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Saturday, October 16, 2010

China Clearly Understands Bernanke's Motives

I ran across this article tonight, originally published in China's People Daily, by way of the blog site ZeroHedge.  It explains in simple and understandable terms all that Bernanke and the Fed is trying to achieve with its economic policies:

"A currency war is spreading as the dollar's value against major world currencies has continued to decline in recent days. Some developed countries have begun to intervene in their exchange rates. The recovery of the global economy will suffer a negative impact if this trend is not checked.

It is the dollar that triggered the currency war...  The U.S. Federal Reserve's statement that it might restart quantitative easing — a policy central banks use to increase money supply — triggered the depreciation of the dollar. The dollar's value against the basket of currencies has decreased by 7 percent since the U.S. Federal Reserve began talk of possible quantitative easing."

~ The weaker the US Dollar, the higher the Stock Market rises.  Remember, the market is not interested in the growth of the US economy, unemployment, etc.. only the growth of the financial sector.

"The move nominally aims to further drive down the interest rate in America to prevent the occurrence of a double dip. But it will affect the value of the dollar too, prompting the dollar's devaluation... The U.S. government's strategy to double its exports within five years needs the considerable depression of the dollar... boosting exports is a must in the post crisis era, because (US) cannot pin its hope for economic growth on the prosperity of its real estate market and consumption based on borrowing money."

~  The government knows the real estate market would be another 20-25% lower in home values if not for the propping up by Freddie and Fannie Mae.  It also knows its debt is getting to a point where it will be very unattractive for investors to want to purchase it or lend further money.

Obviously boosting exports relying on the competitiveness of U.S. companies is not realistic in the short term... Judging from the course of history after World War II, considerable depreciation of the dollar is the sole possible option that enables America to realize the goal. In this sense, driving down the value of the dollar has become an important choice in policy for the United States to recover the sluggish economy..

The last but the most important point is that in the long run the considerable depreciation of the dollar will help America to transfer its debts to others. If we say the international financial crisis nationalized the private debts, then in the post-crisis era, the United State sees an urgent need to internationalize its debts.

Given a sluggish economy and huge amount of debts, driving the value of the dollar down is in line with America’s interests, both in short term and in long term."

~  Remember, devaluation means weakening of the US Dollar.  It means the dollar is made more attractive to exporting but prices for goods and services go up because the dollar's purchasing power is weakened.   It is the government's policy to make its people (that's you & I) collectively suffer financially for the ultimate goal of diminishing its foreign debt obligations and getting other nations to buy the few products we still make domestically.   

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