Adonis Diaries

China: the main Capitalist partner to the US

Posted on: January 13, 2009

China: the main Capitalist partner to the US (January 11, 2009)

 

            “Communist” China is the largest accumulator of dollars with a reserve of two trillions or two third of its GNP. With such a reserve China is currently the main capitalist partner to the USA; China has interest that the dollar does not devalue, that its currency the Yuan does not increase in value which would make Chinese products less competitive, and that the financial system does not break down.  “Communist” China is catching up quickly on Japan for the purchase of Treasury Bonds, a way of lending the US the needed cash to resume a Capitalist financial policy.  China is not only the factory of the world but also the prime banker to the US.

 

            The Chinese Wen Jiabao PM stated after the financial crash of Wall Street: “We have got to unite. In these difficult times, China has joined the USA.  We believe that our financial rescue will aid at stabilizing the economy and world financial system and thus, preventing a major chaos.  I believe that cooperation is indispensable”.   China is expecting full cooperation of the US in erecting a new Capitalist system and it has more muscles than the European Union in enforcing the re-structuring of the financial system that would guarantee its investments in the USA that amount by the trillions of dollars.

 

            Many of Chinese investments in the USA are in the red after the crash.  The US multinationals that China invested heavily in have been saved with Chinese influx; Fannie Mae and Freddie Mac were saved too.  Lehman Brothers was not spared for reasons.  The Bush Junior Administration had selected Lehman Brothers to artificially increase oil prices to $150 through speculation in order to hurt the ever voracious China in oil demands.  China reacted vigorously.  The world financial system was rotten and China demanded to cooperate in the timing of the crash if the US wanted China to stabilize the financial system after the crash.  Lehman Brothers was the sacrificial messenger of the impending financial crash.

 

            The financial strength of the US was based on the dollars as the universal currency in world economical exchange.  Bretton Woods (in New Hampshire) agreements in 1944 on the financial rules consecrated the pivotal power of the dollars; the British economist John Maynard Keynes tried hard during this conference to create a new world currency the “Bancor” but the US imposed its hegemony. Since then “the US administrators could decide what they wanted and it was up to the rest of the world to pay up the deficit”; Treasury Secretary John Connally stated it clearly “The dollar is our currency, but it is your problem”. 

 

            In 1960, the French President De Gaulle denounced the “exorbitant privilege of the dollars”.  Since the 1980’s investment capitals have been going into the USA and then the US multinationals would re-invest the borrowed capitals wherever they desired; 90% of US Treasury Bonds are purchased by foreign States. Nixon was very comfortable de-linking the dollars from the value of gold and the world had to go along with whatever the US Administrations thought was beneficial to the US regardless of the ultimate danger that exposed the world financial system.

 

            Consequently, States opted to save the surpluses of their dollar in “Sovereign Funds” meant to purchase foreign companies and enhance the flux of technology and know how and the latest management and financial methods.  In one decade, the weight of the dollars in the reserve of world exchange has decreased from 71% to less than 61%. Still, the currencies of the EU, China, and Japan are not that widely used and adopted to counterweight the power of the dollar in trade exchange; but the center of gravity is clearly shifting toward China.

 

            President Elect Barak Obama wants to re-invigorate US economy with major State investment (with Chinese cash); he must be closely cooperating with the Chinese on the amount and ways of re-launching the US economy.

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adonis49

adonis49

adonis49

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