Tuesday, March 28, 2006

Chinese Takeout...

The Wall Street Journal had a great piece today on US-Chinese relations and they skimmed the surface of the financial issues this relationship creates.

The argument holds that both countries would be so economically devastated by a trade or financial war -- "mutually assured economic destruction" -- that neither would trigger one despite growing trade tensions.

By that logic, China won't stop buying billions of U.S. dollars each month because to do so could prompt a dollar collapse that would undermine the American consumer and the global stability upon which China's economic miracle rests. It follows that the U.S. would not implement tough sanctions to punish China's undervalued currency because such action could trigger inflation, higher interest rates and recession.

Hmmm, okay so let's take a look at the current global backdrop - The EU and Japan are recovering (entering a period of higher interest rates), while oil prices remain unstable China is securing supply around the world and the US economy is, in my view, teetering. We as a nation may never be in a better negotiating position with China than we are today. In 20 years, we may be an afterthought in their rearview mirror.

For history buffs, The UK circa 1905 is to the US circa 1999, as the US circa 1948 is to China circa 2008. I think there is going to come a time in the near future when we are going to go to our creditors (China, etc) for a bump up in our credit limit and they're going to tell us to call Ditech.com....

This is not path which is predetermined - financial restraint by the Federal Government (and consumers), improved energy policies and a rebirth of innovation in the US can help turn the tide, but....

Let's just say Canadian Dollars look attractive at current levels :)

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