The market continues to recede, which to my eyes is what it should be doing after such a long and sustained rally. The good news is that commodity prices across the board are softening as well. Now, Mr. Bernanke might see this as not so good news, since inflation is one of the desired outcomes of the QE-2 program. Another, of course, despite what President Obama is saying in South Korea, is a weaker dollar, which seems to be one of the larger complaints at the G-20 meeting. One can understand why the 19 other countries would be whining about QE-2. After all, every country that exports wants a weak currency, but few can match the resources of the U.S. when it comes to weakening their currency. This is the reason the U.S. calls for China to free up its currency are falling on deaf ears.
SEOUL, South Korea (AP) — Leaders of 20 major economies on Friday refused to back a U.S. push to make China boost its currency’s value, keeping alive a dispute that raises fears of a global trade war amid criticism that cheap Chinese exports are costing American jobs.
Now, I don’t think it likely that this currency spat will get out of hand. This is not the 1930s, the 1980s, or the 1990s. No, the world today is so interconnected – I think entangled is a better word here – both economically and information wise (market trading), it is hard to see how a trade war could break out. Who would stop selling to whom? Who would stop buying from whom? In fact, going back to the issue of the yuan, is it possible that China actually would like to have its currency rise? Check out the following.
Chinese consumer price inflation in October quickened to its fastest pace in two years, which is likely to sharpen complaints from Beijing and others that the Federal Reserve’s $600 billion money printing scheme will hasten capital flows to their economies, complicating efforts to keep price pressures at bay.
Okay, the above points to the world screaming about the weakened dollar, but it also points to the famous quote from Macbeth, “Me thinks thou doth protest too much.” Yes, on the one hand, if commodity prices were to keep escalating, the issue would be inflation for the Chinese economy. On the other hand, the larger issue for China is its own red-hot economy, which is fueling inflation on a domestic level all by itself. One way to curb this is to let the yuan rise relative to other currencies, which would have the effect of reducing exports, which would cool off the economy. Not too fast, though … China feels it needs to control the rate of rise, in order to prevent an outright collapse of its economy. It wants to let the yuan rise slowly and sporadically, which it has been doing.
The bottom line? In my humble opinion, this is all “much ado about nothing.” In the end, no matter how entangled we all are, the big dog in the yard is the U.S. Without a strong, vibrant U.S. economy (the U.S. consumer), the rest of the world cannot rise to its full potential, at least until it figures out how to replace the buying power of the U.S. Thus, the following excerpt is good news for everyone …
NEW YORK (Reuters) – U.S. consumer sentiment rose more than expected in early November and hit its best level since June, helped by a slightly better economic outlook and early holiday sales, a survey showed on Friday.
Trade in the day; invest in your life …
