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Obama, Bernanke and Romney Want a Weaker US dollar and Stronger Renminbi
Pinnacle Digest writes: Axel Merk’s latest article explains that Obama, Bernanke and even Romney want a weaker US dollar and stronger Chinese renminbi (RMB). They all seem to believe this will create a stronger US economy. Merk cautions to be careful what they wish for and pleads with investors to prepare for such a scenario.
In recent weeks Bernanke has been more adamant foreign governments, specifically developing nations, allow their currencies to appreciate. He has been cautioning developing nations to allow the dollar to depreciate without trying to fight back by depreciating their own currency (hence all our articles about the ongoing currency war). Obama and Romney have both been touting the same message, with harsher undertones. Romney has stated he will label China a currency manipulator if elected to office and Obama has bragged that the RMB has increased in value by 11% since he took office. Merk points out that according to his math, the RMB has only increased 9% since Obama took office. And the increase for the RMB is likely due to the Fed’s monetary policy and has very little to do with Obama.
Merk explains that a weaker US dollar is not the answer to stronger economic growth and a better life for Americans. For example, what happens to retirees if the dollar loses value while currencies like the RMB increase? Considering that the baby boomer population is the biggest demographic in America, a weakening US dollar could be catastrophic for many. Rising prices, with no rising income to offset, can spell financial hardship for retirees.
In addition to the baby boomer danger, Merk states “It may be superficially plausible that RMB appreciation is the key to alleviating our economic woes, by promoting exports and therefore jobs in the U.S. However, while lowering one’s currency might give a boost to corporate earnings for the next quarter (as foreign earnings are translated into higher U.S. dollar gains), it is difficult to imagine that the U.S. can truly compete on price – the day we export sneakers to Vietnam will hopefully never come. An advanced economy, in our assessment, must compete on value, not price.”
For a great example of an advanced economy competing on value, not price, just look at Germany. Germany has competed and become a manufacturing powerhouse because of its innovation (which leads to higher productivity) and the quality of goods it creates. To purchase its goods, countries must pay in the second most valuable currency in the world: the euro.
Merk also addresses how Americans have grown accustom to cheap Chinese products. While they may not be known for their great craftsmanship, the Chinese have made certain goods affordable for many Americans. What happens when the RMB rises and the dollar falls? You guessed it.
Merk states “We agree with our policy makers to the extent that the dollar may be generally overvalued and many Asian currencies undervalued; and therefore the path of least resistance may lead to Asian currencies grinding higher across the board. The below chart illustrates this trend. China’s appetite for currency appreciation against the dollar may have a good deal to do with its currency’s relative strength or weakness compared to its Asian neighbors, who are export competitors. As these other Asian currencies appreciate they provide the RMB more room to appreciate as well.”
Click here to read Axel Merk’s full report.
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Re: Obama, Bernanke and Romney Want a Weaker US do ...
Very interesting discussion even when marginally partisan, the point being that no President of whatever party can give the masses of people (all citizens) anything they do not first take from someone else! This key point is one the voters have not yet learned, switching parties rarely makes any meaningful difference mainly because we have a DEBT BASED monetary system.
The key point rarely acknowledged by any politician, other than a very few, (Ron Paul being the outstanding exception), is that no matter what policies Congress may adopt, they are constrained by the limitations imposed on them by the fractional reserve banking system embodied in the Federal Reserve Act. The mathematics are simple, if you bring your currency required for trade and investment into existence as DEBT, (borrowing) requiring the payment of interest, then obviously mathematically the only possible outcome is a PYRAMID of debt. WHY, because "every bank loan is a new creation of money and when it is paid back it cease to exist" testimony of Graham Towers Bank of Canada Governor in 1939 before Canada;s Parliament. Analyze the statement, since ONLY the PRINCIPAL is ever created there must be exponential GROWTH in loans to roll over the principal at a level sufficient to finance a growing economy, PLUS all the compounding interest that is accumulating as debt and eventually reaches the point we have now arrived at where the DEBT accumulated through this predatory system can no longer be serviced as is aleady abundantly evident on a world scale.
