Is China Flexing Its Muscle with the U.S., or the Other Way Around?

Will China revalue the Yuan?

China seems to have been aware of the game MNCs and the Anglo-Saxon banking cartel have played. They know what has happened to Japan after the Plaza Accord. They seem to know well the consequences of their revaluation of the Yuan. Why have they depreciated the Yuan in the first place? They might revalue the Yuan eventually, but probably not on the U.S.’s terms.

Both countries have engaged in the debt-fuelled growth; both have huge problems in the banking sector. Both sides have some serious imbalances.

The international currency regime seems to be slowly changing. The chosen policy choice of the U.S. is quantitative easing. The thing is that regardless of China’s move, the U.S. seems to be going to face a catastrophe, given the high level of debt.

Both countries would suffer initially, yet who appears to come out of this with relatively minor scratches? Who would have more severe repercussions?

What would be the long-term prospects of two countries?

In a word, who holds the better set of cards?

The Western media outlets are bashing China for currency manipulation.

Krugman is taking on China, calling for stronger action for the Yuan.

From the New York Times:

Tensions are rising over Chinese economic policy, and rightly so: China’s policy of keeping its currency, the renminbi, undervalued has become a significant drag on global economic recovery. Something must be done.

http://www.nytimes.com/2010/03/15/opinion/15krugman.html

Another piece by Ambrose Evans-Pritchard in the U.K Telegraph, arguing China is badly overestimating its power.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7442926/Is-Chinas-Politburo-spoiling-for-a-showdown-with-America.html

In the meantime, the U.S. Congress has unveiled a bipartisan Senate bill which would pressure China to raise the value of the Yuan against USD or face still trade penalties.