On Tuesday the Fed Chairman Ben Bernanke ended weeks of speculation when he finally cut interest rates by an unexpectedly bold 50 basis points.The dollar immediately fell against all major currencies.It fell to almost 1.40 against the euro and to just over 114 against the Japanese yen.Experts expect the dollar to continue its slide against major currencies unless various central banks also cut interest rates to maintain the existing parity with US interest rates.
The debate over whether a weak dollar is good or bad for the US is endless.The advantages of a strong dollar are that it makes imports cheaper which in turn keeps inflation in check.US consumers also benefit when they either travel abroad or invest in foreign markets as the dollar simply buys more.The flip side is that US companies have to compete with cheaper imports or foreign goods in overseas markets.Foreign tourists do not find the US to be an attractive destination and foreign investors are reluctant to invest in the US.Exactly the reverse happens when the dollar starts to weaken.Then again it is not necessary that a weak dollar impacts everybody the same way.Some companies which are large exporters stand to gain whereas companies which are large importers stand to lose.Further the dollar may weaken to a larger extent against one currency, say the euro and to a lesser extent another for instance the Chinese yuan.Suffice it to say that foreign exchange movements in modern times are far more complex than at any time in the past and whether a weak currency or a strong currency is good or bad also depends on the view one may take of the matter.
The present cut has been forced upon the Fed by the collapse in the housing market and the sub prime crisis.Experts believe that this was perhaps the only way to avoid a recession.But now there is a growing fear that foreign investors will start avoiding the US bond markets.Data already suggests that in July there have been net sales of US treasuries with sales falling to $19 billion from about $97 billion.As the yield gap between the US and the rest of the world narrows this trend may accelerate leaving the US to find other ways of financing its current account deficit which is expected to rise to $850 billion or 6.5% of GDP this year.Foreigners have funded 25 to 30% of US credit and short term paper markets over the last two years.The sudden fall in the dollar's value may also reverse money flows back into Japan causing further pressure on the dollar.Long term bond yields in the US would rise, "increasing mortgage rates" and aggravate the housing crisis rather than solve it.
As other countries hesitate to cut interest rates in step with the US for fear of kindling inflation it remains to be seen whether the dollar is going to fall dramatically against other major currencies or not.Bernanke may have gambled by cutting aggressively as a rapidly weakening dollar is clearly not in any body's interest.
Why Senior Citizens Are At Risk Of Fraud
There are various investment and other schemes currently available which are targeted exclusively at senior citizens.Now security industry regulators have revealed that many of these schemes are full of incorrect claims and some are complete frauds.
Statistics speak for themselves.People 60 and older make up 15% of the country's population but account for 30% of all fraud victims.When you also consider that three-fourths of the country's consumer financial assets are controlled by people 50 or older, then you get a picture of how much is at stake.The money these people control is about $16 trillion!
The encouraging news is that the government is aware of the problem and is trying to find ways of solving it.The Federal Bureau of Investigation has studied the problem and analyzed the reasons why senior citizens are at greater risk than others.Their findings make interesting reading.
Older citizens are more likely to have a "nest egg", own their own home, have good credit and have some spare cash to invest.
The present generation of senior citizens were raised to be polite and trusting.They find it difficult to be rude or to just hang up the phone on unwanted callers.
Older Americans are less likely to report a fraud because they do not know whom to report it to.Often they are ashamed to admit they have been scammed, or they fear that it may be taken as a sign they are mentally incapacitated and they may be asked to hand over control of their affairs by their own relatives.
When elderly victims do report a crime, they often make poor witnesses.this is because it usually takes weeks for someone to realize that he has been the victim of a financial fraud.Recalling events clearly is often difficult for senior citizens.
the most common frauds being committed these days are by selling 'fake' medical products which promise improved physical health and ability to fight or prevent dangerous diseases such as cancer.
