Thursday, January 22, 2009

Yuan and Dollar

Obama has long signaled his unhappiness with the valuation of the Yuan relative to the Dollar, and his Treasury nominee further emphasized that today.
Timothy Geithner, President Barack Obama’s nominee for Treasury secretary, said the new U.S. administration believes China is “manipulating” its currency.
As I wrote in an earlier post, Obama's political power base is different than other recent presidents, being geographically located in the Upper Midwest and Chicago. Economically, this means agriculture, domestic manufacturing, and unions. Protectionism does not have a negative connotation in these circles.

It does seem there is a power struggle among the political class in regards to the American - China relationship. An editorial by the war-criminal Kissinger represents the view that "the Sino-American relationship needs to be taken to a new level". However, if Kissinger is writing editorials, it indicates that he is on the outside looking in.

If international trade curtails substantially, I think it's quite likely that China will attempt to establish a regional trading bloc, with the Yuan as the dominant currency. It seems to be starting this process with the ASEAN countries, who surround a strategic choke point to the Indian Ocean. Kissinger mentions this in his editorial; "A frustrated China may take another look at an exclusive regional Asian structure, for which the nucleus already exists in the ASEAN-plus-three concept."

The unwinding of the current over-leveraged, unbalanced model, means that many countries will be looking twice at 'globalization'.

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