Are we Stupid?

I say "we" meaning the United States of America, and I say "stupid" in reference to the new duties on Chinese imports. I had heard rumors of this, mostly from the new Democrat majority in congress. It has happened, and let's look at the impact of such a bill.

First of all, these duties range from 10.9-20.3% on steel companies, textile producers, and other manufactures facing facing competition from China. What does this all mean? It means that it will be harder for the U.S. to sell its debt to China. In other words, we are cutting off our own lifeline. The old saying goes, don't bite the hand that feeds you, and the U.S. just took a big chomp off of the thumb of China. This bodes quite poorly for the USD.

Let me tell you how I came across this little item of interest. I was on one end of campus doing some readings from a couple financial journals. It was time for me to leave and head to my statistics class on the other end of campus. Before I left, gold was having a nice day up around $4.50 /oz. The USD index was up slightly around .05. I flipped open my laptop, and in the fifteen minutes it took me to ride the bus from one end of campus to the other, the USD index had declined sharply by .38. I started thinking to myself, what could be the cause of such a sudden change. I decided to go to Bloomberg.com, remember that I had been there maybe 30 minutes ago, and sure enough the first headline I see is "Commerce Department Applies New Duties Against China." Wham, I definitely didn't see this coming, at least not yet.

Let me tell you why this is so very bearish for the USD. Like I said, China, among other countries, but mainly China, is our life line. They allow us to fight our wars, and finance our politicians agendas. Without them, we are forced to do one thing, monetize our debt our print money. They are essentially the same thing.

Printing money is self explanatory. Monetizing the debt, if you recall one of my previous posts, is the process in which the U.S. government creates bonds/treasures, and the Federal Reserve prints the money and buys the debt.

Both are so very inflationary and very bearish for the USD. Now the USD is sharply down against the yen and the euro.

I have one final point that I would like to talk bout. These duties, for lack of better words, are going to piss China off real bad. Basically, the U.S. is taxing China. That's what duties and tariffs are. I don't think we want to anger a country that not only holds are future in its forex reserves, but also is the future super power of the world.

I would like to end this post with a quote. It is not my quote, and I can't recall the author either, but it's a good one and ever so prevalent here. "China, like all super powers of the history of the world, will mind its own business, until it can afford to mind everyone else's business." In other words, like the U.S., when China can afford to impose its will around the world it will...militarily. China will use its $1+ trillion of forex reserves for securing future supplies of essential commodities to sustain its growth, and to build a large technologically superior army. They will remember these duties, and they will remember how we opposed them in their fight against Taiwan. If I were in Washington right now, I would get out the knee pads, because there is going to be a whole lot of graveling in the future.