Thursday, October 14, 2010

China: By Devaluing The Dollar U.S. Internationalizes Its Debts, Transferring Its Debts to Others

More from China' on the US dollar devaluation, from the People's Daily:

"The move nominally aims to further drive down the interest rate in America to prevent the occurrence of a double dip. But it will affect the value of the dollar too, prompting the dollar's devaluation".

"U.S. government's strategy to double its exports within five years needs the considerable depression of the dollar. For America, boosting exports is a must in the post crisis era, because it cannot pin its hope for economic growth on the prosperity of its real estate market and consumption based on borrowing money".

"The last but the most important point is that in the long run the considerable depreciation of the dollar will help America to transfer its debts to others. If we say the international financial crisis nationalized the private debts, then in the post-crisis era, the United States sees an urgent need to internationalize its debts".

A great amount of bad debts of American financial institutions have been converted to government debt through government aid measures. [...] How America retains economic growth while reducing the deficit is a big problem for the country. Historic experiences show debt-to-GDP ratio is not directly linked with economic growth and inflation (even devaluation) in most countries. But the United States is an exception because the dollar serves as the world currency. [...]  Even if the United States denies its motives to transfer their debts, it will unavoidably happen in reality.

Given a sluggish economy and huge amount of debts, driving the value of the dollar down is in line with America’s interests, both in short term and in long term. The international community ought to stay vigilant about the strong motive for active devaluation under the guise of a market-based move".

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