China's Become the Whipping Boy for U.S. Stagflation and European Protectionism

Show notes from Dr. Enzio von Pfeil's recent appearance on CNBC Squawk Box:

We believe in Stagflation for America:

THE “STAG”

• The Economic Time™ in America has been worsening for over a year.
• Thus, we are not surprised that the Fed has had to cut rates.
• That worsening of The Economic Clock™ is compounded by the subprime crises. We use the plural in “crises” because the international ricochet effects are being felt only now:
• The Saudis are having to bail out Citibank (C)
• The US Treasury – as in Goldman Sachs – is supporting banks, and
• The Bank of Japan is worried about the opaque exposure of its banks to the higher yielding sub =

The “FLATION”

• Congress got what it wanted: a cheap dollar.
• That means that Americans have to pay more dollars per unit of foreign currency.
• On top of which with congress and bush colluding on the muddle east, the price of oil stays nice and high, driving up commodity prices.
• Add to this that us productivity is waning, meaning that us labour costs are rising.
• These rising input costs cannot be passed on to the consumer – as the consumer is getting scared of falling house prices. So profits must decline.

EU-China summit.

Let's discuss EU-China trade relations & imbalances, yuan, etc.

THE YUAN

• The key issue is that the Euro will gain less from the Yuan revaluation than the dollar will.
• This has everything to do with the ECB’s sensible monetary policy: Trichet is an inflation hawk, so in his most recent statement he re-iterated that there is upside to Euro interest rates.
• Meanwhile, The Economic time™ in the Anglo-Saxon world (use and Britain) already is worsening. This means that Anglo-Saxon interest rates have to keep falling, and that makes them less attractive as investment currencies.
• The upshot: forex traders will pile out of (Anglo – Saxon) currencies whose interest rates will keep falling – and thus they will pile into currencies where rates will stay high, e.g. the Euro.
• So the Euro will climb. Therefore, even if the RMBs rises more, it will rise more against the US$ and Sterling than against the Euro.
• Thus, Europe benefits less from any RMBs revaluation than the Anglo-Saxon currencies will.

TRADE RELATIONS

• We can thank Europe’s (and America’s) politicians for waning productivity and higher taxes and well as regulatory burdens.
• Seems, like with America, that China is becoming a whipping boy of sorts for the failures of “democratic” politicians.
• So, look for more acrimonious trade relations, with socialist and thus protectionist Europe picking the fight with China.
• Europe will whip China in various hypocritical ways:
• understandably on account of China’s appalling lack of environmental protection, but that will end up as environmental protectionism driven by Europe.
• curiously on product safety. How come this issue has “just” appeared? Concerning product safety, we wonder just why the Europeans cannot put their own inspectors on the ground in China to examine the safety of products that European companies have commissioned Chinese manufacturers to make? Or has Bruxelles also prohibited this? Why are only the Chinese to blame – and the Europeans are so wonderfully faultless and virtuous?
• I hardly think that it has been Beijing who has been calling for:

1. taxes in Europe,

2. increasing the regulatory burden on European companies, or

3. allowing the educational systems and thus productivity of vocational workers in Europe to wane, has it?

• Curiously, this is where Australia’s elections come in: PM Rudd speaks Putonghua and was based as a diplomat in Beijing, so he understands China. The upshot is going to be a much tighter pan-Asian trade bloc that increasingly turns inward, sick of being blamed by protectionists on Capitol Hill and well-paid socialists and protectionists in Bruxelles and in other parts of the European museum.

Comments

[Jimk7:]

Isn't it ashame what happens when little kids with new money behave badly? When one gets a fat head and bites the hand that feeds it? Such a shame! It is WW3 but in financial terms, not military, at least for now not. I do agree that the West has become mentally and in many respects physically impotent and incompetent and the East is rising rapidly and hungry for idea, innovation and progress. This is something the West needs to rapidly adapt to or risk losing it's "face" in the world. I personally live in America and was born in America but after living in the East for some time, I realize that America and its' government is becoming a bloated man-pig on crutches without a chance for gaining leaders with vision as the political system is full of fakes and slimeballs who enjoy collecting their easy money and fat pensions and the population that votes has become severely dumbed down by the media and drugged-up by the pharmaceutical industry, oh and the food we eat and toys we buy for our kids poison us and we look to blame and sue others for our own ignorance and ill-complacency.

2007 Nov 28 09:04 PM

[lexga:]

Suggest you head back East.

2007 Nov 28 09:55 PM

[Jimk7:]

Isn't it ashame what happens when little kids with new money behave badly? When one gets a fat head and bites the hand that feeds it? Such a shame! It is WW3 but in financial terms, not military, at least for now not. I do agree that the West has become mentally and in many respects physically impotent and incompetent and the East is rising rapidly and hungry for idea, innovation and progress. This is something the West needs to rapidly adapt to or risk losing it's "face" in the world. I personally live in America and was born in America but after living in the East for some time, I realize that America and its' government is becoming a bloated man-pig on crutches without a chance for gaining leaders with vision as the political system is full of fakes and slimeballs who enjoy collecting their easy money and fat pensions and the population that votes has become severely dumbed down by the media and drugged-up by the pharmaceutical industry, oh and the food we eat and toys we buy for our kids poison us and we look to blame and sue others for our own ignorance and ill-complacency.

2007 Nov 28 09:04 PM

[Axxonne:]

Thankfully this article is not simplistic. It is, however, simple, and yet rings true. It sets the stage for my future reading of usually un-necessarily complex renditions of what is going on in the world.

2007 Dec 02 03:46 AM