Sparking Yen

There have much of the sparks flowing between two of the biggest Asian economies recently. Owing to the financial hassle today more or less survival has become the basis to move on and all of the economies are struggling to do that. As most of the economies are keeping their currencies exceptionally undervalued to boost exports and make imports costly the question remain who ultimately will buy ? Since everyone is following the same, and is ready to sell, but no one is in, to buy it is difficult to predict the future.

Added to the situational paradox, there are financial hassles and problems where the economies are fighting with each other to survive. Chinese recently, started buying large chunks of yen from the market to push their values up. China and Japan both run an export driven economy and sustain it through artificial exchange rate manipulation. Recently as China released its grip over its currency by nearly 2% many of the international currencies like Yen have started threatening its market. This has led China to buy up large chunks of Japanese money to push their values up.

As the Japanese currency went up it might have benefited the Chinese, as the Americans now found it better to buy from China than Japan but it started hurting the Yen trade. For the past one month the value of the Japanese currency has been high and large amounts of its trade is being affected by it. Starting from a value close to 100 yen per dollar last year, it went down to a 15 year lowest value at 83. Japanese trade was literally wiped out as it continued to strengthen against the dollar.

As a result the Bank of Japan last week released a buffer package to cushion the deadly cycle that was troubling its trade. An amount to the tune of nearly 20 billion USD worth of Yen was released in the market last week to buy American treasury bonds to depreciate the value of Yen. Americans had till now been very concerned about the Chinese artificial manipulation but this is the first time a similar story related to Japan is coming out.

With such huge rate manipulations going around today, this does not seems to be a really big thing. But the question is would be a long term benefit? Obviously not. Likewise China, Japan will now have to keep buying American treasury bonds on a regular basis to keep the exchange rate fixed. Regarding benefitting this is just going to be a minute long story. Japan has used to artificially boost its exports for a very short period of time whose tunes are going to die very soon. It may affect Chinese sales to a certain limit but not to a larger extent. The main impact would be seen in a short while on how the Japanese government fairs in its own policies. On one side it is facing deflationary circumstances and huge unemployment and on the other hand a competent stage. The economics of the Japanese industries has still not left behind recession made bruises, and the country is diluting the currency to keep itself in a selling posture, but what will you give to your citizens when they are spending more to make something which you are deliberately trying to sell cheaply internationally.

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Market Seizure

With the fact clear that Google is coming out of the Chinese market sooner than the financial birdwatchers have forecasted there lays a dense fog on Sino American relationship on what is to happen next. With 400 million Chinese markets still under the assumption that Google is being pushed out of the country because of its vulgar and explicit sexual content the far outcry of heavy censorship is going to affect both Google and Chinese economy as a whole.

With America not in favour of any of what China is pertaining to do and its policies tightening around the dragon’s neck what is next in line is the new bipartisan bill to curb Chinese made imports in the US. China long since mid 2008 kept a constant Yuan to dollar value pegged at a number 6.83 which is causing a lot of problems. With the great slump in the American market and no remuneration for internal American producer from the government due to lack of fund the internal produced goods are not at all competitive in the market.

Chinese goods are highly competitive in the market owing to their cheapness. This cheapness comes from the undervalued Yuan which China has no interest of changing. China hold seventy percent of its foreign reserves in the American treasury Bills hence forth is able to command a constant currency ratio.

Being a communist regime what it does it forcibly brings down the standard of living of the people and dictates their low standard of living there by converting the solid gains and selling the products into foreign exchange reserves. Hence forth it has been able to generate reserves to the tune of ten times what it had in 2003 in the last seven years.

On the other side of the world where that American economy is trying to fight the biggest slump it is being pestered by the Chinese policies which include this constant pegging to the dollar. Internal production is vandalised because of the non competitive China driven market. Only if the China re values its currency and rises it against the dollar then only the internal market would become competitive.

Recently two bills have been brought up in American Congress for the same and most probably would pass. Both of them are pointed to pressurize China to rethink over its decision to increase the value of Yuan against the dollar. First of all there was the Job Bill that is focused at proving new entities with subsidies for opening new business and simultaneously there is this Bipartisan Bill wherein the Republicans and Democrats both are saying to increases taxes on imports from whatever is brought from China.

The consequence of the bipartisan bill is going to be single fold. First of all due to sudden rise in the prices of Chinese goods in the American market the American made internal goods might become competitive in the market and this would give boost internal producers. This bill is going to pressurise the Chinese government to rethink its proposal to continue with its constant pegging on the Dollar or draw a midway with the American counterparts. What is clear that America would not risk the possibility of job creation through this hence it is in favour of increasing the prices of Chinese goods?

But the other part of the story remains that with interest level at near zero and no plan of the American government to alter it is it the right time to bring a costly expensive market to the American consumer. American consumer knows what consumption is but with the slump and whatever small amount of jobs being created would it be viable to introduce this inflationary change.

The situation on the other side of the Atlantic is equivalently gruesome. With Chinese export driven funda there is another country that still stands on the green fields but is feeling the heat of being green. Germany is another mass exporter for whom a constant cheap foreign export is likelihood and the only means of sustenance.

People talk about the rise of the G2 or Chimerica, people talk about the rise of Chindia but now the people are talking about the Chermany, a composite of the world’s biggest net exporters: China, with a forecast current account surplus of $291bn this year and Germany, with a forecast surplus of $187bn.

