US Govt Wants Weak US Dollar; China Now Bigger Than Jesus

“The story of 2007 is not the US weakening amid the subprime mortgage meltdown – it is the accelerating in China,” says Chris Richardson of Access Economics. “The latter [China] is underpinning great output growth in Australia as we gear up to sell into the biggest global boom since the Beatles.”

There you have it. We’ve been struggling for ways to describe the full effects of China’s industrial revolution. Bigger than the Beatles is close. But why stop there? Why not say China is more popular than Jesus? It is, at least according to Google. A search for “China” generates 703 million hits while a search for “Jesus” generates just 43 million hits.

The big news out of this weekend’s meeting of G-7 finance ministers was the fact that the US dollar was not mentioned. Maybe the US currency has become the sort of thing that is not mentioned in polite company, even among finance ministers. But a story at the Times of London suggests US Treasury Secretary Hank Paulson quashed attempts to mention the dollar in the closing statement.

“Despite widely reported pressure from some eurozone governments, led by France, for the meeting of G7 finance ministers and central bank chiefs to put a floor under the US currency, the group’s concluding statement made no reference to the dollar, euro or yen,” reports the Times’ Gary Duncan.

The US government—despite the absurd lip service to a strong dollar—is happy to see a weaker greenback. There are only two ways America’s US$200 billion current account can be decreased. First, Americans can spend less. Second, the dollar can fall, making imports more expensive in America and American exports cheaper overseas.

It looks like a weaker dollar is the preferred method of US policy makers for lowering the current account deficit as a percentage of GDP. Theoretically, there’s no limit to the size of a current account deficit (that we know of). As long as people keep treating the dollar like it’s gold, America can rack up huge debts.

Trouble is, the dollar is NOT gold. And global investors are not happy to support the currency any longer. So it will fall.

Dan Denning
Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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Hi Dan So, considering that the US dollar’s reply to China’s rise is basically to fold up and die – what do you think Australia’s answer should be? In any case, Australia has: 1) a high level of debt, like the US; 2) a vulnerability rising interest rates, despite that those interest rates remain low, like the US; and 3) a low outlook for wage increases anytime soon, courtesy of offshoring and competition with such emerging economies as India. I don’t share the opinion that a rising Chinese economy is the tip-top best news for Australia, any more than it… Read more »
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