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         Daily Blog - Tiger Software

                            August 9, 2007
                      and revised 8/10/2007

Better Learn Chinese.
        China Can Now Make or Break
                         US Economy!

William Schmidt,     - Tiger Software's Creator
      (C) 2007 William Schmidt, Ph. D.  - All Rights Reserved. 

      No reproductions of this blog or quoting from it
      without explicit written consent by its author is permitted.

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Better Learn Chinese.  
        China Can Now Make or Break US Economy!

                   Look at the Tiger Index of 35 Chinese stocks and closed end funds.  The US and
         Chinese markets and fortunes seem to be running on parallel tracks.

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            Chinese Stocks Are Predicted Well by Tiger's Peerless Buy and Sell Signals.
            We now offer daily data on these stocks, too.  And Tiger lets you build your own
             index of any group of stocks you like.


                                        China is on The Move!

              1,500,000,000 - The estimated current population of China.

            China's sustained economic growth has been amazing. Its gross domestic product (GDP) rose, on average,
         more than 8 percent annually since 1978. China has become a major player in the global economy.  All the
         talk about inefficient bureaucracies and corruption pale when considering this growth.  Pollution and rural
         poverty remain unsolved problems.   China's economic output in 2006 was $2.68 TRILLION, the third largest
         in the world.  70% of China's GDP is in the private sector. The smaller public sector is dominated by about
         200 large state enterprises concentrated mostly in utilities, heavy industries, and energy resources.

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         Since 1978 the People's Republic of China (PRC) government has been reforming its economy from a
         Soviet-style centrally planned economy to a more market-oriented economy while remaining within the
         political framework provided by the Communist Party of China. This system has been called "Socialism
         with Chinese characteristics" and is one type of mixed economy. These reforms started since 1978 has
         helped lift millions of people out of poverty, bringing the poverty rate down from 53% of population in
         1981 to 8% by 2001  (See: http://en.wikipedia.org/wiki/Economy_of_the_People's_Republic_of_China )

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                        ( Source: http://news.bbc.co.uk/1/hi/business/6106280.stm )

           Example, when you go to Home Depot, look around.  See where things are made. 
               Made in China exceeds made in US 3:1, at least.  Try Walmart's, too.


                                        How Much of A Threat Is China?

                   In many ways, we in the US are fortunate that it is China that has become so powerful.   Except for
        Tibet, China does not have a history of imperialism or attacking its neighbors since the militaristic Manchu or
        Qing Dynasty of the 17th century.  Its rulers then were not ethnically Han Chinese but Manchu.

                (See http://en.wikipedia.org/wiki/Chinese_imperialism   )

     wpe6.jpg (2744 bytes)    Flag - 1890-1912.   wpeB.jpg (1616 bytes)    Chinese Flag Now.

                 China is ruled by an aging Communist (mostly in name) oligarchy, who are more interested in economic
       development than ideological crusades.  They are often ruthless with internal opponents, but they also practical
        and patient, believing history is on their side. Those in the West who paint China as an inevitable opponent in
        the competition for secure natural resources, most notably oil, tell us that China is just biding its time before
        it can use manipulation of its currency to create financial panic and havoc in the United States.

       wpe1.jpg (4350 bytes)   Love  wpe4.jpg (4437 bytes)   Peace

                 (Better learn Chinese - http://www.chinapage.com/learnchinese.html   )


wpe6.jpg (9918 bytes)       The Great Wall of China was built over 2,000 years ago, by Qin Shi Huangdi,
  the first emperor of China during the Qin (Ch'in) Dynasty (221 B.C - 206 B.C.).  
  After subjugating and uniting China from seven Warring States, the emperor
  connected and extended four old fortification walls along the north of China that
  originated about 700 B.C. (over 2500 years ago). Armies were stationed along
  the wall as a first line of defense against the invading nomadic Hsiung Nu tribes
  north of China (the Huns). Signal fires from the Wall provided early warning of an
  attack....During the Ming Dynasty (1368-1644), the Great Wall was enlarged to 6,400
  kilometers (4,000 miles) and renovated over a 200 year period, with watch-towers
  and cannons added.