The most common frauds being practiced include Health Insurance Frauds,Counterfeit Prescription Drugs, Funeral and Cemetery Fraud, Fraudulent 'Anti Aging' Products, Telemarketing Frauds, Internet Fraud and Fraudulent Investment Schemes and the list goes on.
But help is at hand.The FBI has a Common Fraud Schemes webpage which provides tips on how to protect yourself and your family from fraud.
The Securities And Exchange Commission is also examining ways to protect Senior Citizens from fraud.Hopefully we will soon have an almost foolproof system in place to provide necessary protection to our senior citizens.
Statistics speak for themselves.People 60 and older make up 15% of the country's population but account for 30% of all fraud victims.When you also consider that three-fourths of the country's consumer financial assets are controlled by people 50 or older, then you get a picture of how much is at stake.The money these people control is about $16 trillion!
The encouraging news is that the government is aware of the problem and is trying to find ways of solving it.The Federal Bureau of Investigation has studied the problem and analyzed the reasons why senior citizens are at greater risk than others.Their findings make interesting reading.
Older citizens are more likely to have a "nest egg", own their own home, have good credit and have some spare cash to invest.
The present generation of senior citizens were raised to be polite and trusting.They find it difficult to be rude or to just hang up the phone on unwanted callers.
Older Americans are less likely to report a fraud because they do not know whom to report it to.Often they are ashamed to admit they have been scammed, or they fear that it may be taken as a sign they are mentally incapacitated and they may be asked to hand over control of their affairs by their own relatives.
When elderly victims do report a crime, they often make poor witnesses.this is because it usually takes weeks for someone to realize that he has been the victim of a financial fraud.Recalling events clearly is often difficult for senior citizens.
the most common frauds being committed these days are by selling 'fake' medical products which promise improved physical health and ability to fight or prevent dangerous diseases such as cancer.
The most common frauds being practiced include Health Insurance Frauds,Counterfeit Prescription Drugs, Funeral and Cemetery Fraud, Fraudulent 'Anti Aging' Products, Telemarketing Frauds, Internet Fraud and Fraudulent Investment Schemes and the list goes on.
But help is at hand.The FBI has a Common Fraud Schemes webpage which provides tips on how to protect yourself and your family from fraud.
The Securities And Exchange Commission is also examining ways to protect Senior Citizens from fraud.Hopefully we will soon have an almost foolproof system in place to provide necessary protection to our senior citizens.
Zune Cellphone To Take On Apple's iPhone
Zune, Microsoft's challenge to Apple's iPod is currently available at more outlets than any other Microsoft product.It is being sold by more than 30,000 US retailers.Zune has some features which the iPod lacks.For instance it allows users to use its wireless features to download and share music files, a feature that the iPod lacks.In an interview Microsoft CEO Steve Ballmer confirmed that video sharing would soon be added to Zune, and that a model incorporating a phone would 'eventually' be available. Ballmer however has not offered any timetable for either feature.The video sharing feature would probably be used to transfer content created by Zune customers.
The Zune phone could be the result of consumers wanting a single portable and convenient device to play music,take pictures and make phone calls.In fact like the Apple iPhone earlier it is quite likely that it will incorporate so many features that it will be called a device which you also use for making phone calls.
So far Microsoft's relationship with the mobile phone business is to provide Windows Mobile software to handset manufacturers.This business is amongst Microsoft's fastest growing businesses and is expected to sell 20 million copies this year.Little wonder then that Microsoft is thinking of entering the cellphone business.If it manages to attract a part of the customers who use the Windows Mobile Software then it may go down as one of Microsoft's brightest business ideas.
So far Microsoft has not offered any details regarding the concept of a Zune mobile phone.It is likely to be based on Microsoft's Windows Mobile Software platform,and it could possibly be a branded version of an existing music enabled smart phone, such as HTC's Amadeus or StrTrk.
In fact most of the popular Windows Mobile smart phones and PDA phones are built by Taiwan's High Tech Computer Corporation(HTC), based on a set of HTC-designed reference platforms. HTC recently acquired the popular Asian phone brand, Dopod.
