The next shoe to drop in the dollar will be next week's US Treasury report on International Economics and Foreign Exchange.

The report is a lose-lose situation for the dollar regardless of whether the US Treasury names China as a currency manipulator. The reasons are the following:

We now expect the Treasury to label China as a manipulator after the US succeeded in obtaining the backing of the 7 in singling out China in the usually generic sounding G7 FX communiqué, urging it to allow "greater flexibility in exchange rates … critical to allow necessary appreciations."

Labeling China as a manipulator will be deemed as a protectionist measure as FX traders anticipate a follow-up trade action to the report. This would be a clear dollar negative.

In the unlikely event that the Treasury does NOT label China as a currency manipulator, then it would be safe to assume that a deal had been reached between Washington and Beijing in getting China to commit with a modest currency move, such as another token 1.8-2.1% revaluation in the coming months.

We expect a short-lived upward knee-jerk reaction in the dollar in case China is left out, before further retreat in the currency on the rationale that the only reason the Treasury "spared" China has to be a result of a secret deal or gentlemen's agreement, as was the case in May 2005 when the Schumer-Graham 27.5% import tariff was postponed after meeting with Treasury officials and Greenspan, who must have had a tacit agreement by China to revalue, as they did later in July.At the mere whisper of secret meetings between the world's moneymasters, Americans are taken for a WILD ride by paranoid-schizophrenic moneychangers.

And with a wink and a nod, our Congress goes along.The Schumer-Graham trade tariff bill against China [is on again, off again,] like a threat put on the shelf, then picked up, then put back. But, there is more to this than meets the eye because dollars don't suffer - people do.
[A] diverse nasty trade war with China would send long-term US interest rates up 2% to the 7% level.

It would knock down the housing market by 20%, knock down the major stock market indexes by 20%, generate several million new bankruptcies, and lift the jobless rate by 4%.

These are rough guesses, but not far off the mark. By diverse and nasty, one should imagine dockworker strikes, boycotts of Wal-Mart chains, certain to spark angry demonstrations in the cities, if not riots.

On the China side of the ledger, similar damage would be unleashed. It is in neither national interest to kick off such a trade war.But, if it's not in OUR interest, and it's not in THEIR interest, then in WHOSE interest is it to 'level the playing field'?US Congress keeps insane pressure on China for a yuan valuation upgrade. A yuan upgrade of 500% is required to bring into near balance the wage differentials.

US leaders press for a lose-lose outcome, wherein we deeply anger Chinese leaders.

Rebalance of this bilateral trade deficit is totally out of the question with a lost US manufacturing base. Rather, the outcome is most likely higher imported finished product prices, a consequent reflection in higher price inflation (even with the corrupted CPI index), and higher long-term interest rates.

* * *

Chinese leaders [like their American counterparts] must deal with a growing gap between rich and poor, corruption charges, and to environmental issues . . .

Foreign capital has infused [the Chinese] economy, and knocked dead some domestic firms.

An estimated 60% of the bilateral Chinese trade surplus with the US comes from US multi-national firms building products in China, which we so vigorously encouraged after the granted Most Favored Nation status in 1999.

We wanted lower cost finished products, but ignored warnings for lost US wages and the threat from foreign accumulation of our debt securities.Oh yeah? Who's 'WE?'Citigroup has been bogged down after an attempt to gain 85% stake in Guangdong Devmt Bank.
The Carlyle Group has drawn attention from its $375 million deal to grab an 85% stake in state-run Xugong Group Construction Machinery.
The German ZF Group has been in talks for three years over its bid for a 70% stake in Hangzhou Advance Gearbox Group, a builder of marine jet propulsion systems.
Another deal with Caterpillar has been criticized more publicly, involving Shanghai Diesel.
Not only Caterpillar, but John Deere have knocked out rival domestic firms in the capital equipment sector.
The state-run Xibei Bearings used to supply train bearings, but no longer, not after the German INA Schaeffler bought into the business in 2003. Reaction is widespread, aided by domestic Chinese lobby groups, an American exported concept.

Objections are laid that Coca Cola dominates their soft drink market, and Eastman Kodak holds a 50% market share in the film business. US presence has grown tremendously.

In 1980, only 23 US firms were invested in China . . . In 2005, [there are] a whopping 49 thousand firms [invested in China.]

President Hu faces resistance from broken farmers, and business leaders trying to maintain a grip on their power, along with ministry officials.

Wal-Mart and French Carrefour dominate large supermarkets.

* * *

Nationalism has collided with globalization, with no valid solution, as the global economy has shrunk in size, labor differentials abound, and commanded wealth disparities linger.

* * *

According to Thompson Financial, almost $900 billion in cross-border mergers and acquisitions were finalized in 2005, up more than 50% from 2004. Only the insanity of 1999 and 2000 eclipsed such levels.

The following quote from a US Congressman summarizes the growing sentiment. "We are dealing now with a brand new international animal called state owned enterprises that are looking to spend a lot of money abroad. They are not capitalistic. They are not free market. They are not bound by the rules of profit and loss, and they are going to gobble up international businesses as we know them." So said Illinois Rep Manzullo.That sums it up, alright. According to our Congress, it's OKAY for foreign and domestic transnationals who care ONLY about their bottomline to pillage and plunder our nation unopposed.

But, when a foreign STATE-owned enterprise, that the transnationals don't control, tries to gain market share, all of the sudden we're supposed to lay down our lives to fight the Red Scourge?

Forget it. Fool me once...

Wakeup America. Don't let them fool us again. This is what Ezra Pound was talking about when he spoke out against WWII. The Chinese are not the enemy - they are victims of HIGH FINANCE gone wild - just like US.

We've been HAD and our own government was complicit in the taking. Now, they're about to take us down THE bloodiest road this nation has ever seen.

Don't say I didn't warn you. Right after the TRADE war comes the Bloody one.