Stock markets today: Dow Jones Industrial, gold price and U.S. dispute with China

China and the U.S. argue, Dow Jones and gold prices are rising

In brief: Stock markets today: the level of consumer confidence to gold and blue-chip index Dow Jones Industrial Average set records for the record. Markets began to change quickly and confidently.

Stock markets could bring a lot of surprises today. Gold price and Dow Jones have become flagships of the markets last week. Support and confidence of buyers for the gold and blue-chip Dow Jones was huge. Last week, the U.S. and China entered into a dispute about the import, export and exchange rates. Dow Jones Industrial Average was able to grow to a peak of 10,450.64 points last time. The level of growth was +16.47 points (0.16%). Gold has set an absolute record of the year … World trade is returned in an era when it was not private, and public business, and most important source of national sovereignty served as gold.

A week ago, U.S. Treasury Secretary Timothy Geithner said the authorities of the PRC, that under-valued RMB prevent the revival of the global economy as well as artificially stimulating exports to the U.S. market, and urged them to immediately increase the rate. By a decisive statement of the Minister pressures have pushed the U.S. Congress. Congress reiterated that the administration of Barack Obama in April was to report about incorrect monetary policy of China, which would qualify the country as a currency manipulator. And Sen. Charles Schumer said last week that lawmakers from both the Republican and the Democratic Party unanimously decided to put the next two weeks to the vote a bill to limit imports from China (as well as from other countries who can be accused of currency manipulation). These strong statements on imports and exchange rates sound especially revolutionary, if you remember how in general to develop world trade over the past 65 years. After the Second World War, all were confident that world trade should be as many centuries before that, go solely for the gold. That country, which imports the goods, is experiencing sadness at parting with the gold, but the one that exports may be pleased to note that gold gets. (However, just before the war, world trade has virtually halted: any good was regarded as strategic, and nobody wanted to enhance the potential adversaries at the expense of exports.)

On the role of gold in the post-war trade much thought the famous British economist John Maynard Keynes, in 1941 wrote the seminal works “Proposals of the International Monetary Union. Keynes pointed out: “Many countries, including ours, after the war will find it difficult to pay for imports … Attempts to balance foreign trade by artificially increasing exports and ban all imports of non-vital, will only exacerbate the financial problems of the rest. .. There are ways to influence this situation … For example, the U.S. could temporarily give some of its gold reserves to other countries … But if the problem of mutual trade were addressed by the international redistribution of American gold, that’s just our country could hardly to claim their portion of the gold. First, because we already have so much in recent years from U.S. Lend-Lease Act, and secondly, because the members of the British Commonwealth – the world’s largest producers of gold, and many believe, rightly or wrongly, that Britain may at any time to declare all their mined gold. ”

Keynes explained and various methods of addressing the shortage of gold: “In recent times been suggested that we should be after the war, mainly rely on the restriction or prohibition of imports as the main method of maintaining a balance in foreign trade. When the Bank of England feels that our reserves of gold and the U.S. U.S. drops to a dangerously low level, he, instead of higher interest rates, attracting foreign capital, or to restrict domestic credit in order to cause deflation of income or to devalue the national currency to boost exports, simply drawn to the Ministry of Foreign Trade with a request to reduce imports of more at 28 million pounds, or a further 50 million pounds, or another 100 million pounds. That, apparently, the worst method of all possible: it has no direct impact on the causes that gave rise to a dangerous situation, and therefore can not hope the lifting of restrictions on import later.

In the end, after the war had created a system in which all foreign trade in the world was conducted in dollars, that is, for the gold. After all, the dollar was fixed a certain amount of gold, for which he exchanged on demand, and rates for all currencies in the world were fixed against the dollar. The course of the Soviet ruble was also registered against the dollar (and besides, it was announced that he has a certain gold content). However, the dollar and gold content of Soviet currency was determined not by any international agreement, and arbitrary decisions of the Party and government, remained obscure to ordinary citizens. Indeed, the Soviet authorities themselves, apparently, believed that Soviet exports do not need to obtain foreign gold (in the USSR and the Kolyma gold was plenty) and then to get western goods, which are unique to the Soviet market was not there.

When a country’s economic problems arose, he immediately began talking about the devaluation of national currency against the dollar. First, because it was possible to preserve its own gold from utekaniya abroad because of imports. (It was expected that foreigners will not sell goods to a country that after the devaluation makes them less for gold.) And secondly, to encourage exporters to earn more foreign gold, selling products not their own fellow citizens and to foreigners, because of the devaluation of foreign currencies relatively expensive.

Such, for example, happened in 1956. Rate British pound since 1949 has been fixed at $ 2.8 per pound. Once in July 1956, Egypt nationalized the Universal Suez Canal Company, Israel, France and Britain decided to conduct a military operation to return the company owners. In October, fighting broke out. Canal, an important transportation route of Middle East oil, has been closed. In December, Great Britain, then France and Israel, obeying a UN resolution on cease-fire, withdraw their troops from combat zones. All this time the British authorities considered the possibility of devaluing the pound: for the maintenance of the course were required reserves of dollars and gold in the $ 2 billion, and the fighting took a lot of money. (Also the British expected rise in price of imported oil due to the closure of the channel.) Devaluation pushed and currency speculators, who have launched their own war against the pound by buying a month to $ 300 million of the UK’s reserves just in the calculation of profit from the coming of his podeshevenii relative dollar. Devaluation was avoided only because the IMF has given the UK credit $ 1.3 billion, but the war ended.

