What The Chinese Currency Devaluation Really Means

Citizens of the world are told by their governments that all is well and that their economic plans ‘are on course’. They are not of course. Misinformation, disinformation and propaganda is the same the world over. As capitalism staggers from one crisis to the next, inducing new rounds of bailouts, austerity and state theft, they are creating a deepening crises of everyday life.

Japan’s economic woes over the period of 1995 to 2007, saw GDP fall from $5.33 to $4.36 trillion in nominal terms, real wages fell around 5% and it has got worse ever since. In fact, Japan now has a chronic part-time employment culture and an even bigger number who are unemployed overall.

Eurostat estimates that 23.296 million men and women in the European Union, of whom 17.756 million were in the euro area alone were unemployed in June 2015 – not signs of healthy economies.

There are 108.616 million people in America are either unemployed, underemployed or “Not in the labor force”. This means that there are only 47% of working age Americans have a full-time job. Yet the government hails it’s own economic powers by declaring unemployment is less that 6% with smoke and mirrors economics.

Globally, more than 61 million jobs have been lost since the start of the global crisis in 2008. By 2019, more than 212 million people will be out of work and that does not include the hundreds of millions underemployed or those unable to work for whatever reason.

There are 25 nations that are currently facing a full-blown debt crisis, and there are 14 more that are rapidly heading toward one. Right now, the debt to GDP ratio for the entire planet is up to an all-time record high of 286 percent, and globally there is approximately 200 TRILLION dollars of debt on the books. Greece imploded on 177 percent of debt to GDP. Not the signs of heathy economies.

China just surprised everyone and gave a clear demonstration that the markets all over the world are in turmoil proving governments are quite simply ‘not on course’ – obviously, far from it.

Markets received a seismic jolt from China yesterday as it devalued its currency, the Yuan, by the most in two decades, cutting its daily reference rate by 1.9 percent. The move sparked instant selloffs in stocks, commodities, and emerging market currencies as well as a drop in the yield of the 10-year U.S. Treasury Note, which is trading early this morning at a yield of 2.16 percent.

The devaluation was interpreted in the markets as a sign of capitulation by China to forego a stable currency policy in a last-ditch effort to revitalize sluggish export growth. On Friday, China reported that its exports had plunged by 8.3 percent overall in July with dramatic declines of 12.3 percent to the European Union and 13 percent to Japan. Exports to the United States fell by 1.3 percent.

While China announced that the currency devaluation was a one-off move, the prevailing fear in global markets is that it marks a new round in the raging currency wars where countries are now competing to debase their currencies in hopes of making their exports more competitively priced in global markets.

The move spells trouble for the U.S. on a number of fronts. As of 8:39 a.m. in New York, stock futures on the Dow Jones Industrial Average were in the red by 147 points. The same can be said in all the industrialised world markets.

According to a Federal Reserve report released on July 17, the rising value of the U.S. Dollar is having a significant negative impact on large U.S. based multinationals. And that is about to get a whole lot worse with this unexpected move by China.

This global currency race to the bottom cannot be solved by central banks. The Chinese currency devaluation is a stark reminder of desperation. Quantitative Easing in the US, UK, Japan and the Eurozone is the same and has actually had no effect on real economies, only enriching those that caused the problems in the first place and worsened the prospects of working people the world over.

The problem is directly rooted in the unprecedented levels of income and wealth inequality that plague this era that started in the Thatcher/Reagan years. In the U.S., that problem springs directly from Wall Street’s institutionalised wealth transfer system. It is no different in the city of London in the UK and EU more widely.

President Franklin D. Roosevelt explained the causes of the Great Depression. President Obama, PM David Cameron and the unelected Jean-Claude Juncker at the head of the European Commission of the Eurozone would be wise indeed to heed these words.

“…our basic trouble was not an insufficiency of capital. It was an insufficient distribution of buying power coupled with an over-sufficient speculation in production. While wages rose in many of our industries, they did not as a whole rise proportionately to the reward to capital, and at the same time the purchasing power of other great groups of our population was permitted to shrink. We accumulated such a superabundance of capital that our great bankers were vying with each other, some of them employing questionable methods, in their efforts to lend this capital at home and abroad. I believe that we are at the threshold of a fundamental change in our popular economic thought, that in the future we are going to think less about the producer and more about the consumer. Do what we may have to do to inject life into our ailing economic order, we cannot make it endure for long unless we can bring about a wiser, more equitable distribution of the national income.”

Obviously, not much has changed since the 1920’s and politicians the world over have learned nothing at all from examples so vivid, real and recent as the great depression. The financial crisis we are experiencing right now being worse already with a long way to go yet before any real recovery takes place.

Graham Vanbergen for TruePublica

 

---