Re: America's Financial Crisis
So what do you think will be the end result of the dollar collapse? I for one am surprised that gold prices are not higher considering all the problems we are facing.
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Re: America's Financial Crisis
Bank Of England Policymaker Predicts Unprecedented Dollar Collapse
A former member of the Bank of England’s Monetary Policy Committee has predicted a massive collapse of the dollar within the next two to five years, warning that a government increase in spending under President elect Obama could be disastrous. Willem Buiter, who served the BOE from June 1997 to May 2000, has stated that he expects to see the plug pulled from under the dollar as foreign investors turn away from the dollar and other US backed assets including government bonds. Writing for the Financial Times, Buiter, now a Professor with the London School of Economics European Institute, comments: “There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place.”
Buiter, who has previously advised the World Bank, the IMF and the European Commission, points out that the dollar has managed to stay afloat due to the misguided notion that the US can make more capital on overseas investments and interests than foreign investors can make on US assets - a hypothesis that economists have referred to as “American alpha”. However, he believes the global financial crisis has exposed the fatal flaws in that assumption. “The past eight years of imperial overstretch, hubris and domestic and international abuse of power on the part of the Bush administration has left the US materially weakened financially, economically, politically and morally,” Prof Buiter writes. “Even the most hard-nosed, Guantanamo Bay-indifferent potential foreign investor in the US must recognise that its financial system has collapsed.”
Buiter warns that a Keynesian-style increase in public spending, the economic stimulus plan mooted by President elect Obama, will not work in the long term because underlying the fundamentals of the US economy is what he describes as a “deep structural rot”. “If the authorities go ahead with the short-run Keynesian stimulus without having convinced the global capital markets and domestic producers and consumers that there will be a timely reversal, the policies will not work.” Buiter states. “If the government is believed to be fiscally continent (future taxes will be raised and/or future public spending will be cut by enough to safeguard the solvency of the state) but turns out not be so after all, the Keynesian fiscal policy will be effective in the short run (as long as the public believes in the fiscal virtue of the government) but will become highly contractionary once the truth dawns.” he continues. Buiter also states that he expects Federal authorities to allow the dollar to depreciate under an inflationary monetary policy, rather than default on Federal debt.
“The US Federal government has taken on massive additional contingent liabilities through its bail out/underwriting of the US financial system (and possibly other bits of the US economic system that are too politically connected to fail).” Prof Buiter comments. “Together will the foreseeable increase in actual Federal government liabilities because of vastly increased future Federal deficits, this implies the need for a future private to public sector resource transfer that is most unlikely to be politically feasible without recourse to inflation. The only alternative is default on the Federal debt. There is little doubt, in my view, that the Federal authorities will choose the inflation and currency depreciation route over the default route.” Buiter warns that this course of action on behalf of the Federal government is unsustainable and will ultimately lead to a massive dollar collapse. “If I can figure this out, so can anyone in the US or abroad who follows recent economic developments. The dawning of the realisation will lead to the dumping of the assets.” he concludes.
Source: http://www.infowars.com/?p=7008
Willem Buiter warns of massive dollar collapse
The long-held assumption that US assets - particularly government bonds - are a safe haven will soon be overturned as investors lose their patience with the world’s biggest economy, according to Willem Buiter. Professor Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, said this increasing disenchantment would result in an exodus of foreign cash from the US. The warning comes despite the dollar having strengthened significantly against other major currencies, including sterling and the euro, after hitting historic lows last year. It will reignite fears about the currency’s prospects, as well as sparking fears about the sustainability of President-Elect Barack Obama’s mooted plans for a Keynesian-style increase in public spending to pull the US out of recession. Writing on his blog , Prof Buiter said: “There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place.” He said that the dollar had been kept elevated in recent years by what some called “dark matter” or “American alpha” - an assumption that the US could earn more on its overseas investments than foreign investors could make on their American assets. However, this notion had been gradually dismantled in recent years, before being dealt a fatal blow by the current financial crisis, he said.
Source: http://www.infowars.com/?p=6997Leave a comment:
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Re: America's Financial Crisis
Simply because his dangerous rhetoric applies to the economy, Russia and the Middle East. Moreover, tens of millions of Americans today, including a substantial numbers of politicians, associate themselves at least in some degree to the kind of rhetoric uttered by demented Pat. Therefore, regardless of how idiotic/dangerous/Satanic his ideology is it has to be exposed. The funniest part in all this is when Americans, including American Armenians, attack Iranians for being religious fanatics...Originally posted by gmd View PostLeave a comment:
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Re: America's Financial Crisis
Originally posted by Armenian View Post"The Lord said - The people will welcome socialism in order to relieve the pain."