In 1967, the devaluation of the pound still took place – in connection with the Arab-Israeli war and the repeated closure of the Suez Canal. Speculators have once again decided that due to the closure of the channel oil price will rise and this will force Britain to spend more dollars to buy it. And the sheikhs of the Arab oil-producing countries began to transfer their accumulated funds in the UK from pounds to dollars as a more reliable currency. These dollars were being moved from British banks into Swiss and American. To maintain the rate of the Bank of England pound spent up to $ 500 million a day.

As a result, 19 November 1967, Prime Harold Wilson announced the devaluation, citing the costs of fighting in the Middle East, the closure of the Suez Canal and the inability to obtain significant long-term credits from abroad. Pound fell from $ 2,8 to $ 2,4. British Prime explained that podeshevenie pound by 14% does not make them 14% poorer: Britain will be able to sell more goods abroad.

However, in mid-1970′s system built exclusively for the trade of gold, collapsed. After the war, a symbol of this system led by the IMF, has been a constant gold price of $ 35 per troy ounce, which the U.S. imposed in 1934. In 1975, the IMF canceled the official price of gold, which by then amounted to $ 42 per troy ounce: the market price has already reached $ 200. For its part, the United States in 1974, abolished exchange dollars for gold at a fixed price, but allowed its citizens to buy and sell gold. Gold has become a common commodity, available not only whole countries, but also to private individuals, but by ever-increasing market price. And now, after American politicians made some statements, the world was once again in a situation where imports deemed harmful phenomenon, due to which individual countries are irreplaceable losses – as if to part with gold. And exports again become a universal good – as if a country accumulates eternal values, expressed in the noble metal is not prone to corrosion.

American commentators immediately noticed that all matter in the forthcoming elections to the Congress: Congressmen are going to show voters that safeguard American industry and are ready to do everything for the preservation and increase jobs. Activity congressmen warmed by the fact that now the import of Chinese goods in the U.S. is growing very rapidly: only in April, the U.S. trade deficit with China increased by 14.3%, reaching $ 19.3 billion (whereas last year it had grown so to a record $ 227 billion)

In response, Chinese authorities declared that expansion of exports to the U.S. they do not harm, and help revive the world economy. Once the growing U.S. foreign trade, even if only part of its import, it means that American consumers are placing a good demand for goods. And what a difference where these goods are produced, – the engine of the world economy could become global trade. With respect to threats to American law against Chinese goods under the pretext of irregularities of the Chinese exchange rate, in the opinion of the Chinese authorities, such a law is contrary to WTO rules. After all, the rules regulate only those matters of foreign trade policy, as import tariffs or export subsidies, but in no way policies of the exchange rate.

Specific nature of the situation makes that the U.S. now can not use described Keynes way to deal with the import – the devaluation of the currency. Dollar exchange rate is determined not by the U.S. authorities, and speculators on the world currency market. And the situation on it now is that the dollar is rising in relation to the European debt crisis. Rate of the RMB is not freely convertible currency, in contrast, is fixed (at 6.8 yuan per dollar) and is defined as the time the Chinese authorities. That is why the U.S. and not have to make their own foreign exchange solutions, and to insist that decisions are taken by someone else.

The situation is further complicated by the fact that half of China’s industrial exports are not Chinese, but just for American companies engaged in production on the territory of China with its cheap labor. Thus, the anti-Chinese trade law will be largely directed against American manufacturers. It should be recalled and that American consumers are already very used to goods made in China. In 2007, the newspaper The Washington Post wrote: “Made in China.” These three words suddenly became the most frightening in the English language. Go to any supermarket or toy store. If you have not paid any attention (because they were keen on buying products at prices that seemed to be beneficial to you), you now pay: all made in China or made of something that is made in China or made of something that is made of something that is made in China … China has made part of our American flags, half of our garlic, 40% of our orange juice, 19% of our honey, 70% of our toys and 80% of our vitamin C. professor of government at the University of Madison, George Francis Harbor, concerned poor working conditions in Chinese textile factories, abandoned to buy clothes made in China, but eventually gave up because the U.S. market, as it turned out, the other not. The only way out – to sew dresses itself.

Of course, in the present circumstances the desire to fight imports may seem strange. U.S. to buy Chinese goods, not for gold dollars, and for U.S. cotton, which the Fed since last year in the program purchase U.S. government bonds just plain prints. So no particular really irreplaceable resource from the U.S. to China is not flowing. But the main thing is different: during the global financial crisis in all countries, the authorities inevitably began to think in the state. In such circumstances, foreign trade is again not a private affair, but an essential element of statehood.

Ukrainian Globalist
2010-06-20 21:14, Economics.

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