Composed November 10, 2010
Why is everyone complaining about the Yuan? Let’s look at the facts. China’s export and manufacturing industry operates on a profit margin of 2 to 3%. Any significant market adjustment to the Yuan would mean the total destruction of the Chinese economy. Wal-Mart alone imports 97% of its products from China. Is someone suggesting that we indirectly kill Wal-Mart too? I’m game.
Has anyone really assessed why the North American capital markets are so heavily invested in China, India and virtually all the emerging economies? By the way, we should stop referring to them as emerging economies – they are now fully erect. Well, Don Juan, it is because return on investment on this continent no longer satisfies the greed of those who manage our capital markets. Globalization ultimately means “wage parity”. Wages are a major cost input and combined with lower corporate tax rates there is no reason to leave the erect economies. Private industry is slowing facing this very harsh reality but we simply cannot convince pubic industry of this inevitable fact. They continue to be courted by a union culture who views capitalism as a free ride for the society of “frog-legs swimming atop the lime brew”.
We will invest our capital in the emerging markets, we will buy the majority of our products from the emerging markets, we will allow immigration from the emerging countries into North America but we “will not” allow these very same emerging markets to set-up shop in North America. We are entering the dawn of economic racism and protectionism. We saw its twilight with Japan. We allowed Japan to build a global enterprise via an “export only” market and so began the demise of the North American manufacturing base.
China is building an Empire with a very calculated smile and we are trying to attack it with economic and monetary policy. The Dragon has entered and it is accompanied by a cast of characters from Bollywood. Confucius said long ago “Before you embark on a journey of revenge, dig two graves”. I suggest we put every bank executive in that second grave – they are exacting China’s revenge.