China and Russia renounce the Dollar

[Anonymous]

Here's an article from the CBC on how the Canadian Dollar and the Euro have fallen against the US Dollar due to the current world situation:

http://www.cbc.ca/money/story/2010/11/26/loonie-markets-tsx.html

 

[spikejones52002]

Best news I heard yet. Now everyone will stop visiting there. Everyone will stop manufacturing there.

lets all get out of china and russia.

[Dakguy201]

It appears to me that the Chinese were sending a message of their displeasure to our Federal Reserve System.  Surely they can not be happy that their vast stock of dollar demoninated bonds are being deliberately devalued.  I doubt that they believe there is any measure of independence of our Fed from the national government as that whole concept is foreign to their style of government.

I am unable to discern what motives the Russians might have for engaging in this bit of theater.   It is certainly in the Russian interest for the Chinese to view them as partners as the Russians occupy a vast mineral rich area immediately north of China. 

Is there sufficient rail connection to service greatly increased trade between the two?  As an alternative would minerals/goods have to go by rail to the easterrn ports of each country and then by ship?  Or is this whole thing just sending us a message without much practical meaning? 

  

[samfp1943]

Err, Sam I was the one who pointed out the Russian problems. 

YES, You were!   My apologies! 

 My mistake, can I plead a Senior moment? I think I was typing and thinking and I was trying to multi-task. Most likely, I was overcome with the turkey fumes wafting through the house.

"...The European situation is fairly complicated by the fact that Europe is not a single country and has many independent governments, inspite of the existence of the European Parliament in Brussels. Norway and Switzerland are not part of the EU nor the Euro. Switzerland is getting hurt by the rapidly rising Swiss Franc which is hurting their exports. The Swiss are seeing businesses move into their country so their tax revenues are slowly rising even with the effects of the recession. Norway is doing reasonably well. Among the EU countries Germany is doing fairly well, they were seeing a budget deficit, but the cuts they need to make will not be very painful, a falling Euro helps their exports which is a big part of their economy, so long as it doesn't fall too far. Sweden is hurting a bit more, but still not too badly. The rest of the Euro countries are doing poorer. Obviously the sick four that you listed are in the worst shape. Italy is being hurt by Berlusconi's inept government.  Inspite of being pro-business, he manages to make the business climate worse in Italy. The trash situation in Southern Italy being one of the most visible signs. The French problems play out in the headlines as do those of the British. The other EU countries fall somewhere in the middle..."

John;  I think I know from some of your posts here that you do quite a bit of reading, and are interested in what happens in the areas of Europe and Scandinavia.  I would respect your opinion, and impressions of matters in that area. Thank you for setting me straight, and sorry for my error.

 

[beaulieu]

Err, Sam I was the one who pointed out the Russian problems. 

 

The European situation is fairly complicated by the fact that Europe is not a single country and has many independent governments, inspite of the existence of the European Parliament in Brussels. Norway and Switzerland are not part of the EU nor the Euro. Switzerland is getting hurt by the rapidly rising Swiss Franc which is hurting their exports. The Swiss are seeing businesses move into their country so their tax revenues are slowly rising even with the effects of the recession. Norway is doing reasonably well. Among the EU countries Germany is doing fairly well, they were seeing a budget deficit, but the cuts they need to make will not be very painful, a falling Euro helps their exports which is a big part of their economy, so long as it doesn't fall too far. Sweden is hurting a bit more, but still not too badly. The rest of the Euro countries are doing poorer. Obviously the sick four that you listed are in the worst shape. Italy is being hurt by Berlusconi's inept government.  Inspite of being pro-business, he manages to make the business climate worse in Italy. The trash situation in Southern Italy being one of the most visible signs. The French problems play out in the headlines as do those of the British. The other EU countries fall somewhere in the middle.

