Jan 07
28
China Trade Wars
While the popular press focuses on whether the Democrats in the US are going to stop Bush from escalating the war in Iraq, or worse, initiating a war in Iran, are we missing an important piece of the puzzle: China and trade?
Stephen Roach, this week, writes in detail about the parallels between now and the period when the US was Japan-bashing. Interesting to contemplate the issues now with respect to a democratic empowered congress in the US with a large base of support from people whose jobs are disappearing East, because of an order of magnitude savings in production cost. These people used to be working class. Now they are middle class – the consumers of last resort – with growing mortgages and bigger flat panel TV's.
intensifying the angst of the American worker today. Back in the late
1980s, the perceived adversary,
Moreover, the competitive pressures of the 1980s were the slow-moving
variety bearing down on the manufacturing sector. Today, courtesy of
IT-enabled outsourcing, the threat is intensifying at hyper-speed,
while at the same time, spreading from manufacturing to once
nontradable services. In other words, it is really not that difficult
to understand why the fear factor of US workers is far more exaggerated
today than it was during the late 1980s.
It is these same people who may well find themselves in a double crunch as their jobs disappear at the same time their homes go into negative equity….. at the same time that the dollar starts to crumble too…. see this story from Peter Schiff:
estate prices will either produce a severe recession on its own
or exacerbate one that arises from other factors. In either case,
the result will likely be the Fed coming to the “rescue”
with inflationary monetary policy. Inflation will push long-term
rates even higher, causing more loans to default. With credit
destroyed and home equity and jobs lost, foreign creditors will
rush for the exits sending the dollar into a tailspin. The Fed
will be forced to buy all of the paper foreign lenders no longer
want and that savings-short Americans cannot afford. Domestic
money supply will explode sending consumer prices soaring.