Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Global Deflation and Currency Manipulation Boosts the U.S. Dollar

Currencies / US Dollar Apr 19, 2009 - 11:14 AM GMT

By: Money_and_Markets


Best Financial Markets Analysis ArticleBryan Rich writes: This week there was plenty of data to digest from the financial markets and the overwhelming theme was — more of the same.

If you missed it, here’s a run-down …

Global deflation, lifeless global trade, spiking residential foreclosures, capacity utilization running at the lowest level on record, foreign capital continuing to move into U.S. Treasuries, and now commercial real estate is in the crosshairs. Throw in a few pom-pom toting bankers, and another week par for the course.

At the same time, the perplexing divergence between growing investor optimism (those listening to the cheerleaders) and the fundamentally abysmal economic situation (those looking at the facts) continues to build.

This tells me a top in this wave of risky assets is near, if not already here, and a sharp reversal will follow.

My proxy of risk appetite in the currency markets is the Australian dollar/ Japanese yen exchange rate. This pair was a high flyer when the carry trade was performing and was smashed back down to earth when the economic and financial crisis kicked off.

Now, even as global central banks are slashing interest rates, this pair still has a nearly 300 bps interest rate differential — the widest among the G-10 currency complex. And over the last week the AUD/JPY has rallied 33 percent as the environment for risk taking has improved.

But as you can see in the chart below, this week the pair put in a key reversal signal, which tells me that it is vulnerable to a sharp move lower. It also implies other risky assets — such as stocks — are vulnerable, too.

Australian dollar vs. Japanese yen

Source: Bloomberg

More Signs of Floundering Global Trade …A Boost for the Dollar

The U.S. trade deficit narrowed last week to the lowest level since 1999. This is positive for the dollar and negative for U.S. trading partners.

U.S. Trade Balance

Source: Bloomberg

Furthermore, this number illustrates the damage being done to export-centric economies. For example, Japan has reported that auto exports to the U.S. are down more than 60 percent. And China just reported a 50 percent haircut in its economic growth from two years ago.

Recovery for these countries doesn’t come without recovery in the United States. And that message is becoming clearer and clearer as time passes.

Treasury Says China Not A Currency Manipulator (Wink, Wink)

Mr. Geithner is a busy man. And in the midst of doling out billions of dollars to banks, managing stress tests, building his staff and spending hours a week in unrelenting obligatory briefings before a badgering, camera-seeking Congress — this week Geithner’s Treasury Department managed to churn out its bi-annual report on foreign exchange.

What’s interesting about this report is that it requires the U.S. Treasury to make a statement on China: Currency manipulator or not a currency manipulator.

After just a few months on the job, Obama and Geithner no longer believe that China is manipulating its currency.
After just a few months on the job, Obama and Geithner no longer believe that China is manipulating its currency.

And this is a touchy subject. (See my March 21, Money and Markets column for more background.)

Just three months ago, and prior to being confirmed as the Secretary of Treasury, Mr. Geithner and the new administration took a sharp stance with this written statement to the Senate Finance committee:

“President Obama — backed by the conclusions of a broad range of economists — believes that China is manipulating its currency … Countries like China cannot continue to get a free pass for undermining fair-trade principles.”

But this week, the Treasury backtracked, concluding that NO major trading partner was found to be a currency manipulator!

What a difference a few months makes.

Of course, taking the official stance that China is a currency manipulator would require action. And an official claim would imply that China is violating WTO rules.

So for now the Treasury has enough on its plate, particularly when the trade gap with China is actually narrowing and the yuan has remained stable throughout the global economic crisis — while other emerging Asian currencies have declined and, in some cases, dramatically.

But the Treasury report did call the Chinese currency undervalued. And the IMF followed suit, calling it significantly undervalued.

Since the inception of this reporting mandate in 1988, the Treasury has found three violators of currency manipulation: China, Korea, and Taiwan. All were prior to 1994. Since 1994, according to the U.S. Treasury, it’s been a fair game … a level playing field.

And since 1994 …

  • China has grown four-fold, while the size of the U.S. economy has doubled.
  • The U.S. has gone from importing just 4 percent of its total imports from China to 18 percent.
  • China has become the third largest economy in the world, on pace to become the second largest as early as next year.
  • China has accumulated the world’s largest foreign exchange reserves. At $1.9 trillion, it owns 29 percent of the world’s reserve assets.
  • China has accumulated the largest stake of U.S. government debt.

Meanwhile, for over a decade, the value of the Chinese yuan went unchanged relative to the U.S. dollar. And under its new, managed exchange rate regime, the yuan has appreciated just 20 percent against the dollar.

Devaluing the yuan could be a politically and economically threatening move.
Devaluing the yuan could be a politically and economically threatening move.

This week, China reported a growth rate of 6.1 percent for the first quarter … the slowest growth since 1999 … just half the growth in the economy’s output since June of 2007.

Yet even with the souring global demand, China’s global trade surplus is growing, AND its foreign exchange reserves are growing.

This all points to one thing: An undervalued yuan.

And as I said back in my March 21, Money and Markets column, I think it’s well within the realm of possibility that if the Chinese are staring down the barrel of recession, they may take the opposite tack with their currency: A DE-valuation. Such a politically and economically threatening move would create major waves.



This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit .

Money and Markets Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules