Stocks Soar...Why?

China’s currency, that’s why. This morning I read in the Denver Post that the Treasury Department announced yesterday that China’s monetary policy has created an unfair trade environment.

You see, China has pegged their currency, the yaun, to the dollar. To maintain that relationship, China has been buying tons of U.S. Treasuries in an effort to spend he billions of dollars that it is collecting from the U.S. This pegging of the yaun to the dollar is creating a situation where Chinese products are cheaper than everybody else’s in the world. The U.S. consumer is spending money like there is no tomorrow at Wal-Mart and other discount stores. Why is this a bad thing? After all we consumers want the best price for all of the trinkets we buy, right? We are getting exactly what we want…inexpensive stuff from China, but at what cost? We are in effect exporting our jobs to low cost producers like China and India.

Instead of the markets reacting to this latest news by going up, there should be some serious concern about what a revaluation of the Chinese yuan really means. It means that prices are going to go up for all of the products we have been importing from China. In fact, Wal-Mart sees the writing on the wall as they warned about future profits in light of increasing prices. If Wal-Mart sees this coming, why can't our governement, and more importantly, the stock market?

In other news this morning, two economists at the Stanford Institute for Economic Policy Research warn that the current administration is putting way too much emphasis on the coming social security crisis while ignoring a far bigger problem which, in all likelihood, will blow up years before social security. This new impending crisis has to do with the Medicare System. Thanks to recent changes in Medicare, it is a far bigger problem and will consume far more money than even social security. While social security spending is expected to grow from 4 percent to about 6.4 percent of the total U.S. GDP when the baby boomers start retiring in the next three years, the Medicare System will consume up to 14 percent of the GDP and will be spending more than they take in by 2010.

As Americans we have become accustomed to our government taking care of us when we lose our job, or when we get hurt, or when we get old and sick. The founding fathers never intended for our government to take on the role of caregiver, but we now expect it and will be really mad when it doesn’t happen.

And guess what, by the time most of us reach retirement age, it isn’t going to happen.