Tensions Increase

In my posts A Tale Of Contradictions I pointed out,

"Western currencies are falling against the RMB, and will fall further and faster in any double dip, and certainly any Depression. China would be under considerable pressure to float its currency or else face quotas, and other restrictions. Given the degree of competitiveness of China's exports it would probably concede."

In fact, as i pointed out in those posts every economy is trying to shift the cost of the crisis on to its competitors. The US is being left to act as the world's consumer - a role it has been glad to fill for the last 30 years - in order that other economies can grow by exporting to it. Each has tried to gain competitive advantage by effective devaluation of their currency. In the aftermath of the Financial meltdown that was not difficult. Money fled towards the dollar as the world's reserve currency, the world's largest economy and therefore traditional safe haven, as well as to the other safe haven and only real long term store of value - Gold. But, in the last few months the dollar has once more continued its long term decline, which is a reflection of the long-term decline of the US economy. That puts pressure on Eurozone economies, which had been benefitting from the weaker Euro, as well as Asian currencies like the Yen - depite the fact that Japan's domestic economy remains mired in stagnation and deflation, it continues to be an efficient producer, and major exporter. In fact, if it were not for its ability to export large amounts of its production, and thereby keep people in work, the Japanese economy really would be in trouble.

Its no surprise then that as the Yen has continued a strong upward trend against the dollar in the last few months, a point came where the Japanese authorities felt theyt couldn't stand on the sidelines any longer. In intervening to reduce the value of the Yen, which effectively means buying dollars by selling Yen - another form of printing money - the Japanese Authorities have provoked the anger of the US, who they did not inform about their intentions. Its not just the US that opposes Japan's move as CNBC reported.

But, its not just Japan that the US has in its sights. For a long time US Capital has been in a dilemma about what to do about China. Big Capital has its own large scale investments in China, which it does not want to see damaged. US Financial Capital has similar interests, not to mention the Chinese Capital invested in the US, which is closely tied to the interests of US Finance Capital. If China pulled out of the US, then US Bonds would collapse, and the assets of many of those US Financial Companies would disappear in a way that would make the Credit Crunch look like a minor blip. The Us needs China to maintain its ownership of US debt, but if the US is to grow its economy on its present basis, then it needs to bring about a managed fall of the dollar against the Yuan. Trouble is as one commentator said on CNBC this morning, and as I pointed out in my post above, the amount of depreciation of the dollar against the Yuan that would be needed to make the US currently competitive would be massive. The contradiction and the tension arising from it can be seen from the latest statements from Treasury Secretary Tim Geithner, who is stepping up the pressure on China to revalue the Yuan, as again CNBC report. The problem is that even China's centrally planned economy that has been powering ahead at double digit rates of growth is not free from the contradictions of global capitalism.

The Chinese central Bank has warned of problems ahead, and other officials have warned of difficulties in sustaining the current high rates of growth. That shouldn't be over-emphasised. Even a slowing rate of growth in China would still see it growing at multiple times the western economies. It has to be born in mind that Chinese policy makers are keen to set the scene ahead of that pressure that the US will want to bring to bear upon them.

But, it is all an indication that those contradictions in the global economy are becoming more not less acute. Its one reason that Gold has hit new highs this week.