Thursday, November 23, 2006

Paulson and Bernake head for Beijing

Be careful what you wish for....

An article in today's New York Times begins thus:
WASHINGTON, Nov. 22 — Treasury Secretary Henry M. Paulson Jr. has enlisted Ben S. Bernanke, the Federal Reserve chairman, to join an unusual delegation of cabinet members to China next month that will press for changes in Chinese economic policies long criticized by the administration and Congress, officials said Wednesday.
Wow! With the heavy artillery en route to Beijing, the Chinese leadership must be quaking in its boots.

Since U.S. interest rates have remained relatively low even in the face of 17 rate hikes by the Fed, due in large part to cheap imports from China and other rapidly developing nations, one cannot help but wonder what effect pressure by the U.S. to accelerate the reevaluation of China's currency will have on inflation and, ultimately, interest rates.

As usual, U.S. demands are one-sided. Again, quoting the Times:
Because China exports far more than it imports, it has piled up reserves of foreign currencies that are expected to approach $1 trillion in coming months. China owns several hundred million dollars in American-denominated debt and may be eager to use its reserves to purchase American companies, a step that faces resistance in Congress.
Needless to say, U.S. companies have moved in force into China and are, increasingly, taking stakes in Chinese corporations.

Again, from the Times:
But criticism of the Chinese has not been limited to the Democrats. Many Republicans in Congress have assailed China for its military spending, and the administration says China has fallen short in helping to defuse crises in Iran, North Korea and Sudan.
This at a time when Bush-Cheney and their right-wing cohorts are spending roughly half a trillion dollars a year for defense.

What would you do if you ran China?


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