Bottom line, no matter what individual is elected as President, or what party banner he is flying under, the economic problems the world faces will not be solved without a major reformation of the monetary system on a world scale. Expansion of economies must come through SAVINGS and at current low interest rates, there is little incentive to do so. Granted, the necessary changes will be painful for a lot of people, but is necessary to avoid total chao's. We either change voluntarily, OR like any pyramid that has reached its end point it will self destruct with unkowable specific consequences for any one nation. With Europe unravelling and the Chinese, Russians and others defying the "Petro Dollar" foundation the world has operated on for nearly 40 years, a climax is not far off and neither Presidential candidate is capable of solving the problem without thinking outside the box instead of just "tinkering" with the established order as all Presidents have done to date.
thinker70
Re: Obama, Bernanke and Romney Want a Weaker US do ...
Southpen,
Before I go any further, I just want to say that I appreciate our debates and by no means is any of this stuff personal.
Do I think a Republican would have done anything differently when the crisis ballooned 4 years ago? Depends which Republican I guess. Obviously we know Bush had no fiscal discipline.
I don't stand loyal to any party to be honest. While I do view myself as conservative, when I vote, I vote on a leader and his/her policy. When Obama was first elected I thought he would be more of a centrist, but I guess I was fooled like many others. I do believe Romney, if elected, will be more of a centrist than a right wing maniac many portray him to be. However, I've been wrong before.
Electing Ron Paul would have been the best thing for America in my view and clearly yours as well. But let’s be honest, he never had a chance. He ruffled some feathers to his credit, but that’s about it.
If Romney loses this election, I think we’ll see the start of the formation for a third party in the US - probably something like our Liberals in Canada (a true centrist party). The shifting demographics in the US don’t favor the Republican party over the next 40 years.
America needs its next President to help the country become energy independent. Whoever I believe could do that would get my vote.
It’s a shame big money has bought this election. Estimates are coming in at $6 billion spent on this Presidential election. That is an insane amount money for a country mathematically bankrupt, with 23 million people out of work and 46 million on food stamps. Worse than that, an estimated $400 million has been contributed to campaigns by undisclosed donors. I hope for the sake of America foreign influence isn’t getting involved.
p.s. Let's call a spade a spade here. You obviously are a die hard Democrat given that you went so far as to defend Jimmy Carter.
Re: Obama, Bernanke and Romney Want a Weaker US do ...
" I never mentioned anything like that " , True ,you didn't but I've seen a lot of jabs at the Obama Administration from members here at PD that thoroughly are not giving fair measure. The author of this article ,most certainly among them.
I don't care if investors here don't like Obama .I do care when constant rhetoric of badly orchestrated criticism is so prevalant that it looks like the truth ,when in fact it is not. I ask you straight Aaron. Do you really believe a Republican would have done anything differently when the crisis ballooned (4 years ago) ? You make a valid point,
".Entitlement societies don't like that sort of thing "
Exactly right !
The only way we could be fiscally responsible is to elect Ron Paul and give him 4 years to work miracles. It would not effect my life in any bad way at all ,however social liberals and a vast majority of conservatives, of all types would think the sky was falling.. Who would his party be ? Not Republicans,as I said ,that idea was laid to rest. Half the Tea Party believes in Romneys idea of expanding the military at all costs.. That's far from libertarian.
There's not really very many faithful politicians in the U.S. , but they do exist. As far as the Obama Administration goes . I did not agree with any of the bail outs ,or extending unemployment or giving people underwater in their mortgages, a 2nd chance but... Maybe it would of caused a catastrophic failure in this country that could of lead to worse than what we have. The term "kicking the can down the road", is not monopolized by the Democratic party ,infact I would bet that there has been more abuse from Republicans over the last 50 years.
