A lot of people argued that the US is the engine of growth for the world. They consume what the world produces, that is why we have so much prosperity. People will say that without the US consuming, the world will hit a great Depression. So the world has no choice but to keep on lending to the US, and then the US use that money to buy from the rest of the world.
Well yes, this scenario is somewhat true, but only decades ago. It is totally different now. Even if the USD falls today, even if their demand falls, it is not going to matter to investors who know where to put their money. Even if the world falls into a great Depression because the US can no longer buy all the world's stuff, it is not going to matter to these investors. Stocks may crash everywhere, markets may go down everywhere. But the one thing that will not get destroyed is this: purchasing power. Purchasing power is like the Principle of Conservation of Energy in the laws of Physics. We should have the Principle of Conservation of Purchasing Power in Economics too (do we already have this? I'm not sure about this, but a quick search on Google returns no relevant results). Maybe people will understand things better that way.
Purchasing power will never get destroyed even if stock markets crash, or even if the world trade gets reduced by 30% or 50%. Purchasing power merely gets transferred from one place to another. Yes if the US falls, we all will be affected, including China. But the Chinese Yuan will have so much more purchasing power. Just simply by printing money and borrowing like crazy, the US is transferring its own purchasing power to other parts of the world. The other nations don't even have to do a thing! And imagine what the Chinese Yuan will be worth once their government lets it appreciate. The smart investors will invest in things that will increase their purchasing power. And one glaring obvious place to be in is China.
From my rants in my previous post, we all know that the economic power of the world is migrating from the US into China. When the USD falls, US can no longer buy that much goods anymore. The Chinese will be able to enjoy the fruits of their labour. They will be able to consume the stuff that they produce, instead of having to ship them all to the gluttony of the US.
Well of course, when the US crashes, the whole world will be affected, including the ordinary Chinese people. There may be temporary hardship for the Chinese. But I think their government is smart, and they are developing their domestic market right now so that they won't be too reliant on exports to the US. Hopefully they will make it in time to lessen the adverse impact on their own market. For the rest of us, oh well, better put our money in places where the purchasing power will be magnified!
If China can trade all their $800billion of USD right now for gold, they will do it in a heartbeat. The problem is that this sum is too huge, and they will cause a lot of disturbance in the gold market. And another problem is that there are not enough people who want to buy the USD from them, and there are not enough people who want to sell gold to them.
There has been a lot of complains from the US that the Chinese are artificially suppressing the Yuan. What will happen if the Chinese actually appreciates the Yuan? The US will be doomed right now. The Chinese suppress the RMB by selling their RMB for USD. Selling more of RMB means the 'price' of RMB goes down. When China stops selling their RMB for USD, the 'price' of RMB rises, the 'price' of USD falls. So right now if the Chinese heeded the US' call for them to stop supressing the Yuan, the US will just be meeting its doom faster. Is this all just a theatrical act by the US? They 'need' the low Yuan to further perpetuate their bubble, not a high Yuan. Maybe they don't know what they are really talking about.
No comments:
Post a Comment