China Takes Another Step Toward Ridding Itself of the U.S. Dollar

For anyone who doubts my view, please review this quote made by Zhou Xiaochuan - Chairman, Monetary Policy Committee of the Peoples Bank of China last year in March 2009 (hat tip to DC in NJ): "AN INTERNATIONAL RESERVE CURRENCY SHOULD FIRST BE ANCHORED TO A STABLE BENCHMARK ".

Follow the money, not U.S. politicians blowing smoke and bubbles...Just as Tiny-Brain Tim Geithner makes a pathetic pilgrimmage over to China in order to beg them to let their yuan rise in value against the U.S. dollar, this news report from Bloomberg hitting the tape today is no doubt not coincidental to Geithner's visit: "China is considering allowing the yuan to trade against the Russian ruble, South Korean won and Malaysian ringgit to promote its use in cross-border trade, an official at the China Foreign Exchange Trade System said."  Here's the link: LINK

I have maintained that China has been promoting trade using the yuan with many countries as a move to shift global trade from being dollar-based to yuan-based. It makes sense now that China is the largest exporting country. In addition to the above move, China has engaged in multi-billion currency swap transactions in the past with several countries in order to promote trade with those countries using the yuan instead of the dollar. Here is the key statement by China as referenced in the article by Chinese Premier Wen Jiaboa: "China is seeking greater use of the yuan to reduce reliance on the U.S. dollar after Premier Wen Jiabao said last month he is “worried” about holdings of assets denominated in the greenback."

For some reason, it is convenient for policy makers and politicians in this country to blame global economic imbalances and this country's extreme current account deficit on the relative value of the Chinese yuan. Perhaps the U.S. should look in the mirror at itself and understand that a large part of the massive economic and financial problems here come from the catastrophic spending deficits and debt accumulation by both the Government AND the private sector. It's popular to assess just U.S.Government debt vs. GDP and say the U.S. is not the worst offender. But when you combine all public and private debt in this country, the Total U.S. Debt/GDP ratio is the highest in the history of the universe. And this doesn't include the trillions in "hidden" debt liablities, like the $500 billon underfunding of the California State Pension Fund which was disclosed yesterday by the NY Times.

Perhaps the Obama Administration should consider that there may be some painful unintended consequences from trying to get China to do what Obama wants them to do, as per this comment from Zhang Yanling, vice chairman of Beijing-based Bank of China Ltd: “If the yuan is expected to be a strong currency, neighboring countries will prefer to hold the yuan instead of the dollar,” she said. And don't forget, the U.S. Government has been the world's largest currency manipulator since the Bretton Woods Agreement, which established the U.S. dollar as the global reserve currency...If the Obama Administration would confront the vast economic and financial problems right under its own nose with real change and reform, it would go long way toward solving the issues that Obama is conveniently blaming on China...

It recalls the famous quote from Pogo from the 1950's: "we have met the enemy...and he is us."