Peak Oil Hell, Peak Dollar = WCBN

At some point soon, if not already, the Chinese economy will be developed enough to begin the process of shifting from being dependent on exporting their manufactured goods to profiting from their own domestic consumption.

Such a condition insulates the Chinese from the full effects of potential recession/inflation cycles in their western trading partner's economies.

Indeed, shifting economic policies toward promoting domestic consumption is arguably in China's national-security-self-interest. For an expected rise in inflation could be largely offset by a concurrent slowing in GDP growth, by say halving growth from 10%+ to 5%.

In other words, China can now easily afford to reduce it's GDP growth rate by 50%, whereas the US and Europe cannot.

Thus with it's US Dollar reserves (now reported be be 1.3 Trillion) the Chinese can with mere words, hints of monetary policy change not even actual policy changes, create shock waves in foreign markets that rebound to their benefit.

The Chinese now have the power to push up prices for the commodities they need for economic growth, using their US Dollars. (arguably a wise policy, using something going down in value to procure something going up in value, most notably copper and oil)

The US Government, Treasury Dept., and Federal Reserve obligingly continue to inflate their currency, creating in effect, a tariff on imports from China. (in addition to the flood of media reports on defective Chinese goods)

When the US Dollar drops far enough, the US economy will recede. Then when the cost of US properties is reduced sufficiently, the Chinese will begin to use some of the rest of their Dollar reserves to purchase large quantities of US businesses at bargain prices.

The United States now finds itself in much the same position that Britain was following World War One, "victorious" and destitute. Or World War Two, "victorious" again, but bankrupt and compounded by trying to maintain an Empire on credit from foreigners.

In the 1920's the newly empowered US inflated it's economy beyond rationale reason, resulting in an enormous crash and ten year depression. The question now becomes whether the Chinese learn from History?

I would bet they have, will, and do.

stephenhsmith
8nov2007