The Makings of a Currency Crisis
Monday, July 23rd, 2007
By Michael Lombardi, MBA for Profit Confidential
China’s economy, as measured by gross domestic product, expanded by 11.9% in the second quarter of this year — the quickest pace in 12 years. Inflation also rose in China in the second quarter to 4.4%, higher than the government’s three percent target rate.
Strong economic growth in China means interest rates there are rising again. For the third time since March, interest rates in China are going up. The widely followed Chinese lending rate is going up to 6.84% to a new eight-year high.
Years ago, China was a small player in the economic picture. Today, China is the world’s fastest-growing economy, accounting for about 10% of all global economic growth. An unbelievable feat, but one you can really thank America for.
Because of the creation of mega super-retailers like Wal-Mart, cheap “made in China” goods are in big demand in the U.S. and all over the world. Savvy consumers want to pay less and get more — something that can only be achieved with the cheap and large labor pools that exist in developing nations like China.
The negatives of the China boom to the U.S. are obvious: Our trade deficit is out of whack and our dollar is under immense pressure because (1) interest rates are rising around the world except in America, and (2) too many U.S. dollars are going overseas to pay for goods in China.
What will China do with the one trillion U.S. dollars it is sitting on? That question is on many an investors’ mind. Too many of anything causes prices to go down, including currencies. So the pressure continues on the greenback to fall in value against most world currencies. So far, a lower-priced American dollar is something the stock market likes. But buyer beware!
The makings of a currency crisis could be underway right now. What will happen if the U.S. does not raise interest rates to support the U.S. dollar? Will the American greenback plummet in value against other world currencies? Likely.
Will Euros or other currencies be demanded for oil and goods imported into the U.S.? Yes. In fact this phenomenon is already starting. That’s something the American economy and stock market won’t like. And to think, it can all be traced back to Wal- Mart. Shocking how our capitalism ended up killing our own currency.
Next Post: Canada Continues to Endure Hollowing-outPrevious Post: Selling Short Not the Way to Go for Retail Numbers
Tags: chinese economy, Economic growth, inflation, interest rates, U.S. dollar
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
