This could well be the highlight of Obama presidency. Not Health care, not job creation and not his Banking reform and Volcker rule. China will decide whether US can continue with its unemployment benefit program which totals roughly 750 billion. China decides whether US can continue with its Defence budget. China decides whether US can continue with its health care budget. US budget allocation of 3.5 trillion is hugely depended upon financing from China.

To the growing list of grievances between the United States and China, add one more: the Obama administration is reviving American pressure on China to stop artificially depressing its currency, a policy that fuels its persistent trade gap with the United States.

New York Times:

Reopening the battle with Beijing over its currency may pay political dividends for Mr. Obama at a time of double-digit unemployment and growing fears that China is stealing American jobs. But experts say the president will have even less leverage over Beijing than President George W. Bush did. Mr. Bush prodded China for years to adjust its exchange rate with little success.

China, they say, is determined to reignite its export machine after a global recession that sapped demand for Chinese goods. A cheap currency is vital to that goal. And China’s leaders have grown impatient with lectures on economic policy from their chief debtor, the United States.

China is an impossible puzzle for US. The problem is the US does not understand that China cannot and will not allow its peg to be removed. It simply has no choice.

I believe the latest Dalai Lama meetings and arm deployment in Tiawan needs to be seen in this light as they could be simply arm twisting to pull China into line.

Fresbee
Investing Contrarian