Reply #4: China has been buying US bonds to keep their currency low and [View All]

[applegrove]

the American one high (at great cost to themselves) so they can continue to get business (outsourced jobs & branch plants) at the same rate as before.

It is like the relationship between a pusher and a user.

If the Chinese are forced to revalue their currency, then their products will not be as cheap and less outsourcing would happen.

Countries always use 'devaluing' the dollar to stop imports and cause the type of recession that results in fewer imports and more domestic business.

The problem is that so many countries in the world would be willing to step in and take over part of the job of the Chinese that a lower US dollar would result in sourcing away from China but it could go to other nations.

In Germany, because they have joined the EU and use the Euro they cannot devalue their dollar to stop imports. So the unemployment rate in Germany is huge.

The fact is that with the help of the Chinese and the Japanese, the Bush government has been able to keep imports growing and Americans buying. Bush has put off the 2001 recession by war and tax cuts (which result in a glut of money into the stock market). This perpetual bull market is great for investors and people who may want to divest and get out of GM stock and into euros. The people who loose out are the unemployed and the Americans who bought expensive houses and the like.

Essentially, Americans have been selling off savings and their own wealth to keep the market going. When the bust hits... the unemployment may be less (or the outsourcing less to China). But millions of Americans will loose out for having over-extended themselves. And jobs will be risky and the job market not so hot. Till the boomers all retire and then the guest workers will be brought in so that wages do not rise too much.

So it is basically a big transfer of wealth to the rich from the middle class to keep the market going. And lowering the value of the dollar vis a vis China will allow for a correction (a more painful one than had Bush allowed it to occur when it was first needed). Americans need to learn to not buy so much. That the world is a much harder place to be wealthy in these days - if you are middle class.

And because the US government is in so much debt, it will be a very poor government and not able to meet all the needs of Americans that it does now. By bankrupting the government the Bush WH has succeeded in tying the hands of the Democratic President to come. There will be no money left.

America will become a debtor nation (well it has been for 30 years). It will struggle along. The middle class will struggle.

If the country faces a small amount of deflation (as Japan has faced & Europe a bit) then bonds are not worth so much. Your 3% bond when there is 2% deflation is like a 5% benefit. And nobody will be buying American bonds (hey - buy my bonds and loose 2% a year). As peak oil forces the cost of gas up by huge amounts, inflation may help combat the deflations. But interestingly enough.. the oil companies are own by the very rich (and some middle class) so the benefiters of this inflation (that helps the economy out of deflation but does not create jobs) will be the rich. Everyone else will be lowering their own wages to get work (even psychologists and doctors). It will not be as bad as your wages go down as the price of goods and food come way down. There will be suffering.

The corporations will be investing in the new democracies and dominating them and coercing the countries to not have socialized medicine or social programs or regulations. So the stock holders will do okay as long as they invest in multinationals and not local USA companies. The rich will also not have their wealth eaten away by inflation (because wage & cost of goods/food deflation added to oil inflation means that hyper-inflation will not occur.. and hyper-inflation is what eats away at rich people's money).

And if the price of oil is not enough to keep American out of high deflation, (low deflation is no big deal.. 2% deflation just means you are in a slow economy..but not a dead one) then there will be wars.

So getting the people out of the bond market is important for Bush. He says a long term bond will not be worth anything? Well it may be worth a great deal if the bond was bought at 3% and the deflation rate it 2%. In the short term, nobody will buy bonds when there is deflation. The SS changes and by indexing to 'a bundle of goods' instead of wages means that your SS could go down with deflation. If they are indexed to wages, as they are now, then because wages are very 'sticking' on the way down.. people will beat the market all the time. And it will cost the government more. Putting part of the SS money in the Stock Market keeps the government from owing on all those bonds. It also fluffs up the market (trillions into the stock market next year would put off the recession for another few years). And by making sure the money in the stock market is in small parcels (like individuals making the trades - the stocks bought would be vulnerable to bad decisions and whoever is selling their bad stocks is the winner. Who is selling their bad stocks? The rich!).

How to stop this? How could the middle class make sure they benefit here? By refusing to allow guest workers. So that some of the benefit of aging baby boomers retiring goes to good wages for Americans still working. And guest workers could be allowed in as immigrants to do the jobs the very employed Americans could not do. And then much more massive oil replacements would have to happen. Because the economy could not sustain both wages increasing and Oil increasing or there would be stagflation like there was in the 1970s. And people would loose jobs and once again the there would be a recession like there was in the 1980s. And the rich would loose money too.

And the rich loosing money is bad. Because they want to be rich. And if they just keep Americans at some high unemployment level.. with wages going down.. they will not be destroyed by the cost of oil. And they fully expect there to be massive labor migration (just like in the 19th Century where undesirable Scots and Irish moved out of England because they were shut out). They want perpetual markets for themselves. And that is why they want as many of the people in the markets. Even if there is about to be a recession as soon as the great SS trillion dollar bubble passes, they want Americans dependent on perpetual markets as much as they are. And they will use tribalism and localization of loyalties (by destroying federal government in the USA) to keep Americans from popping up their heads, looking around and saying: "hey, why not stop it with the perpetual markets, and go back to full employment part of the time... sometimes the rich do well, sometimes the workers do well".

Interesting to note that by replacing the making of all civil goods outside the USA, the factories are closed and the oil is used by the suburbanites, the military industry. So you have cut your oil dependence and handed the problem over to people in China who can replace oil with people work in factories.

Nobody can predict the future exactly. But you certainly can push it in one direction or the other. And plan for it.

World trade is good and important. Markets exist wherever one eats and lives off of more than the food you can grown on your own front lawn. It is the extend of the control that is the problem. Corporations will go for monopoly control wherever they can. And they try and take the monopoly of power away from he American people so they can have this new world go 'there way'. For sure they are not protecting the underclasses of Americans. They are only out for their own uber-elites and the dominance that such a system will give to the corporations and elites that fully participate.



IMHO