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Why China is not currency manipulator !

December 16, 2012

We are not in the era of 70’s or 80’s. In the early 70’s USD was clobbered as President Nixon decided to cancel the direct convertibility of USD to gold fixed at USD 35 per troy oz that essentially ended the existing Breton Woods system of international financial exchange.
If you go back to the 80 era, the European growth was lackluster ranging between 1% to 2%. Until 1990 Japan’s economy commonly known as “Miracle Economy” lost its gloss, as the economy crumbled into recession & is still struggling to come out long recession.
Let me remind that in that in 1980 US Public debt was $909 Billion versus over USD 15 trillion. Today US economic is clogged and discussing new strategy to attain fiscal space to buy some more time. There is big hole in US economy that has spilled over all the so called developed economies. Truly speaking window dressing is the only temporary alternate available as the global financial mangers are helpless. The survival is due to Changes made in accounting rules, Nationalization of large corporate sector, using taxpayer’s money and injection of Trillions of Dollars of liquidity through quantitative easing. They are all temporary solution and not the cure.
The Western policy of past to shift its business to East for cheap labor has backfired. This has only helped the Western countries/economies to maintain artificially high growth rate and high standard of living, which is no more affordable luxury in real sense without cash money. They are now paying a very high price, because the cycle has shifted. Their older generation may have enjoyed the best of times by leaving smaller jobs for immigrants, but immigrants are now a cause of big concern. Although, modernization is one area that West can boast of making gains.
It is worth mentioning that in 1978 China that had Fx reserve of $ 2 Billion had surged to $ 3.3 Trillion. Today China’s savings rate had swelled above 50 pct. China during all these years played smart. It was concentrating on growth and was less involved in global politics. All these year’s, IMF, the World Bank and all other Global institution was praising the Western policies and criticizing China. But China since 1980 with a broad smile on its face was growing between 9-10 pct, by taking advantage of its cheap labor and cheap currency and concentrated on exports.
In 1981 the poverty rate in China was 64 pct that has come down to below 10 pct. Imagine China’s determination, its ability and future prospect. I was reading an article in Bloomberg that in 2009, China produced 560 million watches and in the same year Switzerland produced 22 million watches.
China’s growth is based on Western model, but the key to the success is its ability to modify according to the country’s culture and specification. Chinese leaders that were responsible for launching China’s economic model had the intention to make China big and strong.
China is discussing a new economic model. China has engaged USA in vendor finance, providing the money that helps finance the huge US fiscal and trade deficits, allowing Americans to buy more goods than they sell.
In true sense, China has engaged the US in vendor finance, providing the money that helps finance the huge US fiscal and trade deficits, allowing Americans to buy more and more goods with the purported ability to make choices free from fiscal constraints.
China is blamed for currency manipulation, which non-sense and probably biggest and best financial joke. If we look at the historical rates, then, one USD would fetch Yen 360, GBP 0.42, SFR 4.30, and D.Mark 3.60. Today, the parity versus is YEN 83.50, GBP 1.6170, CHF 0.9174 & EURO 1.3160. In 1978 China had Fx reserve of $ 2 Billion, today it swelled to $ 3.3 Trillion.
Conclusion is that Politicians yell to gain extra mileage. It neither helped US economy nor the developed economies could benefit from weak or strong US Dollar. The real cause of global financial unrest/collapse is the inflated values. Deflate and do not intervene (Central Bank’s Famous Slogan). Let the market determine the real value. This may cause unrest for couple of years, but then market will surely regain its lost strength or else on going global financial disorder could lead to another war.

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