That fact does not make me a die hard Democrat,I simply believe more harm has been done to this country by Republicans. We really need a third party or fourth. A group of politicians that could unwind this mess would have the strong fiscal reponsibility of a true classic liberal like Ron Paul and the unwielding faith ,strength and fairness of a true social liberal like Dennis Kucinich. These guys seem like polar opposites and on paper they are but they both have major idea's that could turn this country around. They are both very intelligent ,honorable men I'm sure would put the country first and develop a new compromise that could use reason to overcome the dysfunction of the present mess. These guys like and respect each other from very different political leanings. and will likely never fulfill what should be destiny. That's a real American tragedy.
Re: Obama, Bernanke and Romney Want a Weaker US do ...
Southpen you make some great points. However, you stated that "How you can infer that the current Administration has done worse than the most horrific 8 years of bumbling ,self centered idiotic decisions is beyond my understanding." I never mentioned anything like that. I believe Obama and Bush were both weak at managing the country's finances. Bush doesn't represent fiscal conservatism in my view, and certainly neither does Obama.
You stated "A ,1 trillion dollar deficit means we should be developing a budget of balance ,0 deficit .Who would vote for that ,other than me.?" Can't argue with that!!!! And sadly you are probably right. Entitlement societies don't like that sort of thing. I hope you are right in that the Libertarian movement takes hold of American politics. Sadly, I don't think it stands a chance until the entire system collapses.
Re: Obama, Bernanke and Romney Want a Weaker US do ...
Aaron, Germany is an elite manufacturer .No argument at all. My point was not to say the only reason they've done well was because of revaluing other European nations currencies. It was to say, that it greatly helped a manufacturing boom . Thinker pointed out that some other Euro nations could not afford German goods. Correct. Before the Euro and likely more of that in the present and future.
I see a lot of blame being thrown at the current Administration and other than a "chosen path" ,that made Geithner and not Volcker the boss of fiscal dicipline,I really think most arguments against are lame. I've said it many times here at PD. Obama and all of Congress were set on a path. We would either go the libertarian route or continue kicking the can. I think the Obama Administration has done a decent job kicking the can. I see no difference with Romney with the exception of some renewed flexing of the American muscle which will likely give us trade wars and military conflicts ,neither of which we can afford .Bush years were not only disasters in themselves but also set up the greatest freefall in markets since the Great Depression. It was building for years with HORRIBLE fiscal policies and it was from the most irresponsible ,self serving group of political criminals that this country has ever had (still at large). ie; Haliburton gets caught screwing our Gov't out of 65 million during the Iraq war. What happened to that ? Nothing.
Clinton is reponsible for one of the supreme blunders. Less than 2 months before his Presidency was finished ,he ended in total,; GLASS STEAGALL. The Republicans seemed happy .Maybe it was a deal for Starr to get off Clintons back . He traded a few blow jobs from a chubby intern for policies that I'm sure he knew would be abused. .Who really knows? The fact is ,it was the beginning of the end and the end result began 6 months before Bush left office . The abuse of the Banks came to a head as Obama walked in. Volcker would have fried the bastards. Geithner decided to play ball. Who really knows what might have happened but I didn't see a lot of these new founded fiscally responsible Republicans jumping up and down for giving the Banksters what they wanted. They fell in line because they are part of the same problem.
How you can infer that the current Administration has done worse than the most horrific 8 years of bumbling ,self centered idiotic decisions is beyond my understanding . Obama has done what he was compelled to do with a weak electorate .I for one ,realize that the time of the politics of Ron Paul and strong classic liberal roots are coming. Reagan and Obama have the same fiscal legacy .I wish people would finally get that. I don't give a pass to anyone but economically , the fact is these last 4 years have been a direct result of the previous 8. Could the situation have been handled better .YES. Could it or would it be handled better by Mitt Romney and his proposals .I say NO WAY. His math is bad ! If somebody from the American Government really wanted to change the path ,there would be only one route to take and that route was vehemently denied during the Republican primaries. A ,1 trillion dollar deficit means we should be developing a budget of balance ,0 deficit .Who would vote for that ,other than me.?
