🚀 go-pugleaf

RePIGlicans@America.usa wrote:
> http://www.reuters.com/article/newsOne/idUSTRE49N1XX20081024?sp=true
> 
> 
> U.S. has plundered world wealth with dollar: China paper
> Fri Oct 24, 2008 6:14am EDT
>  



The U.S. has only itself to blame.



By Jim Landers in the Dallas Morning News

12:00 AM CDT on Tuesday, October 28, 2008

WASHINGTON – The financial crisis gets deeper by the day.  Worldwide, 
stocks have now fallen 51 percent.  Credit is hard to get just about 
everywhere.  Currencies are starting to jump and fall.

It's hard to see how all this misery could come from a few million 
Americans walking away from mortgages they could not afford.

So let's look above the mortgage fray for a minute.

The big global engines of growth in the last seven years have been 
American consumers and Asian producers.  They make stuff.  We buy it. 
The trouble is, we borrow money from them to buy.  And they've been too 
happy to lend.

The federal budget deficit has deepened throughout this seven-year 
period.  Next year, with all the rescue measures moving through the 
Treasury, it may reach $1 trillion.  This is a classic "guns and butter" 
budget, where we spend much more than we take in from taxes for two 
wars, Medicare, and on and on.

American consumers also buy more than they make – especially oil, cars 
and a flood of consumer goods from China.  Even with the slowing economy 
in August, we managed to set a record in Chinese imports of $25 billion. 
  The American trade deficit last year was more than $800 billion.

The Chinese lend us this money because an export-oriented economy is 
their main way of creating jobs.  In 30 years of economic reform 
efforts, China's priority has been finding jobs for more than 700 
million peasants moving to its cities in search of a better life.

If China absorbed all the money it earns from its trade surplus, the 
Chinese currency would rise in value and hurt China's export prowess. So 
China lends us the money.  Japan, Korea, Vietnam and other Asian 
manufacturers have to follow suit to keep their currencies from gaining 
against the Chinese yuan, which would hurt their exports.

Without all this Asian money, the United States would either have to 
raise interest rates to get all the money it needs for its deficits, or 
we would have to print more money, which translates as inflation.

The global economy hummed along fairly well between 2001 and 2007.

Like anyone, however, the foreign lenders wanted to earn more than they 
could by simply buying U.S. Treasury bonds.  So our banks created exotic 
bonds of mortgages, auto loans, credit card debt and the like that 
offered higher interest rates.

Other banks copied this creative financing, and other lenders bought 
them because of the returns.  Pension funds, insurance companies and 
central banks alike took on enormous sums of securitized debt.

Our credit-based economy is now crashing.  The International Monetary 
Fund estimates that worldwide losses will hit $1.4 trillion in 
U.S.-issued securitized debt, mainly mortgages.

Which banks have these debts? China has plenty but isn't nearly as 
anxious about its portfolio as U.S. and European banks are.  Some of 
them are zombies that, once their losses are revealed, will fail.

It's time to reveal what's in those bank portfolios, says Nobel 
Prize-winning economist Harry Markowitz.  To get things moving again, 
the Securities and Exchange Commission should demand detailed 
information about the content and exposure of banks' securitized debts, 
he said.

Dr. Markowitz, who is an academic consultant to Index Funds Advisors in 
Irvine, Calif., argues that this technically demanding transparency 
should be required globally as well.

Most of Europe's leaders, meanwhile, with their own economies dropping 
into recession, have called for a new set of rules to govern 
international finance.  They are impatient to regulate the trade in 
securitized debt and its many derivatives.

President Bush invited 19 other nations to Washington on Nov. 15 to 
start this process.  China is among those expected to attend.

But China is not ready to substantially raise the value of its currency. 
  Peter Morici, a University of Maryland business professor who has 
worked this question for several years, said the meeting will lead 
nowhere until China changes course.

"This is economic warfare," Dr. Morici said.  "What China is doing is 
protectionist."

Dr. Morici advocates a tax that would be imposed on conversions of 
Chinese yuan into U.S. dollars, which would have the effect of raising 
the value of the yuan.

Right now, Beijing has more than $2 trillion in foreign exchange 
reserves.  It is not likely to go along with a debtor's demands to raise 
the value of its own currency and crash the value of its reserves.

Clearly, however, this crisis requires more than the best efforts of 
governments acting one at a time to fight off collapse.  Collective 
action is needed.

http://www.dallasnews.com/sharedcontent/dws/bus/columnists/jlanders/stories/DN-landers_28bus.ART.State.Edition1.4a5fc9e.html


-- 
jer
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