, and later on, their consumers, who then "pay" China with their worthless fiat currencies . . . "
The Economic Hit Men then proceed to draw "logical conclusions" about what China should next do to correct the situation and plan for the long term future of China in their model of 'SUSTAINABLE GROWTH".
"WHAT CHINA NEEDS TO DO . . . is to reverse this 4 trillion dollar mistake, by exporting its currency, and importing the goods and services of the rest of the world, just like the USA has been doing since the end of WWII, and look how prosperous it is! In fact, when it lost so much money in the 2008 meltdown of the derivatives market due to the collapse of the mortgage values, America printed 1 trillion dollars per year, exactly one trillion cool dollars that the Chinese would have to "earn" by hard work over ten years, and did this for three years in a row, for at least 3 trillion dollars, and still printing . . ."
And these EHM (Economic Hit Men) now have all the heads shaking . . .
"The best strategy for China therefore is to try to make the Renminbi an international reserve currency like the dollar, the euro, the british pound sterling, or the japanese yen, and the keys to this club are in the hands of the IMF. Therefore, China should use all its powers of persuasion to make the IMF accept China as the next reserve currency that will be used to issue SDR's (special drawing rights) that will serve as the reserves of central banks around the world . . . in due time . . . even if SDR's currently account for less than 4% of all reserve currencies used by central banks around the world. The journey of a thousand miles begins with the first step."
A sigh of relief can be heard from the otherwise deadly silent audience.
The EHM continues, "But great achievements do not come without great sacrifices! To break out of the rut of accepting worthless printed fiat monies from the US, Europe, Britain and Japan, China must bite the bullet and run the gauntlet posed by the IMF to qualify as an international reserve currency . . . which requires that the RENMINBI but be revalued upwards to the point that China's trade balance is ZERO, or better yet, NEGATIVE . . . and sustain this overvaluation of the Yuan to the point that the foreign currency reserves of China shows a yearly decline, meaning, we are using the foreign reserves to buy from other countries, just as other countries have used them to buy from China . . . it is painful, but it is necessary, for China to have a bright long-term future, instead of accumulating foreign currencies that are doomed to devalue, and whose purchasing power can be unilaterally reduced by the issuers of such currencies by the mere tactic of printing more of their fiat currency, called "Quantitative Easing", of which China is already a victim, as we speak . . . "
Sensing the resolve galvanizing in the audience, the EHM continues . . .
"Because the demand for the Renminbi in the market is not enough to raise its exchange rate, we must use our foreign currency reserves to buy Yuans in the market, to the point that we achieve a slight overvaluation of the Renminbi, enough to achieve ZERO TRADE BALANCE, and long enough to convince the IMF to accept the Yuan as one of the currencies used to fund its SDRs . . . and hope that in the long run, the SDR will replace the dollar and the euro such that in the future, hopefully not too distant from today, China can import whatever it need by whatever amount it can make the SDR replace the US dollar . . . "
UNKNOWN TO THE AUDIENCE ARE THE STARK FACTS THAT . . .
SDR's not only account for less than 4% of all reserve currencies used by central banks around the world, but China's share of any future SDR issued is limited to the developing country quota of no more than 6% of the SDR's value. The maximum share of international reserve currency that China can achieve under the SDR is less than 0.24% . . . but the sacrifice China must make in terms of lost CURRENT ACCOUNT GROWTH would be around 200 billion dollars per year.
The immediate result of revaluing the Yuan, as it has now been done, to 6.20 Yuan/Dollar, enough to stifle China's foreign trade balance, is also the value that will cause China's manufacturing sector to not just decline, but to actually collapse, because for a business, making 0% profit is not "breaking even". It is losing one's shirt. Investors would quickly force the liquidation of their investment so that they can deploy their capital elsewhere. When the golden goose of China's wealth, its cheap exports based on its cheaper production costs and more efficient manufacturing sector is sick, layoffs begin to take place, reductions in pay precedes this, and social unrest would escalate and kill off the future of the country, long before China can issue its fiat currency as an international reserve currency like the US or EU.
Everything is off in timing, off in quantity, and off in directionality.
Equations in economics should be BANNED, because many of them are not transitive, commutative or associative, as would be expected with standard algebraic equations. The chicken is not equal to the egg. In economics, division by zero is allowed, under certain conditions, not applicable to the general public or to non-issuers of international fiat currencies, such as the so-far undefined, "DARK MATTER OF ECONOMICS" which we can call "Omega". The "equation" for Omega is Omega x 0 = 1. Omega is simply the barrel of the gun. Thus, with bases spread around the world to effect regime change on any country that refuses to accept its currency as payment for its goods and services, a sole superpower could issue its "international reserve currency" without needing the IMF's SDR, which is the REALITY, accounting for 70% of the reserve currency held in banks around the world today, while the SDR using the "authority" of the IMF accounts for less than 4% of the reserve currency of the world.
Rather than twisting its economy out of shape to conform to the mold of the SDR as defined by the IMF, the REAL INTERNATIONAL RESERVE CURRENCY makes the world conform to its role as the issuer of the world's fiat currencies, by the stationing of bases all around the world, costing a trillion dollars per year to achieve. This is the real price of China becoming a real international reserve currency, which cannot be purchased by sacrificing 200 billion dollars of export earnings or CURRENT ACCOUNT GROWTH, per year, that only earns it STAGFLATION AT HOME.
Mao once said, and this was echoed by Deng, that out of the barrel of the gun comes political power, of which the issuance of a fiat currency is merely one manifestation of. Within the borders of one's territory, one's defensive capability will ensure the honoring of one's fiat currency. Within the confines of the planet, one's military capability to every corner of it, to the point of being unchallenged, defines the scope of one's international reserve currency. Forget the fancy footwork of the EHM's which only cause the contraction and collapse of China's manufacturing sector, due to its inability to sell its goods and services due to the overvaluation of the Yuan, such that its products are overpriced in dollars abroad and also overpriced in Yuans at home.
The solution is actually to devalue the Yuan to where it meets market needs, not IMF demands. In short, stop buying Yuans with dollars and euros! That is all it takes to let the Yuan drift back to where the market becomes efficient, which in turn makes Chinese manufacturing efficient and profitable, which is around 6.50 Yuan/Dollar. You don't need to accept IMF terms to liberalize the market. China can meet the challenge of making the Yuan truly the PREFERRED INTERNATIONAL CURRENCY OF THE WORLD, not by fiat or force, but by its inherent comparative advantage of cheaper production costs due to its largest manpower resource - all above board market-friendly economics. In due time, there will be two competing INTERNATIONAL RESERVE CURRENCIES, one based on productivity of the issuing country, the other based on the military capability of the issuing country to effect regime change. Even if like Yin and Yang, neither will dominate the other forever, China would be assured a 50% share of the INTERNATIONAL RESERVE CURRENCY, not by fiat, not by IMF-authorization under self-destructive revaluation of the Yuan, but by simple productivity, good service, and friendly non-interference policy toward all its trading partners.
THIS, NOT THE CURRENT APPROACH OF OVERVALUATION OF THE YUAN, IS CHINA'S REAL PATH TOWARDS ACHIEVING AN INTERNATIONAL RESERVE CURRENCY STATUS FOR THE YUAN.