Re: Obama, Bernanke and Romney Want a Weaker US do ...
Southpen you stated “This is a bad argument by Merk. Germany is able to sell it's goods to other nations in the EURO because the cost or price of the good is the same . That's how they succeeded . Instead of devaluing their own currency ,they revalued their biggest trading partners.”
While you make a valid point - it isn’t the only reason Germany is one of the world’s biggest exporters. Sure, France may be there number one customer, but China, the UK and the US are three of the top 5 markets for their exports. Germany is not an elite manufacturer because of some currency program. Innovation and productivity has got them to where they are. End of story.
Thinker70 you stated “Romney labelling China a "currency manipulator" is a joke, albeit a sick one. No nation has been a bigger manipulator than the good old U.S. of A”
No one can argue with that. Bernanke wants to debase the dollar and tell everyone else not to worry and to let their currency appreciate. It’s almost comical. How stupid does he think the rest of the world is? But it is nothing new. I think the dollar has lost 95% of its purchasing power over the last 70 years roughly. Romney's statements were dumb.
Thinker70 you’re absolutely correct. The games Bernanke is playing with the USD are simply methods to inflate away debt. With an enabling Fed like Bernanke, who is going to keep Obama or whoever else leads the country in check? The Fed is already buying the majority of US debt nowadays. What consequence does the Obama administration suffer from over-spending and over-borrowing?
Washington’s political scene is a cartoon. There are the most outrageous of characters, on both sides, making the most important decisions for the global super power. It’s scary.
Southpen I don’t think anyone is blaming the current administration for everything; yet the current administration blames everything on the Bush administration. Pretty funny actually. Where's the accountability? When you look back, it was a Clinton initiative that actually started to whole housing disaster.
Re: Obama, Bernanke and Romney Want a Weaker US do ...
I doubt as Southpen seems to suggest that Americans out of a job or even just reduced income will buy American goods at a higher price, even if the quality is better, it comes down to what the individual can afford.
Thinker, I didn't suggest they would. I did suggest that with more manufacturing in our own country ,we would see our goods at better prices.With the rise of Asian currencies (which is proper) the gap would be closed .Then quality might just become a factor.
I would like Southpen to explain to me HOW nations like Portugal, Spain, Ireland etc, can afford to buy German goods when their productivity is so much lower and have unemployment as high as 25%, and knowing government statistics are not accurate, probably higher? The fact they all use the same currency is largely irrelevent when they simply can not afford a lot of foreign goods.
The fact is Thinker ,these countries can't now,but when the euro was introduced and credit made available , German success was inevitable.I did not suggest the EURO in itself was successful. The Euro was an experiment that gave the manufacturing might of Germany some new buyers.Had the Euro never been introduced,none of these nations would ever have had the credit or the monetary means to buy German manufacturing ,to the levels they did.
You don't seem to have a grasp of how long the U.S. currency has been over valued. This has made a smaller middle class and wealth beyond comprehension for an elite minor percentage of our population. It all started with Nixon,taking the USD off the gold standard.When times got tough (some 5 years later) Carter was in a very bad position.He was dealing with something the former leaders had never anticipated, absolute change in how America was percieved throughout the world.,Reaganomics introduced the world to the great service economy and greater use of the Federal reserve..Our USD was way too high and it killed our manufacturing base.Spending was a way of survival for this country. To blame the current Administration for the whole bad dream ,is just playing a blame game with no substantiation.. Reagan increased the national debt 100% in 8 years. Obama is projected by most to increase the national debt 100% in 8 years. Do you really think Romney will make it any better ? Explain the differences.
Re: Obama, Bernanke and Romney Want a Weaker US do ...
