Amazing statements by FED's McTeer

[megabear]

McTeers comments are excerpted at the bottom of this page: (if you havn't already read them, they are a must read; inf act they are amazing) Since when do Fed Chiefs warn of the massive deficits and make such damaging comments about the almighy dollar? Also note what the Malaysian Prime Minister said.

 

What does it all mean? Let's say the Chinese do detach the Renminbi from the dollar. We know that the US and Japan and other countries are HUGE importers of Chinese goods. Those goods become much more expensive for importing countries as the Renminbi moves upward. More inflation hits the US and other countries right? After all every figgin item we buy is made in China. TPTB tell us this would be good because the prices of US made goods would lowers therefor our exports will increase; but what are we exporting that could offset increases in the number of goods that we import? IMHO, the consumer will have to end up much worse off. And, if the idea is for the dollar to become cheap enough for the Chinese to buy more American goods that doesn't make sense either as their exporters are going to be so hard hit who will have extra money to buy US goods (not that they'd want our stuff anyway)Maybe the Chinese govt. will have money to pick up hard assets: oil fields, land, copper, silver & gold mines cheap..but that's another story.)

 

Next, the PM of Malaysia says that if China unpegs it Renminbi, they will have to follow suit.

 

Has anyone put a lot of thought into this? What are the real implications of a Chinese un-pegging?

 

It's obvious to many on this board that something BIG is afoot in the world; politically, finanically; something that will affect us all for generations to come. I think this is a major piece to the puzzle, but I'm not quite sure what it really means. Comments?

 

 

From the Financial Times at:

Financial Times - Dollar Falls as US appears to talk down Greenback

 

EXCERPT:

]]Robert McTeer, the president of the Dallas Federal Reserve, set the ball rolling by warning that; ?Over time, there is only one way for the dollar to go - lower?. Just for good measure, Mr McTeer also talked about potential problems for the dollar if and when the wider world stops funding the US current account deficit.

 

Fed governor Ben Bernanke waded in by stating that the Fed will pause in hiking interest rates if the US economy slows. It also emerged that President Bush spoke to his Chinese counterpart Hu Jintao about currency issues, including China's plans to move to a more flexible exchange rate.[[

 

While numerous Fed officials have made similar comments before, the market was particularly struck by the tenor of Mr McTeer's long-term warning.[[

 

]]?Malaysia's PM Abdullah [Ahmad Badawi] has acknowledged that a China move would cause it to reassess its peg, which would presumably trigger similar reactions across Asia,? said Tim Fox, head of market strategy at National Australia Bank.

[threadbare]

Megabear, Much talk on this topic already. China's long term goal is to leave US twisting in the wind by depegging rem. It's a common misperception, as you conclude, that it would only mean our trade deficit would rapidly shrink and thing would fall into place nicely. It means the dollar will plummet, kicking off price inflation. The rosy scenario may eventually ensue, but not before economic chaos and an increase in poverty over here.

 

The curious thing that many posters have brought up is why the Chinese would do this, as the economies are so entwined it would seem to be a suicidal move for them. The only way it could realistically take place is if the domestic economy in China is strong enough, with the the middle class poised to grow even stronger, so their own consumers can take up some of the slack as their exports tail off. The Chinese won't hesitate to begin a long term program of economic reform, (or perhaps phase 2 or 3 or economic reform), if they see light at the end of the tunnel. Right now they're too reliant on the same foreign country that they' re competing for natural resources with. That competition could well lead to military conflict. They're positioning themselves.

 

Taiwan plays a huge role in all of this too.

[pistolpapa]

The whole world economy rests on the American Consumer.

China can say it will unpeg but if they are smart, they are watching the American Consumer.

Tax cuts and easy refinancing have kept alive the American Consumer.

Since stimuli are gone, only helicopter drops of dollars will temporarily keep alive the American Consumer.

 

When the American Consumer quits, many Asians will be out of jobs.

When Asians are out of jobs, the government must be able to feed them.

When Asians are out of jobs the government can hire them to build their infrastructure to create a sovereign economy.

In order to do this, they need oil, grains, lumber, metals etc.

 

It is a balancing act.

Pull gently away from US paper assets and slowly stock up on commodities.

This will accelerate as the American Consumer slows down.

If the American Consumer falls off a cliff with a real estate crash and $3 gas, the Asians will race to the exits.

If this occurs, the dollar will quickly become worthless as commodities and PM's will skiyrocket temporarily.

All paper markets will crash.

And what has been waiting in the wings since 1990 will come to pass.

The Hyper-Depression

Man can only harass nature for so long.

[rayok]

The whole world economy rests on the American Consumer.

China can say it will unpeg but if they are smart, they are watching the American Consumer.

Tax cuts and easy refinancing have kept alive the American Consumer.

Since stimuli are gone, only helicopter drops of dollars will temporarily keep alive the American Consumer.

 

When the American Consumer quits, many Asians will be out of jobs.

Are you trying to say, the people producing too much, are dependant on the people producing too little? Hahahahahahahahaha!