These are the words uttered by Pat Robertson, one of Satan's most popular minions serving in the US, during his 2009 new year message. One of the major icons of America's inbred, brain-dead bible-belt morons, demented Pat represents many-many millions of dangerous idiots in this country that associate themselves with the Christian Right. This deeply demented, virulently anti-Arab, psychotically Russophobic and rabidly pro-Zionist zealot has been claiming for a long time that he 'converses' with God on a regular basis and that his words are 'prophetic' as a result. If anyone, demented Pat converses with Satan. However, my good intuition tells me that demented pat converses with top government officials so that he can in turn prepare the millions of sheeple for upcoming political/economic events through his "prophetic" sermons. Two years ago Associated Press reported that during his 2007 new year sermon Pat Robertson said there would be a major terrorist attack on the US in 2007 that would result in mass deaths:
“I’m not necessarily saying it’s going to be nuclear,” he said during his news-and-talk television show “The 700 Club” on the Christian Broadcasting Network. The Lord didn’t say nuclear. But I do believe it will be something like that.”
Was he attempting to prepare the sheeple for a false flag operation in the US like the one carried out on September 11, 2001 for the purpose of commencing an attack on Iran which was being seriously planned at the time? Was his "prophesy" annulled when the Defense Department put off their attack plans? Nevertheless, demented Pat has a few "prophesies" regarding Russia as well. Watching this asswipe in action I don't know whether I should tremble in fear or pass out laughing. However, I urge you to watch the video link below, it's very surreal.
Pat Robertson
Armenian, with all due respect, it is bad enough to see one post about Pat Moron, but why did you have to do it twice.Leave a comment:
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Re: America's Financial Crisis
"The Lord said - The people will welcome socialism in order to relieve the pain."
These are the words uttered by Pat Robertson, one of Satan's most popular minions serving in the US, during his 2009 new year message. One of the major icons of America's inbred, brain-dead bible-belt morons, demented Pat represents many-many millions of dangerous idiots in this country that associate themselves with the Christian Right. This deeply demented, virulently anti-Arab, psychotically Russophobic and rabidly pro-Zionist zealot has been claiming for a long time that he 'converses' with God on a regular basis and that his words are 'prophetic' as a result. If anyone, demented Pat converses with Satan. However, my good intuition tells me that demented pat converses with top government officials so that he can in turn prepare the millions of sheeple for upcoming political/economic events through his "prophetic" sermons. Two years ago Associated Press reported that during his 2007 new year sermon Pat Robertson said there would be a major terrorist attack on the US in 2007 that would result in mass deaths:
“I’m not necessarily saying it’s going to be nuclear,” he said during his news-and-talk television show “The 700 Club” on the Christian Broadcasting Network. The Lord didn’t say nuclear. But I do believe it will be something like that.”
Was he attempting to prepare the sheeple for a false flag operation in the US like the one carried out on September 11, 2001 for the purpose of commencing an attack on Iran which was being seriously planned at the time? Was his "prophesy" annulled when the Defense Department put off their attack plans? Nevertheless, demented Pat has a few "prophesies" regarding Russia as well. Watching this asswipe in action I don't know whether I should tremble in fear or pass out laughing. However, I urge you to watch the video link below, it's very surreal.
Pat Robertson
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Re: America's Financial Crisis
The Crisis in 10 Points
Daily Article by Robert Stewart | Posted on 12/31/2008 12:00:00 AM
The 2007–2008 financial crisis had its genesis in the United States housing markets, but it rapidly spread to other economies, first to the United Kingdom, but then almost everywhere else, including such unlikely spots as Iceland whose banking system collapsed.[1] Because events in the United States triggered the crisis, this essay will concentrate on the US causes although they had their many counterparts elsewhere.
There are at least three long-standing background influences that contributed to the financial debacle that dominated the US economy in 2008:
- For almost 100 years, the US government has not felt constrained to match its expenditure with its revenue. This policy was given intellectual justification by the writings of John Maynard Keynes who argued in the 1930s that, during periods of slow economic growth, active and purposeful government policies would allow the economy to spend its way out of recession.[2] It was simply a matter of time before citizens aped the financial habits of their governments by living beyond their means.
