China: A Pseudo IMF Us

China: U.S. IMF pseudo June 4, 2009 What do the Argentineans when faced with a troubled economic climate? Without hesitation, they resort to buying dollars. Something similar international investors are stormy periods. U.S. Treasury securities are a good refuge when the waters are rough. But how much longer they will remain? The international financial crisis will leave an indelible mark on the world economy. This crisis has brought down countless myths and has become more similar than they seemed at first to developed economies with the economies will be. In short, the functioning of economies depends on sinful human and fallible (that's our essence from Adam and Eve), and that is why, even if they were hidden, all countries had their sins. The world is not what it was a key issue: financial party's over and the hangover is doing to become aware of the many excesses of the capitalist world. This is the time where the fear of losing due to the ambition to win. However, experience shows that this fear is short-lived and that is why I venture to say that in five or ten years, we will encounter situations that have little to do with discipline and good conduct of the economies and markets.

What I understand is that, as happens after every crisis like the present, the fear generated by a search for greater control and prudence, at least in the short term. It's like the recovering alcoholic who meets the strictest of discipline by fear of falling back, knowing that the slightest temptation it can trigger a runaway reaction. In this realization, the world recognizes that financial systems have not been properly regulated, either by mistakes or oversights (¿unintentional?). This in spite of the many developments in the field (Basel I and II and other regulatory developments). In this sense, it is logical to expect that the next season is a comprehensive regulation of the financial system. A time where it counter-regulation, this is when everything goes well in the world, adjust the belt regulation to control the animal spirits insatiable market for more and more profitability. Probably the regulators to be losing the essence of financial regulation for fear of being seen guilty in a future crisis.

The crisis has also become aware, that all things go well in the U.S. economy and that the problems have further aggravated persist after the recovery began, which sows the basis of the next crisis in the global economy as imply a severe blow to the dollar affecting international financial stability. And the main problem today is the U.S. fiscal deficit. How can an economy sustain deficits (fiscal and external), chronic for so long as the U.S. has done? The answer can be summed up in one word: China. You can not lay all the blame to the U.S.. As the old saying goes, "the fault is not the pig but the feeds you?. And that has been fed for several years has been China. The revival from the ashes to experience the dollar after record lows against the euro in 2008, proved to be temporary. Not that the euro now prove a strong currency, but it seems that we are witnessing a race to know what currency is the weakest of all. And that power can not miss the yen and the pound sterling.

Is the dollar below or above its equilibrium value? As I wrote in "How you can win betting on the Euro?, Referring to macroeconomic fundamentals of the U.S. economy, the immediate conclusion that emerged is that the weak dollar is probably more appreciated today than it will in the medium term. The prospects for the dollar are acting as a thermometer which indicates that something (or some things), is not working well in the U.S. economy. This situation is worrying for the global economy by vested interests. China, one of the most committed, has U.S. assets for U.S. $ 750,000 million, and when it is advisable to increase the diversification of reserves, it is not as viable as it would remove the current deficit financing of the U.S. economy, deepening further weakening the dollar and thus increasing the loss of value of Chinese stocks. China's solution to this dilemma is not dependent on China, but what makes the United States. And the U.S. can not stay idle and keep the autopilot deficit financed by China. This situation is already untenable. And the road that runs the U.S. economy is its bifurcation, or goes into a severe fiscal discipline as quickly as possible or into a new crisis of magnitude.

In this context, China entered negotiations with the U.S. (it was time to do so), while the rest of the world remains expectant. And China is disguised as pseudo IMF and brings peace to the Obama administration to confirm their support for efforts to revive the economy. This translated means that China will maintain their demand for U.S. assets. But as good pseudo IMF, the Chinese authorities have expressed concern about U.S. fiscal meltdown. Given this creature Geithner acknowledged that the prosecutor has behavioral problems but promised to give him the strictest discipline as possible. As evidence of that commitment, Geithner said that the U.S. maintains its goals of strong dollar and low inflation, but what actually is observed is inconsistent with those objectives. Not only China presses for U.S. fiscal policy discipline, but so does Bernanke fearful of being found liable for the next crisis (current monetary policy the Fed would work with it). In this sense, Bernanke said the Budget Committee of the House of Representatives: "To maintain the confidence of financial markets requires that (...) begin to plan to restore fiscal balance?. And yet just when you leave the current crisis, everyone gets ready for the next crisis, which still can be avoided if the U.S. quickly discipline, and China press and collaborates with its exchange rate policy (is it encouraged?) for the U.S. to do so.

Are they willing to give both economies with a higher-US desired setting and China appreciate its currency strong to achieve the common goal?