 

The people working too hard will suffer, when they work less hard? Hahahahahahahahaha!

 

Contrary to all the silly American productivity propaganda, the dollar devaluation is happening because American productivity is declining. The problem is, a declining currency is not the cure for lower, relative, productivity, merely a symptom.

[rayok]

"Today, with December Dollar Index futures falling to new contract lows, with the cash index trading within 10% of its all-time record low, the willingness of foreigners to indefinitely hold low-yielding, ever-weakening dollars may be nearing an end. When that time comes, the dollar will collapse, taking with it all those service sector jobs that its artificially high value helped create. The conceit that has gained traction on Wall Street is that America's foreign creditors cannot afford to let this happen. The truth, however, is just the opposite. Those who point to the enormous losses foreigners will suffer in the event the dollar collapses ignore the even greater loss of purchasing power foreigners are losing on their own currencies, which they hold in far greater abundance, as a result of their continued efforts to prop up the dollar.

 

In order for foreigners to continue exporting products to America, they must continue importing inflation from America. This one-sided game is nearing its end, as foreigners will soon tire of paying higher and higher prices for oil and other commodities while watching Americans indulging on the fruits of their labor. Soon they will tire of sacrificing current consumption by lending to Americans, while watching the value of their savings vanish as a result of their efforts to support the dollar.

 

What is often overlooked is that by subsidizing American's standard of living, foreigners suppress their own. When they finally come to their collective senses, and allow the dollar to collapse, all of those consumer goods which poorer Americans will no longer be able to afford will be theirs to enjoy. The American standard of living, once the envy of the world, will belong to the world. The only thing standing between the world and increased prosperity is its foolhardy subsidy of America. The American bubble-economy, and the service sector jobs that dominate it,will last only as long as the world remains ignorant of this basic fact."

Service Sector Jobs

[megabear]

I guess when you have a couple of billion people you only have to elevate the standard of living of 10% of them to the level of the US middle class in order for them to fully absorb the materials that are currently exported to the U.S.

 

Why would the Chinese do this?

 

How about this idea?? They have an amazing culture that has succeeded for thousands of years and they see the world being assimilated into an English speaking mishmash where cultures are diluted and destroyed for the sake of a homogenous one world entity whose leader is a 250 year old (wet behind the ears) country with 1/10th the population of their own and a president of stunningly sub-world-leader intelligence. Just a thought.

[stevieo]

I agree will all this in principle, except there's paper money getting in the way, and a government that can create it from nothing. Since they can just create it, they really don't care what they get in return, even if it's just USD. All they really get out of USD is political muscle to use against the US and maybe some protection if the Chinese balance of trade ever goes negative, in which case they can spend dollars if people around the world don't want renmibi.

 

As long as chinese people and companies save, there's demand for more yuan, so the government can print it. Noone argues that all this printing is causing price increases because the demand for the currency is there. The inflation arguments all center around increased consumption (of cement, metals, energy, etc.) and decreased production (of food and water for example). You can argue that some of the inflation is that dollars are chasing these imports. The Chinese aren't exactly buying this stuff on the international market with renmibi, and if they are, those are quickly exchanged for dollars and fed right back into the printing machine.

 

It seems to me that as long as the savings rate in China meets or exceeds the trade surplus, this game continues with no cost in China, save the inflation caused by growing pains, and that's a net positive. Even if there were a cost, the government would only care to the extent that it threatened their power or the profits of those that own the government. Of course, those people aren't forced to hold their savings in yuan.

 

I know I'm not saying anything new, but all this talk about how something has to give has me wondering what makes that happen. Seems to me it doesn't have to happen until one billion Chinese decide they have enough money in the bank.

[rayok]

I agree will all this in principle, except there's paper money getting in the way, and a government that can create it from nothing. Since they can just create it, they really don't care what they get in return, even if it's just USD. All they really get out of USD is political muscle to use against the US and maybe some protection if the Chinese balance of trade ever goes negative, in which case they can spend dollars if people around the world don't want renmibi.

Actually Stevieo, the Chinese trade their exports for U.S. dollars, and they do care, what they get in return for those U.S. dollars. In the fullness of time, you'll understand.

 

A clue

 

Another clue

 

[threadbare]

I posted this article on B4 yesterday. It might shed some light.

 

Asia times- Scroll toward the bottom of article

 

The boom can last only as long as the credit expansion progresses at an ever-accelerated pace," wrote von Mises. Fed tightening is working its way through the global financial system. Soaring crude oil prices are dampening growth prospects. Property prices in Australia and the United Kingdom are already falling. And policymakers are continuing to apply the brakes in China where they can.

 

These are the dynamics that scream for an eventual bust in China. I believe this will be the catalyst for a dollar crisis. It could be a wake-up call to US policymakers. They may realize that ignorance is no longer strength when it comes to the deficit. But by the time they act, most of the damage will probably already be done.

 

http://www.atimes.com/atimes/Global_Economy/FJ14Dj01.html