A just question how America can curtail the hands that feed it. Whatever new bills it applies in the end the situation would revert back to it as controlling the consumption is not a means neither is bring a catapult change in its internal market production. Why is America not thinking that it has no internal market left and if it has to compete with China it will have to do it right from the scratch?

More to come.......

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Blinded: World Economy

What more could we have expected from the communist government of the Soviet Union when mass plunder and forsaken suppression of common man led to its final demise in the last decade of the last century and more than ten new capitalist looking economies emerged from its ashes.

The strength and base of communism is all wrong. It is nothing much different from what Adolf Hitler used to practice in Germany. In the Nazi Germany the German people were the slaves of one monarch while in the communist setup they end up being under the state. They end up being the mere pawns wherein their outlook and viewpoints are overlooked and what is given more importance is the supremacy and strength of the state of which they had been forced to be a part of.

Even after the fall of the Warsaw Pact which constituted all the communist powers under a single heading with the division built in Europe their still remains another communist entity that still happens to be a reminder of the days that were.

The Peoples Republic China though not in full colour still enjoys being called a communist nation. Though it portrays itself to be having extraordinary capitalistic regime wherein the right to property has somehow been made available to the people unlike of the communist ideology china still has to suffer a lot due to it.

Simple transformations do not change the in-depth truces on which its regime was built. It is but a widely known fact that china still enjoys the right of financial supremacy due to its command over cheap labour. But the question lies till when?

Till when is it going to let its men be the victim of its own decisions? This is where the biggest flaw of Chinese system comes into the picture- it cannot it just cannot let its men and women earn more for that would disrupt the situational benefit it had been receiving since ages.

Is not it a common knowledge that everything that we look around is Chinese made: let’s not talk about quality but the market has got entwined to this Chinese system of market capture and has become so accustomed to it that any slight variations would be heavily met.

The west on the other hand with their down trodden economies out of the securitisation mishap recently in a meeting of the World Economic Forum discussed just this one topic of how were they going to bring up the value of the Chinese Yuan against the dollar. How were they going to let their home DO i get a taste of the world going unflat?? Or maybe deglobalisation??

Take it from me that it is the only option that the government has found out in this regard.

Well what could the Chinese do anyway? The Chinese market is already heated up with such large liquidity due to continuous stimulus to keep the yuan pegged to dollar at a constant ratio and if the west foils a plan to somehow do things otherwise the whole market might set a lot of tremors here and there.

For one it would destabilise the Chinese export and god knows what would the American eat??

The relations of the Chinese have not been great recently with the American government with its recent decision to the sale of arms to Taiwan of which

China proclaims control of and the Google-Baidu- China mishap however with this recent development the ultimate nails might be drawn into the illustrious collapse of the American Chinese relations.

This relationship is a peremptory requirement for a sustainable growth of the world as the prosperity of the world depends on both their shareholders.

With Chinese help so entwined in the economic scenario, its reach of military arms and control over most of African nations, its reach over cities like Macau, Hong Kong, Taiwan and Singapore and the control over the full South Asian kingdom, its high gold and dollar reserves and the strategic positioning along the Indian and Pakistani subcontinent and the importance of it as a BASIC member in the G-77 and the Copenhagen Accord build up and application its conjugation in activities with America is a palpable requirement.

Therefore leave aside ever difference and look forward how we would build up the economic system. This communist power has still got so much strength to bring everyone around. Interestingly Indian billionaire Vijay Mallaya took up Chinese stance at the Economic Forum meeting siding with China that if west tries to make up exports difficult we would make them difficult to make the imports though.

Not a good start but common man everywhere is after all a common man and every civilisation has its own problem. A common decision can only put an end to this entire pandemonium.

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Yuan faces 'Liquidity Correction'

It seems a lot that the Chinese Yuan is now facing the heat of excessive liquidity. With so much stimulus and easy lending the economy is at a juncture of possible downturn hence more contractive measures are being taken to reverse the process. China’s Premier Wen Jiabao yesterday said China will manage the pace of credit growth and the nation’s chief banking regulator, Liu Mingkang, said in an interview today that some banks were asked to reduce lending after they failed to meet capital requirements.

“We have a number of regulatory requirements to ensure prudent supervision,” Liu said. “For those that failed to meet these standards, we told them to limit lending.”

Chinese banks extended a record 9.59 trillion yuan ($1.4 trillion) in new loans last year to help finance the nation’s 4 trillion yuan stimulus package, stoking concerns of asset bubbles and worsening credit quality.

“In terms of monetary policy, China’s overall trend is heading for tightening this year to keep economic bubbles from bursting, but officials are also trying to sustain and expand the economic growth with budgetary tools,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo. “That’s a difficult and narrow path to walk through.”

However the slated rules still predict this as a possible asset bubble that can burst any time. With the record spending in the past year maybe a slight correcting might derail if something unlikely is to happen.

China is still trying to keep its pace with respect to the dollar nearly equal to the paramount number of 6.83 per dollar since 2008 however recently there has been a huge change of 21 percent of the same, henceforth the credit is being tightened for any form of financial shock if Chinese economy decided to appreciate to its original standards wiping many of its indigenous economies.

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