In a move that demonstrates just how clueless politicians in Washington are about the U.S. economy, a group of U.S. senators introduced legislation this week in an attempt to make the Obama administration take action against China over its currency policy. The so-called "currency manipulation bill" being proposed would seek penalties against countries that fail to address misaligned currencies. Concurrently, 130 congressmen from both sides have signed a letter asking Treasury Secretary Timothy Geithner to take action on the issue.
 
These politicians are criticizing China for keeping their currency at artificially depressed levels, which they say gives China an unfair advantage in the global trade market and is causing the U.S. to have huge trade deficits. They fail to realize it is China's artificially low yuan and their willingness to accept the inflation that we export to them, which allows the U.S. to import cheap goods and Americans to live beyond their means. We should be kissing China's feet and thanking them for allowing us to consume the goods they produce in return for a worthless piece of paper that we print. Instead, we are blaming them for the problems that our politicians created.
 
Nobody in Washington understands just how fragile the U.S. dollar is. It's absurd for Congress to say they are going to penalize China, when China has the power to make the U.S. dollar collapse overnight using words alone. Although a collapse in the U.S. dollar would cause China to lose close to $1 trillion, their resilient manufacturing-based economy would quickly recover. On the other hand, without China, U.S. citizens would be forced to consume the goods we produce in this country.
 
The last thing the U.S. should do is upset its largest creditor. Think about all of the products in your home that were made in China. Imagine if all of these goods suddenly disappeared and you had to replace them with goods that were made in the U.S. Years ago we had U.S. companies like RCA and Zenith that produced televisions. RCA went bankrupt and Zenith was acquired by a Korean company LG Electronics. Today, there are no American television manufacturers left.
 
Up until the 1850s, Americans made all of their clothing at home on their own. With the invention of the sewing machine in the 1850s, the production of clothing became industrialized. By the end of the 1860s, Americans bought nearly all of their clothes from clothing manufacturers. By 1900, clothing trade became the largest industry in New York, with more than triple the output of its second largest industry, sugar refining. In 1910, 70% of U.S. women's clothing and 40% of U.S. men's clothing was produced in New York.
 
Today, the textile industry in New York is nearly nonexistent. 34.5% of the clothing purchased in the U.S. is imported from China. With the federal minimum-wage laws that are currently in place, it is impossible for an American company to profitably produce affordable clothing in this country.
 
The reason for our huge trade deficit is the lack of a real manufacturing base in the U.S. It is impossible for the U.S. to rebuild its manufacturing base without savings and it is impossible for Americans to save with the Federal Reserve artificially suppressing interest rates at 0%-0.25% and the government running record budget deficits. China inevitably will allow the yuan to strengthen and the U.S. trade deficit will shrink. However, a decrease in the trade deficit won't come from rising U.S. exports. The trade deficit will decline because we will no longer be able to afford imported goods from China.
 
It was just announced this week that China reduced their U.S. treasury holdings for a third straight month in January by $5.8 billion to a six-month low of $889 billion. NIA expects China to remain a net seller of U.S. treasuries, especially now that Washington is antagonizing them. It won't be long before the Federal Reserve is the only buyer of U.S. treasuries.
 
It's no coincidence that the Canadian dollar just reached a new 52-week high, less than two weeks after the Canadian government announced a plan to balance its budget by 2016. The U.S. will never achieve a balanced budget ever again and by 2016, it's possible that half of U.S. tax receipts will be needed to pay the interest on our national debt. We pray that all NIA members are accumulating gold and silver.
 
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