Dopod International manufactures the 'StrTrk' smart phone which it claims to be the world's slimmest and lightest deluxe clamshell smart phone. For music lovers the StrTrk S-300 has external keys for controlling music playback without opening the phone. It also has a 3D animated interface and a grid arrangement of icons that offers one click access to commonly used functions.
So why are smart phones becoming so popular? Experts say that smart phones will supersede various devices such as music players, games consoles, messaging terminals and digital cameras. All this functionality will be held together and enhanced by the low-cost, high performance core computing intelligence at the heart of a smart phone. This convergence will allow wonderful new products and do away with the overlaps of keeping separate devices.
The battle between the Zune cellphone and the iPhone will be an interesting one and also a win-win situation for the consumer.
The Zune phone could be the result of consumers wanting a single portable and convenient device to play music,take pictures and make phone calls.In fact like the Apple iPhone earlier it is quite likely that it will incorporate so many features that it will be called a device which you also use for making phone calls.
So far Microsoft's relationship with the mobile phone business is to provide Windows Mobile software to handset manufacturers.This business is amongst Microsoft's fastest growing businesses and is expected to sell 20 million copies this year.Little wonder then that Microsoft is thinking of entering the cellphone business.If it manages to attract a part of the customers who use the Windows Mobile Software then it may go down as one of Microsoft's brightest business ideas.
So far Microsoft has not offered any details regarding the concept of a Zune mobile phone.It is likely to be based on Microsoft's Windows Mobile Software platform,and it could possibly be a branded version of an existing music enabled smart phone, such as HTC's Amadeus or StrTrk.
In fact most of the popular Windows Mobile smart phones and PDA phones are built by Taiwan's High Tech Computer Corporation(HTC), based on a set of HTC-designed reference platforms. HTC recently acquired the popular Asian phone brand, Dopod.
Dopod International manufactures the 'StrTrk' smart phone which it claims to be the world's slimmest and lightest deluxe clamshell smart phone. For music lovers the StrTrk S-300 has external keys for controlling music playback without opening the phone. It also has a 3D animated interface and a grid arrangement of icons that offers one click access to commonly used functions.
So why are smart phones becoming so popular? Experts say that smart phones will supersede various devices such as music players, games consoles, messaging terminals and digital cameras. All this functionality will be held together and enhanced by the low-cost, high performance core computing intelligence at the heart of a smart phone. This convergence will allow wonderful new products and do away with the overlaps of keeping separate devices.
The battle between the Zune cellphone and the iPhone will be an interesting one and also a win-win situation for the consumer.
Internet Downloads May Cost More
If you thought that you had signed up for an unlimited internet connection and so you could download all you wanted,you could soon be in for a shock.The US Justice Department has said Internet Service Providers (ISP's) should be allowed to charge for priority traffic, which in effect would allow a two-tier internet system to be put in place.The agency said that it was 'opposed to network neutrality,' the idea that all data on the net is treated equally.The agency submitted its comments to the Federal Communications Commission, which is investigating net access.
Part of the problem can be traced to the rapid growth of online videos,music movies and games.Some people are simply using it too much.These internet hogs download excessively slowing down the internet for other users.
Comcast is the first off the block and it has started suspending services to those who are using too much bandwidth.So if you thought you had unlimited service you have another guess coming.
Cable companies argue that they have spent a huge $90 billion over the last few years to improve their networks.They are simply looking to recover their investments as fast as possible.In spite of the investments made hundreds of subscribers share a single internet connection.One high traffic user can slow down an entire neighborhood. Often unscrupulous neighbors may use up your capacity through unsecured wireless routers.But the biggest culprits are people running small businesses from home. These people usually set up small servers which can slow down everybody who shares that connection.
But Comcast is not willing to disclose how much usage will invite suspension.This is because it fears that all users will adjust their usage just below the maximum limit which will slow down the network further.
