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Currency Manipulation to Gain Profit, to Maximize Cash Value or to Protect Asset

3/25/2017

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Dr. Wordman


Currency Manipulation in its narrow definition is that a currency exchange rate is being manipulated up or down by a controller, typically implying the government authority. In reality, currency exchange rate fluctuates by trading force that is by every trader. It is fair to say that every trader, from common citizens, to investors, to corporations to banks and including governments, they all influence currency exchange or manipulate currencies (buy or save and sell or spend) to gain profit or to maximize their cash value or to protect assets. Taking advantage of currency fluctuation is practiced daily by everyone in his or her process of "managing cash flow". In a healthy economy, money should be circulated (flow) to produce economic effects, from hardcore manufacturing to soft-kill creation to produce 'goods', 'products', 'designs', 'arts', 'programs' and 'services'. When money does not flow, we will have a stagnant economy. In the world economy, multiple currencies are used as money to maintain or stimulate economy. Since each currency is managed to flow and exchange with other currencies, it is natural that each currency will maintain exchange values with other currencies depending on what currency holders (common folks, investors, corporations, banks and governments) are willing to accept the exchange rate. The exchange rates will fluctuate as holders change their value views on the currencies they hold and their desire to exchange.
 
Common folks manage their cash value and cash flow by buying goods and services at low prices (especially on imports produced by foreign currency), traveling to countries when currency exchange is to their favor and exchange money when the exchange rate is favorable to the currency they hold. Some might save money in certain currencies when banks offer higher interest rate for those currencies. Of course, investors have more money; they will do the same except they will do it more often, with larger quantities, dealing with more sophisticated financial instruments (valued in different currencies). When investors focus on their cash flow just for maximizing their cash value with no concern of maintaining or stimulating economy, their 'cash flow managements' often become currency manipulation to maximize cash value damaging certain targeted currencies. A typical method they use in speculating currency fluctuation is to hedge on a particular currency, for example, by borrowing a huge amount of, say Thai Baht, and expecting or manipulating (driving down) its value lower then purchasing Baht at lower value to repay the loan. This type of 'cash flow management' is only benefiting the speculating investor and not good for the economy. Unfortunately, there are many such speculators doing currency manipulation in the world.
 
Corporations must manage their cash flow to maximize the value of the currencies they hold especially if a multinational corporation has payrolls in many countries requiring large reserves in different currencies. Naturally, the treasurers of corporations must engage in currency exchange fluctuation and buy and sell different currencies. A legitimate international corporation would manage currency by paying attention to currency fluctuation but not trying to manipulate or speculate in currency exchange, which is a high risk business. A government has obligation to protect and manage the country's economy, naturally it must defend their currency against speculators with intention to make huge profit by exploiting the currency. To maintain competitive position in export, often the government must maintain a stable currency and adjust its exchange rate to be competitive in trade. This kind of currency adjustment is of temporary nature very different from currency manipulation by systemic schemes devised by currency manipulators (traders). There is no country that can survive on de-valuing her currency continuously (hyperinflation may result), since she must buy international goods with her currency and her citizens need to travel to other countries requiring currency exchange. An unstable devaluing currency is very vulnerable to currency speculators as well as manipulating investors who will buy up the country's hard assets such as real estate and factories at bottom prices when the local currency is pushed to bottom value.
 
The U.S. has been in a unique position regarding her currency, US dollar. The dollar has been used as the world standard exchange currency for nations to make trades and balance payments with each other. Ever since the U.S. abandoned the gold backing policy to use gold to back the value of the green dollar, the US dollar's value has been guaranteed by the U.S. government. So long the U.S. economy is healthy (a large rich trading partner), all trading countries with the U.S. will trust the credit of the U.S. government. Under that condition, the U.S. is free to print the U.S. dollars or issue US treasury bills unlimitedly to pay for her trade obligations and debt and loan money to investors to invest in foreign countries. After the US investment promoted economic growth in a country and pumped up investment gain, the U.S. then can increase her bank interest rate and adjust currency exchange rate for the dollar to attract or draw back capitals to the U.S. (through Wall Street) and let US investors cash out the profit made in that country. (Assets in that country will drop to bottom prices in the process) The accumulated earnings through hard work (trading) of that country are then wiped out rapidly by foreign investors.
 