 

John Beaulieu

[samfp1943]

Thanks, Bucyrus;

              I agree with you analysis of the Russians, They have a long road to hoe from the old Regime to get up to where Western and European societys are, at present. They do have a number of very pressing issues. Their saleable resources are most likely related to those agricultural and mined (drilled) products.

 and to  Murray,Thanks as well:

            The Europeans are in a financial struggle for their own existance, and as they try to shake off their social issues (max pay for short hours and long vacations,etc) and with the current on-going student riots  as thee students come to grips with the fact that the Governments are going to have to start charging more for services that were formerly provided for very low costs (ie; education, which we learn is going up in England by something like a factor of 3x). generous union pension programs that are now taxing strained government coffers to pay what has previously been promised.

               Reality is bringing them a hard,cold set of facts. I think that even if the Dollar is a much troubled currency, it is a better choice than some of the European currencies.

                                 

[Anonymous]

Something to consider....When world tensions rise sharply (such as the recent shelling by N Korea on S Korea) whose currency do people and nations flock to?  THE US DOLLAR.

Also, keep an eye on the Euro.  If anymore European countries have a financial meltdown (i.e. Greece and Ireland.....and Spain and Portugal are up next), that currency will crash dramatically.

Don't write off the US dollar just yet.

[beaulieu]

samfp1943

Thanks Mac;

                      I understood the part about the direct trading of their currencies (China v.Russia), what I was curious about was that we often hear that the Chinese have consistantly undervalued their currency against the Dollar, and thay allowed them to siphon off our trade with their goods( making them much more competitive in North America). 

          I guess my question is, if the the Russians have been doing similarily with the Ruble, does this not create problems in determining value between the two currencies and sublequently the value of their trade?

         My guess is that the goods involved there would be,probably, petroleum, and grains, from Russia to China.While the trade back from China would be mainly manufactured goods.      

       Another guess would be that their trade would be overland (mostly, railroad carried, and some truck transport).         Primarily, it would be rail carriage, and shipping woulf be involved to a lesser extent.(?). If this makes Russia a new and growing market, I wonder how much of the Chinese Manufacturing capacity they will absorb servicing the Russian economy, and ultimately how would this effect North America?              Over and above the driving up of Consumer goods prices here, and that on top of the internal American currency issues of the Fed's potential for pushing inflation of American Dollar values in the World Market.

    There seem to be a lot of questions to be answered and so much uncertainty openly shown by policy makers, not to mention the capacity in our market system, built to move Pacific Rim goods to American markets, what happens to those investments, do we have to go though another period of capacity rationalization?

Sam, the problem for Russia is that they have Natural Resources to export and very little else,. They aren't important in Banking, minimal Consumer Goods production, minimal High-Tech, no Medical Tech, limited amount of Transportation equipment. They also face an aging population with a decreasing life-expectancy. And a rising minority population who are unwilling to integrate. And as long as Putin is in control it doesn't look like any progress will be made toward resolving any of these problems. Cronyism is rampant.

[samfp1943]

Thanks Mac;

                      I understood the part about the direct trading of their currencies (China v.Russia), what I was curious about was that we often hear that the Chinese have consistantly undervalued their currency against the Dollar, and thay allowed them to siphon off our trade with their goods( making them much more competitive in North America). 

          I guess my question is, if the the Russians have been doing similarily with the Ruble, does this not create problems in determining value between the two currencies and sublequently the value of their trade?

         My guess is that the goods involved there would be,probably, petroleum, and grains, from Russia to China.While the trade back from China would be mainly manufactured goods.      

       Another guess would be that their trade would be overland (mostly, railroad carried, and some truck transport).         Primarily, it would be rail carriage, and shipping woulf be involved to a lesser extent.(?). If this makes Russia a new and growing market, I wonder how much of the Chinese Manufacturing capacity they will absorb servicing the Russian economy, and ultimately how would this effect North America?              Over and above the driving up of Consumer goods prices here, and that on top of the internal American currency issues of the Fed's potential for pushing inflation of American Dollar values in the World Market.

    There seem to be a lot of questions to be answered and so much uncertainty openly shown by policy makers, not to mention the capacity in our market system, built to move Pacific Rim goods to American markets, what happens to those investments, do we have to go though another period of capacity rationalization?