It is in this context that the comments of the US Justice Department assume significance.This would allow ISP's to charge for certain content.The idea is opposed by Google and Microsoft who have called for equal access to the net.However companies like AT&T and Verizon seem to favor the idea.
The Justice Department says that imposing net neutrality regulations would hinder development of the internet as ISP's would not upgrade networks, and that the entire burden of costly improvements would be shifted on to the average consumer rather than the person who uses it the most.
But this stance is contrary to most of the internet community who believe that such a two-tier system would allow ISP's to become the gatekeepers to the web's content.It is also feared that institutions such as universities and charities will suffer in such a scenario.
It is not yet a crisis and it is hoped that investments in network capacity, switching over to fiber-optic technology and digital -only programming will ensure that bandwidth is not a problem in the future.
Chopping up the web into two may not be a good idea.
Part of the problem can be traced to the rapid growth of online videos,music movies and games.Some people are simply using it too much.These internet hogs download excessively slowing down the internet for other users.
Comcast is the first off the block and it has started suspending services to those who are using too much bandwidth.So if you thought you had unlimited service you have another guess coming.
Cable companies argue that they have spent a huge $90 billion over the last few years to improve their networks.They are simply looking to recover their investments as fast as possible.In spite of the investments made hundreds of subscribers share a single internet connection.One high traffic user can slow down an entire neighborhood. Often unscrupulous neighbors may use up your capacity through unsecured wireless routers.But the biggest culprits are people running small businesses from home. These people usually set up small servers which can slow down everybody who shares that connection.
But Comcast is not willing to disclose how much usage will invite suspension.This is because it fears that all users will adjust their usage just below the maximum limit which will slow down the network further.
It is in this context that the comments of the US Justice Department assume significance.This would allow ISP's to charge for certain content.The idea is opposed by Google and Microsoft who have called for equal access to the net.However companies like AT&T and Verizon seem to favor the idea.
The Justice Department says that imposing net neutrality regulations would hinder development of the internet as ISP's would not upgrade networks, and that the entire burden of costly improvements would be shifted on to the average consumer rather than the person who uses it the most.
But this stance is contrary to most of the internet community who believe that such a two-tier system would allow ISP's to become the gatekeepers to the web's content.It is also feared that institutions such as universities and charities will suffer in such a scenario.
It is not yet a crisis and it is hoped that investments in network capacity, switching over to fiber-optic technology and digital -only programming will ensure that bandwidth is not a problem in the future.
Chopping up the web into two may not be a good idea.
General Motors Races Ahead Of Rivals In August
General Motors pleasantly surprised industry analysts Tuesday when it reported a 6 percent increase in sales for the month of August 2007 compared with year ago monthly sales for August.GM reported total sales of 385,529 putting it comfortably ahead of nearest rival Toyota(US sales only).GM now commands a market share of 26% in the US in light vehicles.When one considers that this has been achieved bucking the industry trend of weak auto sales in this period GM's achievement appears even more commendable.GM's excellent showing helped domestic brands to recapture a majority of US sales.
Although car sales for GM continued their earlier decline,they dropped almost 8%,this was offset by a 16.5% jump in light truck models.Industry analysts are impressed because they feel that this was achieved not merely by giving out increased incentives but because some of their vehicles were genuinely successful in the market, the hottest vehicles presently being their crossovers.The quality of GM products is being recognized.A recent study ranked the Buick number one in vehicle dependability (tied with the Toyota Lexus). Another customer service survey ranks GM better than the industry average above Toyota,Ford and Mercedes Benz.
This excellent performance led Mark La Nevre. GM vice president in charge of North America sales,servicing and marketing to remark "The myth of import superiority is being destroyed'.
August also saw Ford sales drop 14% and it was overtaken by Toyota as the no. two US manufacturer of light vehicles(excluding heavy duty trucks).Toyota also posted a surprise 2.8% drop in US sales to 233,471 vehicles.
What is encouraging for GM is that their vehicles are being picked up for better performance and fuel economy.The 5 year/100,000 mile powertrain warranty offered by GM is popular with the customers especially because it includes transferability to new owners and more complete coverage for parts as well.GM also offers better complimentary programs such as courtesy transportation and roadside assistance.