The above process would work if the US economy could always go through an economic cycle, getting in and out of recession smoothly. However, in 2008, the U.S. economy went through a devastating recession triggered by a national housing bubble, the collapse of credit market for debt swap and a huge national debt. The recovery of that economy was not as quick and smooth as expected. The U.S. is continuously mounting debt (reaching $19 trillion) and her world number one economy position is being challenged by China. The US investors participated in the China boom. To induce the investors to cash out profit made in China and bring capitals back to the U.S., the US economy has to recover and the dollar interest rate has to be raised. Apparently China had recognized this scenario while managing a slowing down economy. China had to adjust currency exchange rate (devalue RMB) to discourage investors to cash out profit in RMB to convert back to US dollars in order to protect China's industries and assets and her economy. This is the basic conflict in currency battle between the U.S. and China for the past few years. Both the U.S. and China are currency manipulators for different purposes, one to loot profits and one to protect national assets. In addition, China had recognized her vulnerability of holding huge US debt in US treasury bills; thus, China had started to reduce her US treasury bills holdings and to use RMB instead of US dollar to settle trade balances with other countries. So long other countries would go along with using RMB; China would be safer and more capable in defending her currency.
 
Since China is a major trading partner with most countries, China is likely to succeed in using RMB for settling trade balances. China had no choice but to take protective measures in maintaining a stable RMB. The U.S. on the other hand had to make fundamental policy changes regarding her national finances, revitalizing her industries, and to get rid of her huge national debt instead of blaming or playing currency game; that is the only way to make her economy great again.
 

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The U.S. and China's Interpretation of THAAD and THAD

3/18/2017

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Dr. Wordman
 
Terminal High Altitude Area Defense (THAAD) system is the most advanced US nuclear defense and missile system. There are five THAAD batteries each requires 100 soldiers to operate. The planned deployment of THAAD in South Korea has raised a serious protest from China let alone North Korea's actions of accelerating its nuclear missile development and verbal threats of retaliation once the deployment location is decided. Now the South Korea has announced that Seongju county has been selected to be the site of THAAD; this has caused a massive residents' protest against the government's decision. Seongju is principally a farm county with melon farmers providing about 60% of S. Korea's melon consumption. The residents chanted, "We protest THAAD with our lives." So the deployment of THAAD in S. Korea is not a done deal, particularly in view of the impeachment of the S. Korea's President, Park Geun-Hye over her governing behavior involving her intimate girlfriend, which may still throw the THAAD issue into question.
 
The official U.S. position on THAAD can be represented by the statement of Ash Carter, Secretary of Defense, "We need to defend our own people and we need to defend our own allies." It is clearly based on a defense strategy that there is a threat to the U.S. and her allies hence we must deploy the most advanced missile defense (and attack) system to prevent the perceived threat. However, this strategy is producing an undesired effect, that is, an arms race not only in the Korean Peninsula but the entire Asia even propagating throughout the world. The arms race seems to be unavoidable simply because the interpretation of THAAD (its deployment) by the U.S. and China (and N. Korea) are very different. THAAD DEPLOYMENT and arms race (nuclear weapons especially) are such serious world issue that deserves a careful analysis. 
 
China has been the only ally of N. Korea since the Korean War, but China has a sincere and self-interest induced motivation to curtail nuclear proliferation in the world like the U.S. does. Regarding N. Korea's nuclear weapon development, China has taken the same position as the U.S. to discourage and prevent it. China has gone out of her way to court S. Korea to send messages to N. Korea for the purpose of curtailing the N. Korea's nuclear program. Thus, it is puzzling why the U.S. interprets THAAD as the preferred strategic solution to the N. Korea nuclear development, willingly risking more arms race resulting in opposite consequence. The answer perhaps lies in China's interpretation of THAAD. China perceives that the U.S., in her deep national security strategy, assumes China as her ultimate enemy and threat. Though, on the surface, the U.S. is advocating restriction of nuclear proliferation but in reality, the U.S. does not mind that the nuclear proliferation is circling around China so long it is not coming to America (indeed, the Cuban Missile Crisis reveals such an attitude). China does have a point by just looking around her neighbors; nearly all are nuclear weapon capable nations or allies of the strongest nuclear force, the U.S. From Russia, Afghan, Pakistan, India, Japan, US bases in the Pacific and now N. Korea and S. Korea. Based on these facts and reality, China views THAAD as the final stroke of the U.S. completing an encirclement of China with nuclear threats. 
 
