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U.S. aims to foist its debts on others, Chinese economist warns
By Simon Rabinovitch
Reuters
Thursday, October 14, 2010
http://www.reuters.com/article/idUSTOE69D04120101014
BEIJING -- The United States fired the first shot in the currency war and the rest of the world must be on guard for its deliberate strategy to devalue the dollar, a Chinese economist said in an official newspaper on Thursday.
In a front-page commentary in the overseas edition of the People's Daily, Li Xiangyang described the United States as the conflict's "first maker of tomb figures," a Chinese idiom that means someone who creates a bad precedent.
Li, head of the Asia department at the Chinese Academy of Social Sciences, a top government think tank, said continued intervention in currency markets by developed economies would deal a blow to global economic recovery.
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Chinese leaders have warned before that loose monetary policies in the United States pose a serious challenge for emerging markets, but rarely in such strident language, a window onto the rising anger in Beijing.
"The dollar's depreciation may appear to be market-driven. In reality it is a depreciation coloured by very strong, deliberate actions," Li said in the paper, which serves as the chief mouthpiece of China's ruling Communist Party.
The overseas edition of the People's Daily is a smaller offshoot of the domestic edition.
Li said the Federal Reserve's announcement that it might soon launch another round of quantitative easing by buying bonds and other financial assets had been the key factor pulling down the dollar.
The motives were plain enough, he said.
Without a weaker dollar, the United States would have no hope of meeting President Barack Obama's goal to double exports in five years, Li said.
Dollar depreciation will also serve longer-term interests by generating inflation and easing the debt burden that the financial crisis dumped on the U.S. government.
"If the global financial crisis was about nationalising private debt, then in the post-crisis period the urgent need of the United States is to internationalise its national debt," he said.
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World Needs to Stay Vigilant about Active Depreciation of the Dollar
By Li Xiangyang
People's Daily, Beijing
Wednesday, October 13, 2010
http://english.peopledaily.com.cn/90001/90780/91421/7165351.html
A currency war is spreading as the dollar's value against major world currencies has continued to decline in recent days. Some developed countries have begun to intervene in their exchange rates. The recovery of the global economy will suffer a negative impact if this trend is not checked.
It is the dollar that triggered the currency war. Seemingly a market move, the depreciation of the dollar is actually active.
The U.S. Federal Reserve's statement that it might restart quantitative easing -- a policy central banks use to increase money supply -- triggered the depreciation of the dollar. The dollar's value against the basket of currencies has decreased by 7 percent since the U.S. Federal Reserve began talk of possible quantitative easing.
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. In light of the history low short-term interest rates in the United States, a further decrease in the interest rate will drive the flow of short-term capital toward markets of emerging economies, quickening the appreciation of their currencies.
Second, the 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.
Obviously boosting exports relying on the competitiveness of U.S. companies is not realistic in the short term. Nor is it possible to be realized by the strong demand of its trade partners. None of America's trade partners -- except those emerging economies -- are able to achieve growth independently. Judging from the course of history after World War II, considerable depreciation of the dollar is the sole possible option that enables America to realize the goal. In this sense, driving down the value of the dollar has become an important choice in policy for the United States to recover the sluggish economy.
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 State 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. In 2009 America's fiscal deficit stood at $1.42 trillion, 3.1 times the 2008 level. The deficit ratio surged from 3.2 percent in 2008 to 10 percent to a new high since World War II. The debt of the federal government increased to $6.7 trillion, representing 47.2 percent of its GDP. In 2010, the fiscal deficit is expected to be around $1.32 trillion. 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. For instance, the ratio decreased from 121.2 percent in 1946 to 31.7 percent in 1974. Of that number, inflation accounted 52.6 percentage points, economic growth contributed nearly 56 percentage points and federal surplus contributed negative 21.51 percentage points. Even if the United States denies its motive to transfer its debts, it will unavoidably happen.
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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Sona Resources Expects Positive Cash Flow from Blackdome,
Plans Aggressive Exploration of Elizabeth Gold Property
On May 18, 2010, Sona Resources Corp. (TSXV: SYS, Frankfurt: QS7) announced the release of a preliminary economic assessment for gold production at its flagship Blackdome and Elizabeth properties in British Columbia.
Sona Executive Chairman Nick Ferris says: "We view this as a baseline scenario for gold production. The project is highly sensitive to the price of gold. A conservative valuation of gold at $1,093 per ounce would result in a pre-tax cash flow of $54 million. The assessment indicates that underground mining at the two sites would recover 183,600 ounces of gold and 62,500 ounces of silver. Permitting and infrastructure are already in place for processing ore at the Blackdome mill, with a 200-tonne per day throughput over an eight-year mine life. Our near-term goal is to continue aggressive exploration at Elizabeth and develop a million-plus-ounce gold resource, commencing production in 2013."
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