Right now, automakers are offering deals like never before as they try to reduce their present inventory. Houses have been continuously losing ground. Retailers are offering sales with reduced prices up to 60% off. Gasoline prices are down. Deflation, right? Maybe not. If you check your local grocery store, your electric bills, health care costs, or insurance you won’t see prices or fees going down there. Why? These are the basics and inventories are controlled by individual usage. However, as time goes on, inventories will eventually decrease, add increases in unemployment, and the billions oops ! trillions in bailout dollars, sooner probably than later, you will see deflation turn into inflation. Simply put, the government in order to “save” the economy with bailouts and other ’stimuli’ to prime the economic pump will have to print more money with, and eventually without, backing. It’s possible that you will need a wheelbarrow of paper money to buy a loaf of bread at your local neighborhood store. No way! Think again, nations around the world currently are looking into the fall of the dollar. The People’s Republic of China, not an entity known to be forthcoming or honest, is already vying to fill that monetary void.
The de-industrialization of our economy has created a 700 billion trade deficit–an oddly familiar amount– with China. Even our most profitable technology businesses, through the blessing of NAFTA, have left our shores to invest in China further assisting the growth of the U.S. trade deficit. This includes those IT businesses and jobs that the U.S. was suppose to retain. CEO of Cisco Systems, John Chambers has gone on record, as reported by The Washington Times, saying “What we’re trying to do is outline an entire strategy of becoming a Chinese company.”
In the summer of 2005, China switched linking its’ currency to the U.S. dollar, instead they diversified and linked with a number of foreign currencies raising the value of the yuan to the dollar. This follows on the heels of years of having a devalued yuan that ultimately contributed to an unfair price advantage by the Chinese. Initially, this severing of currency ties was heralded by the U.S. as a first step in correcting the trade imbalance; nonetheless, it was too incrementally small to have much effect. However, when China in April of this year made a move to shift its’ 1.4 trillion dollars in reserves from dollars to currencies like the euro and Canadian dollar, the meltdown of the U.S. dollar began. As reported by Global Research, ca, the immediate reaction was a large drop in the Dow, and the U.S. dollar fell to record lows against other foreign currencies. At the same time China divested itself of 5% of its 400 billion dollars in Treasury bills. Creating fluctuations in the value of the U.S. currency that contributed to the present economic instability.
As early as April, 2006, Adam Davidson of NPR reported this revaluation by China had elicited warnings of increased interest rates and a possible U.S. recession. With revaluation and shifting of reserves from Treasury bonds to other currencies, the U.S. Treasury was forced to seek other investors by raising rates and since T-bills are the standard for long term indebtedness, any rate increase would mean an increase in interest rates on credit cards and home mortgages. Thus, as Davidson forcasted, the following scenario would unfold:
“Now, if China revalues its currency abruptly, it won’t have to buy so many Treasury bonds. As a result, mortgage and credit-card interest rates could jump upwards — which means U.S. consumers would stop spending so much money. Stores and banks would be hurt. U.S. and Chinese factories wouldn’t be able to sell their products, so they’d shut down or lay off workers. It could bring a self-reinforcing downward economic spiral.”
But As For Me…
There have been many contributors to our current economic troubles, and one should not exclude the relationship between The People’s Republic of China and U.S. businesses. China is looking toward the future of establishing a new international order and its inclusion as a major player on the world stage. When will deflation turn into inflation? A substantially devalued U.S. Dollar coupled with government uncertainty and lack of direction will signal the onset of the last stage, that of inflation– turning the current economic tsunami into the Greatest Depression.
POULAR POSTS:
- Interest rates mixed at weekly Treasury auction
- ECB, Bank of England to hold rates steady
- ECB, Bank of England to hold rates steady
- Greenspan says no need yet to raise interest rates
- U.S. debt considered risky by Chinese economists?
- Cigna profit climbs on better interest rates
- U.S. Hopes China Talks Spur Economy, Job Creation
- Fed to dampen rate hike talk, halt Treasury buying
