Will Congress Declare A Trade War Against China?
By Ron Holland - October 06, 2011

"America is more communist than China is right now." – Jim Rogers

The approval ratings for both the US House and Senate are currently in dramatic free-fall. A September 2011 Gallup Poll warns that 81% of Americans are dissatisfied with how the United States is being governed.

Other findings include a near record criticism of Congress, elected officials, government handling of domestic problems, government power and waste of tax dollars. The most important finding is 49% of Americans now believe the federal government has become so powerful that it threatens the rights and freedoms of American citizens.

Failing governments throughout history have used wars as an excuse to rally citizen support for the political establishment to win elections or hold off revolutions. But with America currently involved in numerous military conflicts with falling popular support and no victories in sight, the Democrats and Republicans have decided on a contrived trade war instead.

In preparation for the 2012 elections both Democratic Senator Harry Reid and Mitt Romney, the perceived leading candidate for the GOP presidential nomination, are engaging in rampant demagoguery and brinkmanship for political gain. Still, we find it difficult to believe both parties are so desperate that they would initiate a trade war against China, America's banker that owns over one trillion of Washington treasury debt.

Reid seeks to punish China for their alleged currency manipulation, while Romney promises if elected president he will immediately issue a Presidential Executive Order to sanction China for its trade practices and currency manipulation. Yes, this may well be just more political propaganda as usual but will China see it this way?

The Real Currency Manipulator Is the USA Not China

Mitt Romney and both political parties have continually charged China with the evil activity of "currency manipulation" and keeping their currency artificially low compared to the dollar. This charge is based on the fact that China exports more to the US than the US exports to China.

Actually, Chinese exports to America are about four times as much as we import from them and therefore we run a major trade deficit with China. But no one mentions how China takes much of the extra dollars and then buys US Treasury securities (US sovereign debt) thus allowing American politicians to continue to expand our national debt and buy votes with more giveaway programs.

While our politicians claim China keeps its currency pegged to the dollar at an artificially low rate to increase their exports, this is not the real issue. The political and media elites conveniently forget to discuss how the collapsing dollar actually allows China to also increase exports to other nations as their currency falls with the US dollar. The long dollar downtrend has made Chinese exports to most other nations even lower in price.

China is simply following the policies of most major exporting nations and attempting to encourage industrial growth and exports by managing their currency differential with major trading partners. Every country does this.

Washington is the real currency manipulator, harming both the United States and the rest of the world by its policy of dollar depreciation and destruction. Their long-term goal is to destroy the dollar so America can pay back pennies on the dollar for our $14 trillion dollar national debt. These actions will impoverish the US and destroy trillions in foreign reserves and private wealth investment in US Treasury securities. Thus the real currency crime here is the US policy of currency manipulation and destruction rather than the Chinese monetary policy.

Senator Harry Reid and the Senate Democrats, big labor and a few establishment Republicans are about to hand the Chinese a wonderful PR victory over the United States. The China response is likely to be a public rebuke, which will be a dramatic defeat for the US further indicating how weak the US is economically and financially because of our growing sovereign or national debt.

In any case, I hope neither Romney nor any other US President are actually dumb enough to sanction China for their currency policy or start a tariff war with massive new import duties on Chinese goods. The simple response by China only needs to be a public declaration that they will refrain from buying more depreciating, dollar denominated Treasury securities or will delay rolling over existing debt at maturity and the US threat will immediately end, as the impact on Treasuries and interest rates would be catastrophic. This action would cause a worldwide run and panic with US Treasuries. No one knows where this could end.

The entire world knows that the "American emperor has no clothes" where the dollar or the debt is concerned, thus threats to China on currency valuations or tariffs are only more election-year propaganda for the uninformed voting public and union voters. But the threat to the US is real should China respond.

For Americans, the real currency crimes and criminals against the United States can be found closer to home, in the US Treasury Department and the Federal Reserve. Again quoting Mitt Romney, "The real problem is China's refusal, largely for political reasons, to liberalize its financial system and allow the free flow of capital. In particular, China and other countries sterilize inflows of dollars from abroad to prevent prices from rising as the country's productivity increases. This is the practice that has led to the accumulation of more than $3.2 trillion in foreign reserves by the central bank."

I have only one question for Romney if he becomes president. Are you willing to destroy the US Treasury market and the dollar and threaten the entire world economy by forcing the Chinese central bank to reconsider actions with the 1 trillion dollars in US debt and possibly create a run on sovereign debt around the world? I think this would be a high price for the world to pay for election-year demagoguery and why I prefer Ron Paul, who understands markets and economics.

Remember, the Chinese central bank, unlike the Federal Reserve and the rest of the controlled central banking cartel, appears to work in the best interest of China and it's economy. Looking around at the Federal Reserve in the US and the European Central Bank (ECB), this is certainly not the case in most other nations.

When I hear Harry Reid talking tough for the American labor union vote, I think of the 1971 Clint Eastwood "Dirty Harry" movie when he said, "Go ahead. Make my day." Well, "Dirty Harry Reid," go ahead if you dare and make China's day with such a stupid move but the loser will be the Washington political establishment and our Treasury bond market.

I'm sure following a China response the present congressional 19% approval rate will be the good old days. You will have totally destroyed American confidence in the political establishment and the sovereign debt few Americans ever wanted in the first place.

So Romney and Reid, go ahead start a trade war if you dare for political gain. This might become the incident that will galvanize public support and just maybe the American people will again decide they've finally had enough. Remember, this happened once before over a tiny little tax on tea.

So go ahead, Mitt and Harry – make my day!

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