Although it is Nissan which leads the pack with a 6.3% increase in sales in August, its performance comes on a very low base.It had sold 89,848 vehicles in August last year which increased to 95,527 vehicles this year.Its overall numbers are way below those of GM.
The stock market seemed to welcome this news and GM shares rose 3.2% Tuesday.However the automotive forecasting company C.S.M. worldwide has predicted that US sales will total only 16.2 million in 2007 or 350,000 fewer vehicles than last year.That would be the lowest annual sales total since 1998.How the rest of the year turns out for GM remains to be seen.
Although car sales for GM continued their earlier decline,they dropped almost 8%,this was offset by a 16.5% jump in light truck models.Industry analysts are impressed because they feel that this was achieved not merely by giving out increased incentives but because some of their vehicles were genuinely successful in the market, the hottest vehicles presently being their crossovers.The quality of GM products is being recognized.A recent study ranked the Buick number one in vehicle dependability (tied with the Toyota Lexus). Another customer service survey ranks GM better than the industry average above Toyota,Ford and Mercedes Benz.
This excellent performance led Mark La Nevre. GM vice president in charge of North America sales,servicing and marketing to remark "The myth of import superiority is being destroyed'.
August also saw Ford sales drop 14% and it was overtaken by Toyota as the no. two US manufacturer of light vehicles(excluding heavy duty trucks).Toyota also posted a surprise 2.8% drop in US sales to 233,471 vehicles.
What is encouraging for GM is that their vehicles are being picked up for better performance and fuel economy.The 5 year/100,000 mile powertrain warranty offered by GM is popular with the customers especially because it includes transferability to new owners and more complete coverage for parts as well.GM also offers better complimentary programs such as courtesy transportation and roadside assistance.
Although it is Nissan which leads the pack with a 6.3% increase in sales in August, its performance comes on a very low base.It had sold 89,848 vehicles in August last year which increased to 95,527 vehicles this year.Its overall numbers are way below those of GM.
The stock market seemed to welcome this news and GM shares rose 3.2% Tuesday.However the automotive forecasting company C.S.M. worldwide has predicted that US sales will total only 16.2 million in 2007 or 350,000 fewer vehicles than last year.That would be the lowest annual sales total since 1998.How the rest of the year turns out for GM remains to be seen.
Will a Rate Cut Solve The Sub Prime Crisis
It is clear that a rate cut is coming by the 18th of September.President Bush offered Federal help Friday to aid thousands of home mortgage owners at risk of foreclosure.'We will deliver help and hope to American families who need it', he said.
Of late foreclosures have jumped especially for sub prime borrowers with poor credit ratings or low incomes.
The President unveiled several initiatives to help people at risk keep their homes.They include reforms in tax laws to help troubled borrowers refinance their loans.But he hastened to add that it was not the duty of the government to bail out speculators.He cited both 'excesses in the lending industry' and 'optimistic homeowners who took out loans larger than they could afford,' as reasons for the mortgage crisis.
But it is clear that the Fed has realized that swift action needs to be taken.Bernanke spoke about the 'stability of the financial system.' Experts have taken this to indicate that for the first time in a very long time the Fed intends to deal with with financial stability and economic growth as two distinct issues.This would mark a departure from the policies followed by Alan Greenspan who was preoccupied with interest rates and economic growth alone and who many people are convinced is responsible for the build up of the housing bubble and the present crisis.
So what is the extent of the problem?It is much larger than most people admit.Last year there were 1.2 million foreclosures.This year the number is expected to hit two million, or roughly one in 62 US households.Put the two together and you understand what has happened out there in the last two years.