- The Federal Reserve System (the Fed — created in 1913) has accommodated government's policy of spending to excess by inflating the money supply and keeping interest rates artificially low. Today's dollar will buy what in 1913 would cost less than a nickel. This easy-money policy has not only led to inflation but has resulted in investments taking place that would not be justified had the money supply been constrained, and had interest rates more clearly reflected economic reality.
- Since the 1960s, politicians parroting the suspect theories of Keynes have fed the public's naïve belief that government can provide ever-increasing living standards by means of its monetary and fiscal policies. Pulling a fiscal lever here and pushing a monetary button there meant that constraints on spending were old fashioned, and living standards would forever improve. The limitations imposed by the laws of economics had been repealed if you voted for politicians who promised to provide you with something for nothing. Fiscal prudence was simply a capitalist lie.
It is against this long term, more philosophic backdrop, that the following, more immediate issues, assumed greater importance.
- Households collectively made little attempt to save for the future. The United States, in particular, borrowed from China, Japan, and Middle Eastern countries to finance its spending addictions. Financial responsibility was considered an old-fashioned, or even an irrelevant, virtue, and people were led to believe that government could, by waving its magic wand, provide improved housing without the pain of saving or foregoing immediate consumption.
- The acquisition of a house was viewed by many buyers not so much as having somewhere to live but as a painless way to make money. House prices, they naively believed, would always continue to increase in value while the relative burden of mortgages would continue to fall. Not only that, but as house values increased, a house could be used as collateral for a further loan. The financial equivalent of turning sea water into gold had been created. So long as house prices increased, borrowers were in financial heaven. When house prices fell, the earth opened up under the feet of lenders.
- # Government-sponsored entities like Fannie Mae and Freddie Mac subsidized mortgages for people who, under more-prudent rules of borrowing, would never have qualified for a loan from a conservative banking institution. Congressman Barney Frank in 2003 stated in a moment of candor, "I want to roll the dice a little bit more in this situation toward subsidized housing."[3] Well he certainly did, at the same time accepting with gratitude campaign contributions from Fannie and Freddie.
- The egalitarian policies of government through such legislation as the Community Reinvestment Act of 1977 "persuaded" lenders, Mafioso style, to lend to low-income borrowers, against their better judgment. Government lawyers made it clear that the consequences of failing to meet politically imposed targets and quotas could be dire.
- It was a matter of time before a substantial minority of borrowers could not or would not service their mortgages. Partly because astute people predicted this, well-known names in the financial world began to package, or sponsor, mortgage and other debts such as credit-card balances into what were called structured-investment vehicles (SIV), dubbed "financial weapons of mass destruction" by Warren Buffett. So complicated were the terms contained in such instruments that many legal minds and the credit-rating agencies were baffled as to exactly what they meant and where the ultimate risk lay. Banks and others could benefit by lending to people who could not afford to pay interest, far less capital, provided they were able to sell the SIVs to gullible investors. Money managers naively bought such investments for pension funds, money market funds, and (even more surprisingly) for their firms' own accounts. This was the primrose path to unlimited housing ownership, with no painful cash deposit, and no adverse consequences to the first lenders.
- So long as (a) the value of housing increased, (b) borrowers paid on time, and (c) confidence remained in the credibility of SIVs, everything was hunky-dory. Unfortunately, all three cratered about the same time; house values stagnated or fell as supply exceeded demand; when values stuttered, so did borrowers repayments, and confidence plunged. Borrowers, having promised to pay and having offered security for their promises, were failing to pay because their security had declined in value. They repudiated their debts, and the burden fell on hapless financial institutions. Populist politicians rarely blamed the borrowers, because there are so many of them and they vote; instead they blamed greedy capitalists, speculators, short sellers, anyone except the debtors, and the imprudent economic policies of the US government.
- As events began to unravel in mid-2008, well-established firms like Lehman Brothers, went to the wall. Others like Bear Stearns and Merrill Lynch were sold at knockdown prices. Yet others, like insurance giant AIG, were effectively nationalized.[4] Meanwhile, the stock-market value of banks and other financial institutions took a nosedive. For example, Citibank stock price fell by 79% between October 2008 and October 2009. The broader stock-market indices like the Dow Jones also plummeted by around 40%. The US government had no systematic policy, and rules were made up as more and more bad news emerged, especially about jobs. Citibank had a labor force of 375,000 in 2007; in November 2008, it was announced that 53,000 jobs would go by the first quarter of 2009. Senior government officials were like shipwrecked sailors (and were spending money like drunken sailors) paddling like mad but with little idea of where they were going, or why. The only consistent rule was that something had to be done, and the US government must be the action party.[5]
It is difficult not to recall the words of Herbert Spencer: "The ultimate result of shielding man from the effects of folly is to people the world with fools."