A Dollar Free-Fall Is Surely Coming

        >>>> Clinton's last budget had a $250 billion dollar surplus.
        >>>> China's trade surplus   jumped almost 60 percent in July, widening to $23.1 billion
       from $14.6 billion a year earlier.
      >>>>  China has 70% of its trillion dollar foreign exchange reserves in low yielding US
                 fixed income securities, whose value has steadily declined as the dollar buys less and
       >>>> The cost of Bush's war on Iraq will surely be far more than a trillion dollars when
     all the bills come in. 
       >>>> The US federal government now owes $2.2 trillion to foreigners and foreign nations. 

                             US Pressures on China

               China, unlike Europe and the rest of the Western world, has refused to let the dollar fall freely against its
       currency. Instead, the Chinese leaders have decided to keep the yuan’s value pegged closely to the dollar,
       allowing it to rise by only 9 percent over the past two years.  Many US Congressmen say that American
       businesses would be more competitive globally if the dollar’s international value depreciated.  The US Treasury
       claims the yaun is 40% under-value and that the Chinese leadership must soon lift it vis-a-vis the dollar.

               True, a cheaper dollar would make American exports relatively less expensive.  America should
       be able to sell more goods to its trade partners, and the trade deficit should diminish.  This view does not
      seem to understand how much of the industrial base of the US has already been lost overseas.  It would
      surely take 15 years to rebuild an industrial base here, if there was the political will, which there is not
      presently.  The Bush Administration is too busy wasting money a world away.  A much reduced dollar
      that would mean dramatically higher prices in the US.   It would mean the US would have to borrow at much
      higher interest rates and send that much more American wealth to foreigners.  President Franklin Roosevelt
     once stated that America did not need to worry about debt because it was owed to Americans. Those days
     are now a distant memory.

            As America becomes more and more projectionist vis-a-vis China, it may soon unleash a global backlash.
       No longer the dominant creditor nation, it is now the world's largest debtor nation.  The US federal
       government owes $2.2 trillion to foreigners and foreign nations.


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                       What if China Dumped Its US Treasury Notes and Bonds?
                       What if It imply Stopped Buying Them?

In a Wednesday opinion piece in the state-run China Daily, a Chinese government researcher made
      what sounded like a warning to U.S. policymakers not to get too tough in insisting the yuan should appreciate.
      The researcher, He Fan, noted that China has accumulated "a large sum of U.S. dollars" and that its holdings
      contribute "a great deal to maintaining the position of the U.S. dollar as an international currency." If the yuan's
      exchange-rate against the dollar does not remain stable, he said, China could be forced to take strong action.
      China has $1.33 trillion in foreign-exchange reserves, with $407 billion in U.S. Treasuries, the second-largest
      holder after Japan. A substantial sell-off of the reserves could spark a recession in the U.S. economy, which is
      already experiencing a housing slump, financial analysts said.... He's statements were an apparent response
      to the Senate Finance Committee, which last month approved legislation aimed at pressing for faster
      appreciation of the yuan."  (Source: August  9th - Washington Post   Krissah Williams  )

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                  But China Is Hooked on American Exports, too.

               China would hurt itself if it dumped its US securities. After Japan, China is America's biggest lenders.
     Dumping US securities would cause a panic in a key asset it owns. And if it stopped lending money to the
     US, it would devastate its own growing economy.   Their economy is heavily dependent on US exports.
     81% of the Chinese Gross National Product goes into foreign trade. 

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                     The Mere Threat of Dumping May Cause The Dollar To Fall Sharply

               Fear, itself, drops the dollar.  The mere fear that any country, and it might be China, Japan, Korea
    or an OPEC country would no longer take any more dollars or US debt may cause other foreign holders
    to get out of dollars.or sell US Treasury securities and US stocks.  

                    Consequences of A Refusal To Accept Dollars Will Be Very Inflationary

           The US Treasury would then have to print a lot more money or raise interest rates to attract
      foreigners into financing the ever-growing, on-going debt. Prices for US consumers will rise dramatically.
      Since the US has lost so much of its industrial base to China and elsewhere, stores in the US will still
      have to stock their shelves with things made overseas, but which now cost a lot more.  With less
      buying power and less money to invest, the US stock market will surely decline.  That would almost
      certainly bring a global recession/depression, economic nationalism, tariffs, quotas and, probably, war,
      in all its futility.  When the US was forced to go off the last vestiges of the Gold Standard in the early 1970s,
      to help pay for the US war in Viet Nam,  it led to violent ups and downs of the stock market until 1982.
                    A Dollar Collapse Could Bring Hyper-Inflation to the US.

