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Tuesday, April 4, 2006 | Teeka TiwariRating:
I've got to get something off my chest that's been bothering me. I want to talk about the latest round of China bashing, and the current move afoot in congress to have China labeled as a currency manipulator and to impose punitive import tariffs. Let me give you the quick background. We have a huge trade deficit with China. We import hundreds of billions more from China than we sell to them.
Congress blames an artificially low Yuan/dollar exchange rate for this trade imbalance. They say the Yuan is artificially 40% UNDERVALUED, and if the Yuan were allowed to trade freely (or "float"), Chinese goods would immediately become 40% more expensive … we as Americans will buy less from China … and voila! The trade deficit problem would be gone!!
Just so there is no misinterpretation here, let me put this as plainly as I can:
THE STUPIDITY OF OUR ELECTED OFFICIALS IS BEYOND THE PALE!
Who do you think has been financing our low-interest-rate housing boom?
China, that's who!
They maintain their Yuan-dollar peg by buying billions of dollars of American debt; primarily treasuries and mortgage backed securities.
Without their consistent buying, interest rates would be significantly higher. Higher rates would mean a slower US economy, crashing real estate values, and punishing bond portfolio losses.
Can someone explain to me how that's good for the country?
The beauty of the trade deficit that we run with China is that they redeploy their earnings back into US dollar denominated assets. This is a wonderful thing, and is a huge boon to our economy.
Getting mad at the Chinese is like getting mad at the banker who's dumb enough to finance a chronic debtor's profligate ways!
The lack of vision in congress is truly stupefying.
China needs US consumers, and the US needs China's continued buying of American Debt securities. And so we find ourselves joined in a meretricious relationship with China where neither party has much incentive to make the structural changes needed to be less reliant upon each other.
But, so what? It's a relationship that works. It may not be pretty -- but it sure is effective, and all of us benefit from it.
So will some one please shut Chuck Schumer up before he blows up every bond and real estate investor in the country with his stupid idea of 27% import tariffs against Chinese goods?
Why would you turn away free money? Some country or another is always going to be selling Americans low priced goods, because when a country can pay someone 40 cents a day for labor, its tough for us in the States to compete, but that's just the nature of living in a global economy.
And we shouldn't complain. We did the same thing to Britain and the rest of Europe in the early days of our own industrial growth. But unlike China, we didn't reposition our vast burgeoning wealth into European securities … we bought American ones.
We must do everything we can to attract and retain the world's surplus investment dollars if we are to maintain our position as the world's financial capital.
To be anything less is unthinkable.
"Let the game come to you."
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Teeka Tiwari
Chief Investment Officer
ETF Master Trader
