A recent article in BBC News entitled China, Germany and South Africa criticise US stimulus reports that China, Germany, Brazil and South Africa have criticized the Fed plan to pump $600bn into the United States Economy in an effort to kickstart growth. Further reported is that China’s Central Bank head Zhou Xiaochuan has "urged global currency reforms." If this is the case, the China’s Central Bank head should allow the Chinese Yuan Remnibi to appreciate to its full value, as many economists believe the yuan is undervalued anywhere from 20 to 50%! Therefore, America’s position at the G20 should concur with China’s Central Bank head recommendation, beginning with currency reforms in China.
Interestingly enough, Bloomberg goes on to report in`Hell Week’ Ends With Central Banks Split on Recovery Policies:
China’s Vice Foreign Minister Cui Tiankai yesterday demanded an explanation from the Fed because “many countries are worried about the impact of the policy on their economies.” Brazilian Finance Minister Guido Mantega said this week that Bernanke is throwing “money from a helicopter.”
If the Fed is throwing money from a helicopter, then China’s Central Bank by deliberately pegging the yuan to the dollar in times of need and then allowing it to float during times they determine safe coupled with Brazil taking advantage during the exchange rate crisis of 2008 is parallel to the Chinese and Brazilian Central Banks committing "highway robbery."
China and Brazil are hardly in positions to complain about the Fed QE2 while their economies enjoy nearly 10 and 8% growth rates while the United States is not even at 3%. Bloomberg further reports that:
[E]merging markets account for a third of the global economy, yet two thirds of its growth. Keen to maintain that advantage, officials from Asia to Latin America prepared for stronger currencies and asset-price inflation as they criticized the Fed’s policy for pushing a flood of capital into their already robust economies.
Apparently, as long as emerging markets maintain their advantage of trade surpluses while the U.S. suffers from severe trade imbalances due to manipulated currencies, all is "hunky dory." But heaven forbid the U.S. try to place its people back to work by stimulating an anemic economy because to do so, emerging markets like China hypocritically state "[i]t would be appropriate for someone to step forward and give us an explanation, otherwise international confidence in the recovery and growth of the global economy might be hurt." The global economy or China’s economy?
Here are some important facts for the United States to consider at the G20 meeting in Seoul:
China’s GDP grew from 1.2 trillion in 2000 to 4.3 trillion in 2008, which is close to 300% growth. For the same period U.S. GDP grew from 9.7 trillion to 14.2 trillion, which is 45% increase.
U.S. trade deficit with China grew from $125 Billion in 2003 to 270 Billion in 2008. Foreign direct investment in China grew from $38 billion in 2000 to $138 Billion in 2008, a 250% increase. Per capita income increased from $2330 in 2000 to $6020 in 2008. China has a stable political environment since 1990. China’s foreign reserve increased from $623 Billion in January 2005 to $2.3 trillion in September 2009. All the economic factors indicate that Chinese Yuan value should strengthen and leads us to believe, that had it not been pegged to U.S. Dollar, the Chinese Yuan would have appreciated.
Developing economies are owed no explanation to Fed QE2 at the G20 summit in Seoul. The U.S. position should be that Central Banks who encourage currency reforms while experiencing near double-digit growth in large part due to manipulated currency creating enormous trade imbalances begin with a "balancing act."
Explanation indeed!
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