Romney labelling China a "currency manipulator" is a joke, albeit a sick one. No nation has been a bigger manipulator than the good old U.S. of A but what people don't seem to get is that calling todays paper a "dollar" when it now has the purchasing power of 3 to 5 cents compared to the original DEFINITION of a dollar as specific weights of gold or silver is not only dishonest but a deliberate deception that hides the fact that the working mans income is being confiscated through inflation. I doubt as Southpen seems to suggest that Americans out of a job or even just reduced income will buy American goods at a higher price, even if the quality is better, it comes down to what the individual can afford.
Even sicker, if not outright laughable is Bernanke, "cautioning developing nations to allow the dollar to depreciate without trying to fight back by depreciating their own currency" WHY NOT? Americans have been screwing other nations ever since its dollar became the worlds reserve currency, a responsibility the Federal Reserve has totally botched, so "helicopter Ben" is saying in effect; "how dare you do the same thing we do with impunity" an outrageous double standard.
The REAL reason the 3 clueless functionairies behind this policy want a lower dollar is to "inflate away" the totally irresponsidble DEBTS the government has contracted and dumped on the backs of taxpayers while enriching bankers and their cronies. The insane policies of this administration that has added $6TRILLION to the National Debt, while incomes continue to fall, and REAL unemployment continues to rise, is PROOF that you can not create wealth by simply PRINTING currency, all it does is devalue all existing paper currency. That is the real reason gold APPEARS to be more expensive, when in reality it is simply PRESERVING purchasing power. The reality is it takes more of the devalued paper to buy it. GOLD AT TODAYS PRICES IS A BARGAIN, and we will see that proved in spades over the next 2-3 years.
I would like Southpen to explain to me HOW nations like Portugal, Spain, Ireland etc, can afford to buy German goods when their productivity is so much lower and have unemployment as high as 25%, and knowing government statistics are not accurate, probably higher? The fact they all use the same currency is largely irrelevent when they simply can not afford a lot of foreign goods.
I would hardly call the "EURO" a success given that the nations that have signed on have different cultures, work ethics, laws and UNLESS the unelected bureacrats fronting for the international bankers succeed in convincing the individual nations to give up their soverignty and allow Brussel's bureacrats to dictate their budgets so there is complete economic and political integration then the chances are the monetary union will break apart. It would be a complete departure from democracy and adoption of Soviet/Chinese style Central Planning, which we know dosen't work, from the frying pan into the fire so to speak.
I blame America's problems on a combination of corrupt clueless politicians drinking the "Kool Aid" of thoroughly discredited Keynesian Economics and greedy bankers who have them in their back pockets, it certainly is not due to a "strong dollar" given it has been a long time since an American dollar could have been considered STRONG by any objective standard.
thinker70
Re: Obama, Bernanke and Romney Want a Weaker US do ...
Merk explains that a weaker US dollar is not the answer to stronger economic growth and a better life for Americans.
Really ,when did he do that ? Rising prices from Chinese goods might cause seniors to buy less at Walmart and more quality goods made in the U.S. ,which most certainly WOULD be less expensive. When our own manufacturing of products is more vibrant,WE save because mass production causes cheaper prices. Also, if WE buy goods with depreciated American currency ,it cost US citizens nothing more unless the product is foreign. If the product is made in the U.S. or even similar currency like Canadian ,it costs those seniors no more.
Merk quotes;For a great example of an advanced economy competing on value, not price, just look at Germany. Germany has competed and become a manufacturing powerhouse because of its innovation (which leads to higher productivity) and the quality of goods it creates. To purchase its goods, countries must pay in the second most valuable currency in the world: the euro.
This is a bad argument by Merk. Germany is able to sell it's goods to other nations in the EURO because the cost or price of the good is the same . That's how they succeeded . Instead of devaluing their own currency ,they revalued their biggest trading partners.
Anyone who believes a strong U.S. dollar is not a major cause of so many of the countries financial problems has been asleep at the wheel since Reaganomics.,began to reshape American exporting power.