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jayeff · 04-25-2005, 11:26 AM

The world is facing an economic scenario has never existed before, and China is the key.

Since 1994 China has pegged its currency to the dollar and with the declining value of the dollar against other major currencies, China's currency has itself become undervalued. During that same period the US trade deficit with China has grown beyond $150 billion a year: more than double the deficit with Japan. China has also become one of the US major creditors: almost half of the $2 billion a day that the US borrows is loaned to it by China, Japan, Taiwan and South Korea.

Effectively China has control of the US economy and if China fulfils its committment to the World Trade Organisation to allow its currency to float, the dollar will collapse, shopping at Wal-Mart will become like shopping on 5th Avenue, interest rates will soar and house prices will implode. Apart from the fact that the Chinese have always gone their own way, the only reason this hasn't already happened is that the Chinese have a huge investment in the US to protect.

My highly unqualified guess is that the correction will come within 3 years. A lot depends on what Chinese objectives were in encouraging this situation in the first place and exactly what pressure to revalue other countries put on China in the meantime. The one sure thing is that the US no longer has the industrial base to trade itself out from under, so if the time scale is longer, the ultimate impact will be much greater. Whatever will happen it is near impossible to imagine a scenario that isn't going to be extremely painful for the US.

04-25-2005, 11:26 AM
jayeff Confirmed User Join Date: May 2001 Posts: 2,944	The world is facing an economic scenario has never existed before, and China is the key. Since 1994 China has pegged its currency to the dollar and with the declining value of the dollar against other major currencies, China's currency has itself become undervalued. During that same period the US trade deficit with China has grown beyond $150 billion a year: more than double the deficit with Japan. China has also become one of the US major creditors: almost half of the $2 billion a day that the US borrows is loaned to it by China, Japan, Taiwan and South Korea. Effectively China has control of the US economy and if China fulfils its committment to the World Trade Organisation to allow its currency to float, the dollar will collapse, shopping at Wal-Mart will become like shopping on 5th Avenue, interest rates will soar and house prices will implode. Apart from the fact that the Chinese have always gone their own way, the only reason this hasn't already happened is that the Chinese have a huge investment in the US to protect. My highly unqualified guess is that the correction will come within 3 years. A lot depends on what Chinese objectives were in encouraging this situation in the first place and exactly what pressure to revalue other countries put on China in the meantime. The one sure thing is that the US no longer has the industrial base to trade itself out from under, so if the time scale is longer, the ultimate impact will be much greater. Whatever will happen it is near impossible to imagine a scenario that isn't going to be extremely painful for the US.