The financial crisis of 2007–2008 was a Ponzi scheme writ large. A Ponzi scheme, or chain letter, initially succeeds but eventually collapses, just as imprudent loans may at first succeed in their objectives but eventually the laws of economics come into play and expose the futility of the whole exercise. A pyramid scheme is always unsustainable for the simple reason that it is based on faulty principles and built on flawed foundations. Until too late, no one in authority (regulators, risk managers, senior bank executives, credit-rating agencies, investment analysts) asked the key question, namely, how on earth was it possible in the long term to make profits by lending money to people whose chances of paying it back were practically nil?[6] The issue was simply swept under the carpet because loans to deadbeats provided a better short-term return than did lower-risk debt instruments.
In summary, the essence of the subprime crisis is that money was lent (often through the agency of questionable mortgage brokers) at very low interest rates (courtesy of the Fed) to hundreds of thousands of people (all they needed was a credit score and a pulse) who could not afford to pay it back; and it was backed by collateral (a house) that was not properly valued.[7] Such assets, accurately described as "liar loans," were then packaged into opaque securities, known as structured-investment vehicles (sponsored but not guaranteed by a respected and well-known name), which very few people understood. They were sold on to pension funds, banks, and others whose gullible investment managers also did not understand them and failed to carry out the rigorous analysis that their clients had a right to expect.[8]
Government encouraged all of this by supporting affordable housing (which was politically correct) and accusing banks of redlining (failing to lend to poor and black people in the same proportion as they lent to the rich and white). When the borrower, already maxed out on his credit cards, predictably failed to make payments, the scale of the problems eventually became apparent to somnolent regulators and financial institutions. Confidence and trust evaporated, because no one knew which institutions held suspect securities, how much the losses were, and who was ultimately safe. A financial system built on debt and excessive leverage was a financial system built on sand.
The errors and fallacies that weave and surround this awful catalog of errors could have largely been avoided by paying attention to a single sentence written by Henry Hazlitt over 60 years ago:
The art of economics consists in looking not merely at the immediate but at the long effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.
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- For almost 100 years, the US government has not felt constrained to match its expenditure with its revenue. This policy was given intellectual justification by the writings of John Maynard Keynes who argued in the 1930s that, during periods of slow economic growth, active and purposeful government policies would allow the economy to spend its way out of recession.[2] It was simply a matter of time before citizens aped the financial habits of their governments by living beyond their means.
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Re: America's Financial Crisis
Predictions ... #10 is the worse scenario for the US. Could trigger gradually other countries to fallow.
"This year has been marked by astonishing and market-changing events including a $100 fall in the price of oil, the drop to zero of U.S. interest rates and the collapse of Wall Street giants such as Lehman Brothers.
Next year could bring more, equally unbelievable, happenings such as another 400 points being wiped off the S&P 500 and a slump in Chinese growth to zero, according to a report from Saxo Bank titled "10 Outrageous Claims 2009."
1. Iranian Revolution
If oil prices continue to decline, which Saxo Bank believes they will, the Iranian society will be badly affected due to the country's reliance on its number one commodity. The government may not be able to provide the basic necessities its citizens need, which would lead to widespread social unrest, according to Saxo Bank.
2. Crude Oil to $25
The ongoing economic crisis will further dent oil demand throughout next year, sending the price ever closer to $25 a barrel, Saxo Bank said. OPEC production cuts will be hampered by disagreement and fail to stem the slide, it added.
3. S&P 500 to 500
The S&P 500 will fall to 500 points in 2009 as slowing corporate earnings will drag on the U.S. index, according to Saxo Bank. Earnings will slow because of a continued consumer recession, lead by the credit shortage. An increase in corporate funding costs, falls in house prices and a slowdown in investing programs will also add to the weakness, the report said.
4. Italy Could Drop the Euro
Italy could make good on threats to leave the European Exchange Rate Mechanism (ERM) and may drop out in 2009, Saxo Bank said, a decision which would mean the country effectively gives up the euro. The EU is likely to crack down on excessive government budget deficits, which could prompt Italy to leave the currency regulation, it said.