So what would THAAD do in the long run? It will provoke N. Korea to accelerate nuclear missiles with ranges beyond targeting THAAD in S. Korea, ASIA and reaching to the U.S. since the U.S. holds the ignition button of THAAD. China for her own security has no choice but develop weapons with sufficient range and deterrent power; it is no surprise that China is developing satellite and space program despite the U.S. effort through international organizations to slow down China's development in space and all self-defense weapon systems. Following this logic, any sane American citizen (and including all Chinese Americans) ought to ponder whether the U.S. defense strategy, in particular that towards China, is a sane one, since we all know, the result of proliferation of nuclear weapons is annihilation of human race. As citizens we must question whether America's woo B (be it Russia or China) against C (China or Russia) with arms race leading to war is a right policy?!
 
Take the word, Area, out of Terminal High Altitude Area Defense (THAAD -> THAD), that is removing China's fear being completed surrounded in all area by nuclear threat deserves a serious consideration. The Cuban missile crisis is a good history lesson how Americans feel when threatened by nuclear weapon; why wouldn’t the Chinese feel the same way? The U.S. Okinawa military base facing strong Okinawa opposition is another lesson on how people worried about military bases that might draw possible nuclear attack. The U.S. offered administrative responsibility of Okinawa to Japan hence getting rid of the dealings with protests of US military bases (unproven claim that Chiang Kai-check of KMT in Taiwan refused to accept the Okinawa administrative responsibility for knowing its effect might make Taiwan more vulnerable is also a history lesson) should give the U.S. enough clues about why strong opposition from Seonju residents in Korea occurs, why Kim Jong-un is taking more retaliating measures and why China is so concerned about the deployment of THAAD. 
 
The word THAD defined in the urban dictionary online is as follows:
"The greatest most amazing person on this Earth. Caring, loving and respectful. Is the type of guy every girl with a clue wants. Always there to talk to no matter what the situation. Very understandable and protective. Mystical in a way, and enjoys teasing his lover. Supportive and thrilling - always knows what to say or do to brighten your day, no matter how crummy. (Day)Dream worthy. Full of love to give, just looking for the same in return. (: The person a girl would want to spend the rest of her life with... always).” Comparing THAAD and THAD, what one letter A or a word ‘Area’ make in defense strategy and it's possible consequences? Is this a naïve comparison in view of the future of mankind?
 
Area threat and counter measures are undesirable from all concerned. It is wise to take the A out of THAAD. Let's make THAD NOT THAAD for the sake of humanity. Hopefully, the new US administration will take this opportunity to ponder on THAAD vs THAD, to talk to Kim and Xi and not follow the footsteps of an illogical legacy.
 
Ifay Chang. Ph.D. Producer/Host, Community Education - Scrammble Game Show, Weekly TV Columnist, www.us-chinaforum.org . Trustee, Somers Central School District


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Represent the U.S. - Not to Represent the World