The remarks of the President and the Fed chief have made it clear that a rate cut is coming.But will it help?The Fed rate has gone up from 1% in 2003 to 5.25% last year.The resultant increase in mortgage rates meant that many people were simply unable to repay.The mortgage institutions then took over the property and found that it was worth much less in the market than the loan given against it!Add to it the costs of foreclosure and you get a true picture of the crisis.These companies are thought to have already lost $200 billion in the value of their investments this year alone.This figure is perhaps higher than the combined profits of all the top financial companies put together for the last several years.So is a 25 basis point or a 50 basis point cut in the Fed rate going to solve the problem?It is highly unlikely.It may cheer up the stock market,improve liquidity and temporarily divert attention from the crisis,that is about all.The crisis will go away only once the housing market recovers and property prices start climbing again.This will take some time.Moreover figures published Thursday showed the economy grew 4% in the second quarter.So it would seem that the Fed may not be able to cut rates too far.
So what is the best solution?The government has to ensure that people are able to stay on in the homes they have bought and gradually repay what they borrowed for it.Foreclosures will simply increase the problem.More houses coming on to the market will drive down prices further and cause another downward spiral which now threatens to spread to other parts of the financial system.
Of late foreclosures have jumped especially for sub prime borrowers with poor credit ratings or low incomes.
The President unveiled several initiatives to help people at risk keep their homes.They include reforms in tax laws to help troubled borrowers refinance their loans.But he hastened to add that it was not the duty of the government to bail out speculators.He cited both 'excesses in the lending industry' and 'optimistic homeowners who took out loans larger than they could afford,' as reasons for the mortgage crisis.
But it is clear that the Fed has realized that swift action needs to be taken.Bernanke spoke about the 'stability of the financial system.' Experts have taken this to indicate that for the first time in a very long time the Fed intends to deal with with financial stability and economic growth as two distinct issues.This would mark a departure from the policies followed by Alan Greenspan who was preoccupied with interest rates and economic growth alone and who many people are convinced is responsible for the build up of the housing bubble and the present crisis.
So what is the extent of the problem?It is much larger than most people admit.Last year there were 1.2 million foreclosures.This year the number is expected to hit two million, or roughly one in 62 US households.Put the two together and you understand what has happened out there in the last two years.
The remarks of the President and the Fed chief have made it clear that a rate cut is coming.But will it help?The Fed rate has gone up from 1% in 2003 to 5.25% last year.The resultant increase in mortgage rates meant that many people were simply unable to repay.The mortgage institutions then took over the property and found that it was worth much less in the market than the loan given against it!Add to it the costs of foreclosure and you get a true picture of the crisis.These companies are thought to have already lost $200 billion in the value of their investments this year alone.This figure is perhaps higher than the combined profits of all the top financial companies put together for the last several years.So is a 25 basis point or a 50 basis point cut in the Fed rate going to solve the problem?It is highly unlikely.It may cheer up the stock market,improve liquidity and temporarily divert attention from the crisis,that is about all.The crisis will go away only once the housing market recovers and property prices start climbing again.This will take some time.Moreover figures published Thursday showed the economy grew 4% in the second quarter.So it would seem that the Fed may not be able to cut rates too far.
So what is the best solution?The government has to ensure that people are able to stay on in the homes they have bought and gradually repay what they borrowed for it.Foreclosures will simply increase the problem.More houses coming on to the market will drive down prices further and cause another downward spiral which now threatens to spread to other parts of the financial system.
US Running Out of Options in Trade Relations With China
Since the beginning of this century the US has pushed for a liberalized trading system with progressively fewer and fewer controls.This system works well with democratic nations with free economies.But China is different;it has neither a democratic political system nor a free market economy.The net result is that its trade surplus is rising by the day on the back of a manipulated exchange rate and artificially controlled labor costs.In 2006 it enjoyed a surplus of $230 billion with the US.The surplus this year promises to be even higher.Not only is the trade surplus a problem but the Chinese dumping of goods in the US has led to widespread job losses in this country.
So what can the US do about it?Since US policies have failed to convert China into evenly a remotely democratic society why should it continue with policies that only favor China and a few US corporations.