5. Australian Dollar to Slump vs Yen
The Australian dollar will sink to 40 Japanese yen as next year's continued slump in commodities hurts the Australian economy, Saxo Bank said. The whole commodity complex will be left dead in the water for the next ten years, the report said.
6. Dollar to Outstrip the Euro
The euro will fall to 0.95 cents versus the dollar in the New Year, before shifting direction and rising to 1.30 cents, according to Saxo Bank. The euro-zone will face a tough year in 2009 as the banking sector will suffer because of its exposure to Eastern Europe, a region that will increasingly falter next year, the report said.
7. Chinese GDP Growth to 0%
Export-led China will be hit by the double blow of a slowing U.S. economy and the souring of commodity-based investments, according to Saxo Bank. Japan will not actually sink into recession, despite gross-domestic-product growth all but disappearing, the report said.
8. Eastern European Forex Pegs to Fail
Several of the Eastern European currencies currently pegged or semi-pegged to the euro will come under increasing pressure to decouple next year, the report said. The emerging economies are vulnerable to more credit-market disruptions, it added.
9. Commodities Prices to Plunge
Commodities are facing widespread weakness next year with the Reuters/Jefferies CRB Index to drop 30 percent, according to Saxo Bank. The consensus belief that demand has been outstripping supply for years might not even be true and more stockpiles could be revealed, the report said.
10. Yen to Become Currency Peg
Asian countries could shun dollar pegs in favor of the Chinese yen next year, according to Saxo Bank. China's economic, political and cultural influence is growing and shifts in market re-evaluations will favor the country, the report added."
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Re: America's Financial Crisis
Recession Opens U.S.-China Rift Paulson Talks Bridged
Kevin Hamlin and Mark Drajem Kevin Hamlin And Mark Drajem – Mon Dec 29, 12:41 am ET
Dec. 29 (Bloomberg) -- The global recession is re-exposing fissures in U.S.-China relations that Treasury Secretary Henry Paulson spent more than two years smoothing over.
Heightened tensions between China and the U.S. may worsen a contraction in world trade that already threatens to deepen and prolong the economic downturn. The friction comes as President- elect Barack Obama readies a two-year stimulus package worth as much as $850 billion that will require the U.S. to borrow more than ever from China, the largest buyer of Treasury securities.
“The American economic slump is running into the Chinese economic slump,” says Derek Scissors, a research fellow at the Washington-based Heritage Foundation. “It's creating the conditions for a face-off between Beijing and the U.S. Congress, possibly leading to destabilization of the world's most important bilateral economic relationship.”
Paulson, 62, who visited China 70 times during his career on Wall Street, made improving ties a priority when he arrived at the Treasury in 2006. He advocated diplomacy instead of confrontation, establishing a twice-yearly “strategic economic dialogue” with officials in Beijing, aimed at cooling tensions and deterring Congress from taking up trade sanctions.
The approach produced some results, including a pledge to share data on food safety and agreement to allow foreign mutual funds to invest in China's stock market. The value of China's currency, the yuan, rose 21 percent versus the dollar from 2005 levels to redress what U.S. officials saw as an unfair price advantage for Chinese products.
Shelved Sanctions
Paulson refrained from labeling China a currency manipulator and hailed an end to tax rebates on Chinese exports as a sign of improving trade relations. Congressional leaders, though dissatisfied with the pace of progress, shelved sanctions legislation.
Paulson “achieved some success, but it was much more difficult to get the Chinese to restructure their economy,” says Myron Brilliant, vice president for Asia at the U.S. Chamber of Commerce in Washington. Now, Brilliant says, the economic crisis has prompted China to turn back to “export-oriented policies that could lead to an increase in the trade imbalance” and new tensions with the U.S.
China's exports declined in November for the first time in seven years, and economic growth may slow by more than half to as little as 5 percent in 2009, according to Royal Bank of Scotland Plc. That has prompted China's leaders to increase tax rebates on thousands of exported products; meanwhile, the yuan's steady rise against the dollar stalled in July, and the currency has barely budged since. It was trading at 6.8462 a dollar at 1:33 p.m. in Shanghai today, from 6.8414 on Dec. 26.
A Harder Line
In the U.S., business and labor groups, along with lawmakers, are pushing the new Obama administration to take a harder line with China than President George W. Bush did.
