Another thing we can probably all agree on, is our economic well being in the US is precarious at best. The morass seems to trudge on, with no apparent end in sight. We read news (or at least I do) that says the Chinese currency may over take the Dollar as the world's reserve currency. Reserve currency is the money people prefer to be paid with. Before World War II that currency was the British Pound Sterling. Since World War II the US Dollar has enjoyed that distinction. When the Japanese or Chinese or British buy oil as an example, it is priced in Dollars. That means they have to buy Dollars from us and use those Dollars to pay the oil producers. Reserve currencies are generally perceived to be stable in value, and readily accepted. So why now is the Chinese Yuan challenging the Dollar?
The Chinese have built their economy, almost on a free market system. They are attempting to beat us at our own game. While their government remains a totalitarian communist regime, their ability to unleash the entrepreneurial spirit in the people seems to be propelling their economy. But for the same reason that the Middle East will never be the reserve, there is strict controls by their government on the supply of money. However, the more economic freedom they allow their people, the more likely it is that their currency will keep bubbling to the top. There are pitfalls in the Chinese model, and unless their luck holds out, this blogger doesn't think the Yuan will be the reserve currency as soon as other experts.
Most market traders look at the present, and consider a little history. Yahoo recently paid over a billion dollars for Tumblr. Tumblr's assets are not worth near that, Yahoo believes they can improve Tumblr, and save money on the start up costs, and it does take a competitor out of the mix. Traders also trade on emotion, more so now than ever before. Sometimes, they ignore economics just because they believe they know where the future lies. And sometimes they are right, think plastics in the 40s and 50s.
Many now assume that the Chinese economy will never have a hiccup. That isn't true either. While they have a vast internal market and seem to be growing their export market there are inequities in the Chinese market. We have heard of the Apple plants, seen government plow over villages, and hear about the low wages. Twenty or so years ago, it seemed Japan could do no wrong, the Japanese have had a rough couple of decades since, and the Yen is not as important as it was back then. Consider what would happen to the Chinese economy if a general strike occurred, or a hard line Communist leader came to office. And neither of these is too far fetched, considering what we know of their economy and political system.
There is still one nation that has political flexibility, a stable work force, and infrastructure to build itself into a power house. That country is the United States. For all our flaws, we really do know how to do business, and to do it in a sustainable way. We have learned how to protect ourselves from pollution. We have the ability to regulate business to ensure fairness. The Chinese have none of that. Their political system will be their undoing. Will the Dollar always be the reserve currency? In a word NO. But our good years are far from behind us. But as a people, we need to keep our political leaders on their toes. We need to vote, not along party lines, but by who will promote the economy the best.
The Great Depression of the 1930s could have sunk us. But our leader, Franklin D. Roosevelt, said "We have nothing to fear, but fear itself." And we promptly went out and saved the world. Japan could have unseated us in the 1980s, but we had a president, Ronald Reagan, who said "I see America as a shinning city on the hill." Igniting a favorable economy for almost 15 years. When we elect a leader with as much vision as these two, the Yuan is in trouble. Remember, economics is as much psychology, as it is real measurable numbers. When the American people wake up, and they will, our economy will reignite once again. All we need to do is to balance regulation and tax policy to help fan the economic fire.
Spend Well!
No comments:
Post a Comment