Monday, May 24, 2010

Learn from the Dragon

The Euro went to new lows on the news of Spain having seized one of its savings banks. This reportedly led to the sharp drop of the NYSE at the close but there are other factors like China indicating it will go ahead with revaluing the Yuan. This would be to the advantage of the real US economy and not to the advantage of Wall Street banks or the DOW 30 companies that do 60% or their business outside the US. Pundits are predicting a shift from the Dollar as a safe haven to the Yen if China goes ahead with this so you can expect the wild swings in the markets.

Some pundits are pushing the idea that if China were to allow the Yuan to float on the market it would go down sharply rather than rise against the USD. China has reportedly been spending 200 billion USD annually to maintain the exchange rate they want and you would think they would know exactly what would happen or rather they would just make it happen (2.5 trillion in currency reserves gives you clout).

The only people with more money are the Wall Street banks, who have unlimited funds to apply to their vision of the world thanks to a blank check at the Federal Reserve. One of the on again, off again provisions of the Financial Reform bill was supposed to slam the vault door shut for these banks if they continue to act as investment banks. It could be that China has been waiting to see if any of this reform really happens, they know fully well how dangerous Wall Street banks are and aren't going to waste their Yuans on a fool's errand.

The collapse of the Euro and the draconian cutbacks that are being proposed for the middle class of Europe also has China worried as Europe has been an even bigger market than the US. Their trade is heavily concentrated in the PIGS countries that bought into the Chicago School of Economics snake oil. This neo-con paradise did away with their own industries in favor of Wall Street's easy money from privatization of the commons and exotic debt instruments.

China's leaders aren't stupid, they know Wall Street engineered this. They even made off with a few billion from Chinese state industries, this was a mistake. Prompt refunds were demanded and gotten from the Wall Street banks, China deals harshly with people who screw them. A practice we should adopt for our own survival.