Letter Writers' Guild

International Economics

International Economics : China & USA

What was supposed to be the most important meeting on the world economy took place in Washington on July 27 & 28, 2009 – a summit on Strategic and Economic Dialogue, as overseen by America and China: and yet hardly a mention of it in our parochial British press. Even the American papers which do mention it, present a sanitised and anodyne report for internal consumption. We have to go back to the Nixon wooing visit to China to gain a hint of even rapprochement. Bear in mind that not too long ago neither Bush Jnr nor male Clinton looked upon China as an equal. Now Obama felt “Yes I can”. The problem he has is the familiar one of all the ‘wizards behind his curtain’ pulling the strings: Paulson, then replaced by Geithner, Bernanke, and myriad others; with the result, he, like many Presidents before him, could be relegated to a mere marionette.

Many lower ranking meetings preceded this two day event, and in the end it all came down to the usual assurances on “enhanced cooperation” as they went together, hand in hand, into a brighter future, etc etc – with which clichéd claptrap we are ad nauseamly familiar. The American team were keen to widen the agenda to talk about climate change, Iran, and North Korea and nuclear weapons. China’s delegation was willing to negotiate on climate change per se, but not pollution. They pointed out that power for their industries came from coal fired power stations just as America had done many years ago on its industrialization path. On this point, America’s cable car is coming down on its wire, while China’s is passing it on the way up on its wire. Western style prosperity for China’s urban population is right now only achievable through its industrialisation program, which causes increases in energy consumption and gaseous emissions.
If I recall aright, Bush Jnr, in his first term, saw Kyoto as an abhorrent obstruction to American industrial production and economic growth.

Even greater platitudes were uttered by the US side when it came to the nub of this Dialogue – when the subject was MONEY. The ghost of times past, Hillary’s husband had stated the truism: “it’s the economy, stupid”. The Chinese were painfully aware of America’s extraordinary rendition of money to the banking system and that trying to get the country out of debt by feeding it more debt is never going to work. The Chinese already knew the unpalatable truth: that America is bankrupt and the dollar, as the world’s reserve currency, is at the end of a burning rope. China is torn between dousing it with petrol or water because it is holding billions, if not in excess of a trillion, US dollars, in the form of US Treasury bonds. (Sometime ago now America’s Paulson wanted China to have an upward revaluation of the Yuan and China had said how would you like us to dump our US dollars on the world market.) US guzzling consumption funded by debt at all levels of private and public sector spending is one of the main causes of the financial crisis in America. “The US needs to change its policies, raise its savings ratios and reduce its trade and fiscal deficits”, said the Governor of China’s Central Bank. The Treasury and the Fed’s main aim seems to be to keep creating and shovelling ‘money’ into the insatiable mouths in Wall Street in order to insure that the Dow market is kept at an incredibly high level, while the rest of America can be flushed down the toilet. China no longer wishes to supply America with goods paid for in US dollars. If China insists upon payment in Yuan, then the risk of a falling dollar value is put back on US shoulders. If other countries did the same it would spell the end of the US dollar as THE reserve currency. Following this, the US might have to offer its Treasury bonds denominated in the buying nations’ currency.

So America, get the real economy functioning again; all your stimuli funding to the wrong people must be reversed until the budget and the economy are on track to be balanced.




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