To start with the US should pressurize China into allowing its currency the yuan to appreciate significantly.The US must understand that the yuan is the most manipulated currency in the world.Simply allowing the dollar to depreciate against every currency in the world is not very sensible and will have serious economic and political consequences elsewhere.A case in point is its likely impact on NAFTA.If the US dollar were to depreciate significantly from present levels then Canadian and Mexican goods would lose their cost advantage in the US.As a result they would be compelled to look for other markets.In the case of Mexico it would lead to a drastic decline in the living standards of its people and the resultant political instability could have far reaching consequences for the US in the long run.
It is clearly time the US made a detailed examination of why the Chinese are able to outsell everybody else.The examination should cover all goods produced in China and if it is found that any of them are being unfairly subsidized the US should not hesitate to slap them with stiff anti-dumping duties.It is difficult to understand why the US is afraid of being called protectionist even in the face of unfair competition.After all the the government has a duty to protect the economic interests of its own citizens.So far the US has mustered the courage of banning the imports of some tainted chopsticks and toothpaste only.Critics of such a course of action suggest that that the trade deficit is due to a lack of savings by the people.This argument is flawed.Trade balances are determined by exchange rates and not by a lack of savings or otherwise.If the exchange rate were proper then people would not find US goods very expensive in comparison.
They would buy sufficient US made goods to prevent a huge trade deficit and more importantly keep US jobs in the US. Temporary jobs here and there which are used to depict a low job rate are no good.What is needed are solid long term jobs in financially strong corporations.The government would do well to accept that the present sub-prime crisis is also a result of this trend,that is fewer and fewer people having solid long term jobs and predictable income streams.The strategy of hiring temps and outsourcing on a large scale makes people more vulnerable to minor shocks such as a slight increase in interest rates.
This is not a call for protectionism but a call for sensible economics which benefits the people at large and not just a few.Its clearly time for the US to act and act fast before most of its financial institutions are permanently weakened.
So what can the US do about it?Since US policies have failed to convert China into evenly a remotely democratic society why should it continue with policies that only favor China and a few US corporations.
To start with the US should pressurize China into allowing its currency the yuan to appreciate significantly.The US must understand that the yuan is the most manipulated currency in the world.Simply allowing the dollar to depreciate against every currency in the world is not very sensible and will have serious economic and political consequences elsewhere.A case in point is its likely impact on NAFTA.If the US dollar were to depreciate significantly from present levels then Canadian and Mexican goods would lose their cost advantage in the US.As a result they would be compelled to look for other markets.In the case of Mexico it would lead to a drastic decline in the living standards of its people and the resultant political instability could have far reaching consequences for the US in the long run.
It is clearly time the US made a detailed examination of why the Chinese are able to outsell everybody else.The examination should cover all goods produced in China and if it is found that any of them are being unfairly subsidized the US should not hesitate to slap them with stiff anti-dumping duties.It is difficult to understand why the US is afraid of being called protectionist even in the face of unfair competition.After all the the government has a duty to protect the economic interests of its own citizens.So far the US has mustered the courage of banning the imports of some tainted chopsticks and toothpaste only.Critics of such a course of action suggest that that the trade deficit is due to a lack of savings by the people.This argument is flawed.Trade balances are determined by exchange rates and not by a lack of savings or otherwise.If the exchange rate were proper then people would not find US goods very expensive in comparison.
They would buy sufficient US made goods to prevent a huge trade deficit and more importantly keep US jobs in the US. Temporary jobs here and there which are used to depict a low job rate are no good.What is needed are solid long term jobs in financially strong corporations.The government would do well to accept that the present sub-prime crisis is also a result of this trend,that is fewer and fewer people having solid long term jobs and predictable income streams.The strategy of hiring temps and outsourcing on a large scale makes people more vulnerable to minor shocks such as a slight increase in interest rates.
This is not a call for protectionism but a call for sensible economics which benefits the people at large and not just a few.Its clearly time for the US to act and act fast before most of its financial institutions are permanently weakened.
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