China on the US dollar

Talk about a "back-handed compliment."

Chinese President Hu Jintao said, basically, two things over the weekend as he's about to visit us and meet with President Obama this week.

First, he said there needs to be "cooperation" between our two countries.

Well, yeah, since they make stuff (cheap) and we buy so much of it.  That and the fact that they are so heavily invested in us and have been for some time ($2.85 trillion at the end of 2010), I'd say cooperation is pretty much an important "given" for the foreseeable future.

Second, he called the present U.S. dollar-dominated currency system a "product of the past" and highlighted moves to turn the yuan into a global currency.


Ow.  That one hurt.


Talk about kicking a guy when he's down.  And the "guy", being us, is his "friend" and close trading partner.


What's kind of amusing about this, too, is that the US wants China to appreciate its currency, the juan, so it isn't so cheap and therefore, its products so cheap, while China criticizes us for efforts by the U.S. Federal Reserve to stimulate growth through huge bond purchases to keep down long-term interest rates, a strategy that China has loudly complained about in the past as fueling inflation in emerging economies, including its own. He said that U.S. monetary policy "has a major impact on global liquidity and capital flows and therefore, the liquidity of the U.S. dollar should be kept at a reasonable and stable level."


So, basically, we each want to tell the other one how, exactly, to run their economies, their currency and so, their country.  That's good.


Unfortunately for us--but great for China--is that they were relatively unscathed by the global financial crisis (we started).  


Here's the scary part, though:  Mr. Hu's comments add to the sense that China intends to challenge the post-World War II financial order largely created by the U.S. and dominated by the dollar.


It's fascinating to see this relationship develop.  For  now, it's "yes, we want to and will cooperate" but it seems they also want to be sure we know they're coming up on us, economically and competitively.  


Fortunately, for now and the foreseeable future, we both need each other.   And badly.


"Can't we all just get along?"


Link to original post:  http://online.wsj.com/article/SB10001424052748703551604576085803801776090.html

China vs. the US: Who's going to win this?

Recently, the US and China have been sparring a bit.

We recently made a 6.4 billion dollar military arms sale to Taiwan which, of course, upset the mainland. That always gets them going.

Then we recently increased our tariffs on their steel and tires.

Higher tariffs on anyone is never well-received, naturally.

This week we also found that President Obama is going to meet with the Dalai Lama , personally, finally, too.

The President can't back down from this meeting, frankly, because he had already put it off at least once, just before he went to China. If he were to put it off now, again, he would look soft on China, it's perceived and he'd be seen as giving in to pressure on them.

Anyway, they aren't liking this meeting.

All this on top of the fact that China is our biggest lender.

Most people would say they "own us."

It seems to point out that China may have already won any contest we're in against each other.

We hope that's not the case but we're so intertwined and, as I said, we owe them so many billions and trillions of dollars of our debt, how can we really fight them in any arena, without shooting ourselves in a proverbial foot? How do you fight your banker?

The banker always wins.

The banker is in control.

Remember the cynical--but true--"golden rule"?

"He who has the gold, makes the rules."

Food for thought.

On the one hand, we can hardly afford to upset them.

On the other, we can't be seen as weak and/or giving in to them, even if they are our financial masters.

This is going to be a tough relationship to handle for some time to come.

(Unless China's economy collapses).