Tuesday April 18, 2006 Sour note of the day

Inflation coming!

In a GATA (Gold Anti-Trust Action Committee) dispatch of an article in the Financial Times, they have forwarded the news that says, "The U.S. dollar extended losses in European morning trade on Tuesday amid a call from a Chinese politician for China to stop buying U.S. Treasuries. Cheng Siwei, a vice chief of China's National People's Congress, was quoted as saying that 'China can stop buying dollar-denominated bonds, and gradually reduce its holdings of U.S. Bonds'."

The central banks are (and have been) doing everything they can to prevent the dollar from rolling over, but that may soon be history. Paul van Eeden writes, "Mr. Hu Jintao, the Chinese President, is scheduled to visit Washington later this month while the United States continues to put pressure on China to let its currency appreciate against the dollar. It seems China is going to comply: In December Mr. Yu Yongding, who is a member of the monetary policy advisory committee to the People's Bank of China, said that China should weaken the link between the yuan (renminbi) and the U.S. dollar."If China starts reducing its holdings of U.S. debt and assets, or even slow the pace of buying more, then who is going to finance our current account
deficit and the federal budget deficit? Net result?
The dollar goes lower and things that we import (like oil and nearly everything else) will cost more - much more.

The good news about a falling dollar is, they say, that this lower dollar thing will make U.S. exports cheaper on the world market. So, the trade deficit will automatically shrink because we are exporting more and importing less. Unfortunately, as soon as these greedy corporations find that their prices are lower than the competitor's, they will raise prices! So, we will have the worst of both worlds: higher import prices and higher domestic prices!