[PNWRMNM]

This is irrelevant to us.  The article says that the Russians and the Chinese will simply buy and sell each other's currency direct instead of each valuing their currencies against the dollar and buying or selling dollars as an intermediate step in settling their trade balance.

Today the yuan trades at a rate vs the dollar.  Today the ruble trades at a rate against the dollar.  All they are doing is agreeing that they can determine the relative value of their currencies and settle directly.  The math will not be hard since the currencies will continue to trade against the dollar.

On ballance each will reduce the volume of dollars they buy and sell on the global market.  Since each are on both sides of the transaction, if at different times, there should be no net effect on the value of the dollar on the FOREX markets.

Our budget policies and trade deficits are a whole separate issue and do affect the value of the dollar on FOREX markets and internally in terms of inflation.

Mac 

[Soo 6604]

In simple terms, IMHO, China and Russia don't need our money. All the money the Nations have in the US dollar is not needed anymore therefore it is put back into circulation. Trillions of dollars is suddenly back into the "market place". Just like the stock market, when you flood the market with shares (dollars), the value goes way down. The only way to get the price of the dollar back is for someone (US Fed) to buy it back in the way of "interest".

Put in railroad terms.....Too many cars, put them in storage or sell it as scrap even tho they are still good for revenue.

[schlimm]

samfp1943

     What will this currency move do to this traffic in the United States? 

 

Why should this have any effect?  China and Russia are simply doing direct exchanges of ruble to yuan (Renminbi) instead of conversion of both into dollars.  This is no different than Germany paying for natural gas from Russia by exchanging Euros to rubles.  Pay attention to the motives of people (like Drudge) who want to make this out to be more than it is.

[Anonymous]

I do not know how trade will be affected by China and Russia renouncing the dollar, but the point that we should be worried about is lies in the explanation of why China and Russia have renounced the dollar.  And that point is our new Federal Reserve policy of printing money to inflate our currency.  That is what is going to kill us, not the prices at Wallmart.  The new policy will cause inflation, which will reduce that value of everyone’s assets. 

 

China and Russia denouncing the dollar is the effect of the problem, not the cause.

[henry6]

Will Walmart stop buying from China?  All other retailers and "American" (read "patriotic") manufacturers cancel their orders?  Lets see who wears the Red, White and Blue and who wears either Green on Red!

[Ulrich]

Look at it this way..

Where do most of our consumer goods come from? Answer: China

Where does alot of our oil come from? Answer: Less than friendly nations in the Middle East

Who is making payments on the 500K home and the two cars in the garage? Answer: mostly you and me and your neighbours..

Anything that changes the above dynamic and that makes us less vulnerable and more independent  is a good thing.

 

[Ulrich]

I'm no economist either...but I would say you're right about the detrimental effects...at least over the short term. Over the long term, anything that gives local and regional manufacturing an advantage will be a good thing for the US and Canada, both from an environmental and an economic perspective.

 

 

 

[samfp1943]

This was the major headline on Drudge this morning;

"China and Russia Quit US Dollar"

linked here: http://www.chinadaily.com.cn/china/2010-11/24/content_11599087.htm

My question is how is this going to effect our International Trade? 

         Everybody on this Forum is aware of the importance of the Asian-North American Trade Lane (particularly the Container based traffic.)       BNSF and UP have both comitted heavy,major bucks to support specifically, this traffic lane, in both directions.   Not to mention the other roads that support the same flow of traffic inland ( NS, CSX, KCS) and to a lesser extent some of the smaller lines that move overseas originated containers.

     What will this currency move do to this traffic in the United States?   I'm no economist, but it would seem, surely, have a detrimental effect, on the railroads, and the consumer economy; so dependent on the goods transported,and supported by this important source of Chinese manufactured consumer goods.

     I would also expect that any bad effects here would be collateral damage as well, in Canada and Mexico on their American-linked economies(?)