In my last post, I referred to the yuan. The U.S. has been quite critical of the currency controls imposed over the Chinese currency, the yuan or renminbi. The currency is not allowed to float in the free market. Some currency experts and our government believe that the currency is artificially low, hurts US product overseas and makes Chinese goods real attractive in terms of cost.
The argument has merits and does make sense as the Chinese has the largest foreign currency reserves in the world. The economy (China's) is primarily driven by exports. It is in their best interest to keep their currency low so their goods are cheap. While I support removing these restrictions, our lovely Fed decides to shoot holes in the ship. With the Fed's announcement of $600B in quantitative easing along with the trillon or so already, our dollar value has weakened significantly this year against most major currencies. Canadian dollar at parity? Yen approaching 80? English pound back up to 1.60? While this has helped our exports (shrinking trade balance), it is driving up the basic cost of commodities (inflation). When was the last time we saw corn at close to $6 a bushel? Now our President is forced to listen from G-20 ministers about our own currency manipulation this week. Their are other ways to work on free trade but this tit for tat isn't working. The Chinese will only respond to real threats like cheaper goods from Vietnam or India, loss of competitiveness to name a few items. Wake up! Have a great week and maybe we can revisit an old post I had about gold. Cheers.