             Here inflation becomes "A vicious circle is created in which more and more inflation is created with each
     iteration of the cycle. Although there is a great deal of debate about the root causes of hyperinflation, it becomes
     visible when there is an unchecked increase in the money supply or drastic debasement of coinage, and is often
     associated with wars (or their aftermath), economic depressions, and political or social upheavals. This has most
     often occurred because of excessive money printing. It effectively wipes out the purchasing power of private and
     public savings, distorts the economy in favor of extreme consumption and hoarding of real assets, causes the
     monetary base whether specie or hard currency to flee the country, and makes the afflicted area anathema to
     investment.  The aftermath of hyperinflation is equally complex. As hyperinflation has always been a traumatic
     experience for the area which suffers it, the next policy regime almost always enacts policies to prevent its recurrence.

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                  The 1920s German inflation

Before World War I Germany was a prosperous country, with a gold-backed currency, expanding industry,
    and world leadership in optics, chemicals, and machinery. The German Mark, the British shilling, the French franc,
    and the Italian lira all had about equal value, and all were exchanged four or five to the dollar. That was in 1914. In
    1923, at the most fevered moment of the German hyperinflation, the exchange rate between the dollar and the Mark
    was one trillion Marks to one dollar, and a wheelbarrow full of money would not even buy a newspaper.
        (Source: http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_germanhyperinflation.html )

            Germany abandoned the gold backing of its currency in 1914. The war was expected to be short, so it was
     financed by government borrowing, not by savings and taxation. In Germany prices doubled between 1914 and
    1919.  Bourgeois habits were very strong. Ordinary citizens worked at their jobs, sent their children to school
     and worried about their grades, maneuvered for promotions and rejoiced when they got them, and generally expected
     things to get better. But the prices that had doubled from 1914 to 1919 doubled again during just five months in
    1922. Milk went from 7 Marks per liter to 16; beer from 5.6 to 18. There were complaints about the high cost of
     living. Professors and civil servants complained of getting squeezed. Factory workers pressed for wage increases.
     An underground economy developed, aided by a desire to beat the tax collector.

             On June 24, 1922, right-wing fanatics assassinated Walter Rathenau, the moderate, able foreign minister.
     Rathenau was a charismatic figure, and the idea that a popular, wealthy, and glamorous government minister could be
     shot in a law-abiding society shattered the faith of the Germans, who wanted to believe that things were going to be all
     right. Rathenau's state funeral was a national trauma. The nervous citizens of the Ruhr were already getting their money
    out of the currency and into real goods -- diamonds, works of art, safe real estate. Now ordinary Germans began
    to get out of Marks and into real goods.

            It is sometimes argued that Germany had to inflate its currency to pay the war reparations required under
    the Treaty of Versailles, but this is only part of the story. Reparations accounted for about one third of the
    German deficit from 1920 to 1923.  Nonetheless, the government found reparations a convenient scapegoat.
    Other scapegoats included Jewish bankers and foreign speculators became popular political targets.  The inflation
    reached its peak by November 1923, but ended when a new currency (the Rentenmark) was introduced.
    The government stated this new currency had a fixed value, and this was accepted.  Hyperinflation did not directly
    bring about the Nazi takeover of Germany; the inflation ended with the introduction of the Rentenmark and the
    Weimar Republic continued for a decade afterward. The inflation did, however, raise doubts about the
    competence of liberal institutions, especially amongst a middle class, many of whom lost their all their savings.
    Nothing makes me think America would be not be a ripe ground for fascism if this happened.
        (See http://en.wikipedia.org/wiki/Hyperinflation#Root_causes_of_hyperinflation )

    Additional Sources:
     http://www.financialsense.com/fsu/editorials/dorsch/2006/1129.html )





         Dow Down 387; Second Worst Loss of Year

AP -

Wall Street's deepening fears about a spreading credit crunch sent stocks plunging again Thursday, with the Dow Jones industrials extending their series of triple-digit swings and falling more than 380 points.






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