Senate Finance Committee Chairman Max Baucus, a Democrat from Montana, plans legislation that would raise tariffs on dumped imports from China and other nations. And newly elected Democratic congressmen such as Larry Kissell of North Carolina and Dan Maffei of New York have pledged actions to stop jobs from being shipped to China.
Lawyers representing companies such as Nucor Corp., the second-largest U.S. steelmaker, NewPage Corp., a maker of coated paper, and smaller textile and steel pipe makers say they are considering new trade complaints against China. During the presidential campaign, Obama promised groups including the National Council of Textile Organizations and the Alliance for American Manufacturing that he would take a tougher stance on China's currency policies.
Pushing Back
Officials in Beijing will push back, says James McGregor, chairman of Beijing-based research firm JL McGregor & Co. and author of the book “One Billion Customers,” about doing business in China. Chinese leaders “will do whatever they need to protect their interests and to say to the U.S., 'Do not mess with us on this one,'” he says.
Paulson, before leaving for talks in Beijing this month, told business representatives his biggest concern was that China was changing course and reversing moves it had made during the past year to cut aid to exporters and stimulate domestic consumption.
China's five-year plan through 2010 seeks to rebalance growth away from exports -- so far, without significant result. Household consumption slumped to slightly more than 35 percent of China's gross domestic product last year from 45 percent in 1993. By contrast, consumer spending represents more than two-thirds of the U.S. economy.
Low Consumption
“What separates China from the rest of the world is its incredibly low level of consumption relative to GDP,” says Brad Setser, a fellow at the Council on Foreign Relations in Washington. “What can China do that would most directly help the world economy during a period of very severe weakness? Get its consumption back up to 40 percent of GDP.”
Policies in both countries are shaped by the need to cope with steep declines in employment. More than 10 million migrant workers lost their jobs in China during the first 11 months of this year, Caijing Magazine reported Dec. 17, citing a Labor Ministry official.
The total will likely grow in 2009. The World Bank forecasts that global trade, which grew 6.2 percent in 2008, will shrink by 2.1 percent next year, the first such contraction since 1982.
The collapse in overseas demand is exposing China's years of overinvestment in industries such as automobiles and telecommunications.
Sitting on a Stockpile
China's steel industry, the world's largest, is sitting on a stockpile of 63 million metric tons, equivalent to about 13 percent of annual production, and Baosteel Group General Manager He Wenbo said in November that his company was facing the “most difficult” period since it was founded 30 years ago.
The government is considering measures including buying unsold inventory and raising export rebates to help steelmakers weather the slowdown, Minister of Industry and Information Li Yizhong said Dec. 12.
In the U.S., factory payrolls have shrunk by 4 million during the eight years of the Bush administration, and total job losses this year may top 2 million.
“China-bashing will only intensify in a softer economic climate,” says Stephen Roach, chairman of Morgan Stanley's Asia division in Hong Kong. “Bipartisan congressional support for anti-China trade legislation has been gathering in intensity.”
Obama's Pledges
Obama made specific pledges on the campaign trail to take a tougher approach to China than the Bush administration did. He has said the failure by Bush and Paulson to label China a currency manipulator was “unacceptable,” and he endorsed legislation to let U.S. companies seek import duties to compensate for the advantage an undervalued currency gives their Chinese competitors.
Obama also pledged to reverse course from Bush and consider petitions seeking higher tariffs on specific Chinese products.
American businesses, labor unions and lawmakers are already gearing up to force Obama's hand. Steelmakers, paper producers and textile companies are preparing trade complaints that could lead to increased tariffs. Unions and lawmakers plan to push measures to force China to raise the value of its currency.
McGregor says Obama's China policy will require a balancing act “fundamentally different” from what his predecessors faced: Obama's Treasury will need to fund a budget deficit heading for $1 trillion this year and “you don't scream at your banker.” China's holdings of U.S. Treasury securities, at $653 billion, are the world's largest.
That means an increase in trade tension “is very easy for China to handle,” says Guan Anping, a managing partner of Beijing-based law firm Anjin & Partners and a legal adviser to former Vice Premier Wu Yi until 1993. “China can react by reducing its purchases of U.S. government bonds.”
Even so, the Obama administration may not need much prodding to take a harder line on the currency issue, says William Reinsch, president of the National Foreign Trade Council and a former Clinton administration trade official.
“There will be consequences,” he says. “But they will do it anyway, if only to distinguish themselves from Bush.”
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