3/11/2017

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Dr. Wordman
President Donald Trump's first speech to the joint Congress session on February 28, 2017, will be a historical one no matter how the people, media and political analysts reacted and opposition party (Democrats) and critics responded. By historical one, I do mean Trump's speech has a great historical significance not just an event in history. Overall the first Trump's Congressional speech received far more positive reactions than criticism for both substance and delivery. His "Unity and Strength" message struck a chord the United States needed to listen to. He reiterated many of his campaign promises with rational follow-throughs and actual initiatives. President Trump told Fox News before the speech that he would speak from his heart; most people listened to President Trump's first Congressional speech felt so. 
However, the very reason, I believe, that Trump's speech is a historically significant one is beyond the above positive comments. Trump's speech is important and significant owing to the very statement in his speech: "My job is not to represent the world. My job is to represent the U.S. of America." These two sentences by itself may not be so significant, but coupled with other declarations and his reiteration of many of his campaign promises, these words become the most significant statement in his speech. It takes courage and honesty for an American President to make such a statement in view of the past century of American history and her legacy foreign policies. The U.S. has been conducting a self-appointed world leader’s role practicing an almost completely unilaterally defined 'world police' responsibilities. The American Exceptionalism and neo-right political philosophy have dominated the US foreign policy and national security strategy since the WW II, which led the U.S. to behave like a world police. Both the Republican and Democratic Parties have adhered to such a philosophy with increasing intensity up to the Obama Administration. 
In my previous articles about Trump's presidential election, I had pointed out that Trump had recognized a quiet movement or phenomenon in the nation and through the fierce competitive campaign, the 'quiet rebellion' became a 'loud chorus' and grown to become an 'earthquake' as President Trump uttered the above words in his Congressional speech. Trump's new chapter of American greatness is based on "new international pride, optimism and renewal of American spirit", "not let mistakes of the recent past to define thefuture".
Trump's focus is obviously domestic first, "to restart the engine of American economy". He blamed spending on global projects for neglecting America inner cities and defending other nation's borders for opening American borders for illegal immigrants and drug traffic. He did say that the U.S. will continue to support NATO but expecting EU to pay more for expenses, same applicable to the US allies in the M.E. and Asia Pacific. His proposed tax cuts to corporations to stimulate the economy and to create jobs and reduce unemployment and $1T investment into US domestic infrastructure guided by "buy American and hire American" received standing ovation. Trump's message of "learn from the past, return home and rebuild" and "to find new friends and new partners (even with former enemies) to "want harmony and stability not war and conflict" make his statement, "My job is not to represent the world. My job is to represent the U.S.A." more meaningful and more significant reflecting a major commitment and shift of US foreign and domestic policies. This shift is carefully analyzed and gingerly welcomed in view of the fact that China, Russia, India, etc. are becoming more assertive in participating in world affairs, especially in terms of economic development. 
Of course, history tells us, not every political leader always conducts himself or herself strictly following his or her political speeches, even a major speech to the Congress or to the nation. Trump is only in office less than two months and the February 28 speech was his very first big speech, it is still early to make firm judgment on Trump's policies especially on foreign policies. America is still divided with nearly equal Trump supporters and opponents. Philosophically, people like former presidential candidate, Bernie Sanders, responded to Trump's speech by itemizing on what Trump did not talk about, emphasizing mostly Sanders’ liberal views such as reducing wealth gap, more benefits for the socially deprived and free college tuition for everyone. There are also politicians like Chuck Schumer who simply denounced Trump's speech with a bipartisan opposition. Trump's Administrative team is still being formed. Although the team consists of more conservative even right-leaning people on foreign issues such as China policy and trade issues such as renegotiation of trade deals, it is fair to project at this point that Trump is a fairly firm leader who has spoken mostly from his heart in his first major speech. The media even reported that Trump will likely to add a critic on foreign affairs to his Administration. This is great news if it indeed happens. 
Trump concluded in his speech that the U.S. shall soon celebrate her 250 years anniversary of independence, civil rights movement, and democracy. He has faith for a better world and he is hopeful that the U.S. will be a "more peaceful, more just and more free" nation. The critics of his speech did point out that Trump has proposed to increase the defense budget by $54B and a reduction of the budget of the State department. These proposals may or may not be inconsistent from Trump's basic theme of making America great again and they may or may not be contradictory to the spirit of his speech. If the increase of the military spending is causing more arms race or instability in the world, then it is a bad use of the funds. An article written before Trump’s speech (Boston Globe 2-5-2017) by Jeffrey D. Sachs (a professor at Columbia University), Donald Trump's Dangerous China Illusion, is a cautionary essay on this very subject questioning Trump’s Foreign policy. China's growing role on the world stage should not be considered as a threat to the U.S. if the U.S. did not want to be the lone sheriff of the world. A collaborative relationship with China would be more consistent with the new chapter of American greatness.
 What we American citizens must do is to watch President Trump's actions closely to judge on his sincerity in keeping his promises in speeches and his ability to lead his Administration in a transparent manner to serve the entire American people. What is not productive is that Americans protest against Trump for the sake of protesting without following his words or deeds. The Trump Administration has a low opinion of the media and vice versa for various reasons. After Trump’s Congressional speech, there seems to be a possibility that the Trump-media relation may turn normal since the majority of people seem to be demanding that and more people are rallying behind Trump now than before his inauguration. Let us citizens demand more meaningful White House and government press conferences and unbiased media reporting on them.
 
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