The real issue with the Yuan or RMB is of course the US Congress, its President, lax fiscal policy and a terrible monetary policy. The American political system is drugged on debt, deficits and national-socialist spending and corruption. Governments now account for 45% of US GDP the highest in American history. This means that $7 Trillion per annum is transferred from private individuals, firms and holders of US debt, to a level of government to spend. This is equal to $22.000 for each American.

US National Debt levels are far beyond the $15 Trillion as stated by the good media. Illegal off-the-balance accounts for guaranteed payments in pension, health and welfare total well over $60 Trillion. Each American owes some $80.000 in debt right now. It is unlikely that with an average annual income of $50.000 and average per capita net assets of $80.000; that many Americans can write a cheque today for their share of total debts.

In order to keep the charade going US governments and politicians will do the following:

1. Keep the Central Bank or Federal Reserve politicized and printing money with which it can buy Treasury Bonds. This will monetize and reduce the real value of the outstanding debt.

2. Inflate away US total debts by devaluing the US dollar which should spark trade tensions as the Americans force other currencies to remain higher [the price to be paid it will be said, for US hegemony and global stability].

3. Reject any efforts to curb spending, deficit accumulation, or reduce debt levels or governmental power. There is simply too much money and power as well as votes to lose.

4. Never, ever, return to a metallic standard either mono-metallic [gold]; or bi-metallic [gold and silver].

Instead of addressing the national socialization of the American political-economy, it is highly likely that whatever 'party' is in power [the Republicrats]; the US will pursue these 4 policies. The rest of the world will have a valid claim against the US. These policies are destructive, short-sighted and will lead to a day of reckoning in which not only America will be ravaged, but most of the world economy.

The RMB-US dollar exchange rate is a case in point. American nationalists will use the RMB as a 'straw man', to beat when self-agonizing over China and the Chinese trade deficits. America is very lucky there is a China to buy its Treasury Bonds. Without these purchases the US would be officially bankrupted. The Chinese-American model, or Chimerica, is rather straightforward and incestuous:

• Western firms with Western technologies produce in China for export back to the West

• This industrialization lifts local the Chinese economy or part of it, out of poverty, and employs tens of millions of people

• The cheaper products benefit Western consumers who search out cheaper products since wages and incomes are largely stagnant;

• The Americans pay for the imported Chi-merican product in U$

• These U$ are sent back to China and converted to Yuan

• The Chinese government withdraws excessive Yuan from the banking system through bond sales 'sterilizing' the currency;

• The Yuan is thus kept in a pegged range with the U$

• Excess central bank reserves in China are used to buy US Treasury debt

• The US Congress uses these purchases to incur massive deficits and spend money it does not have....

This is the cycle of Chimerica. China is not to blame. Neither is the value of the RMB. The China model is premised on Western capital, products, technology, and export of Western-desired products back to North America and Europe. It is not a 'Chinese' model per se but the use of non-Chinese product production and business processes to provide goods for richer country markets. Over 50% of Chinese trade is foreign affiliated trade in goods and services – Walmart shipping to Walmart as it were.

Due to these facts the Chinese currency is not a problem. Profligate, inane, corrupt, baseless, national-socialized American fiscal policy is the issue. The Chinese Yuan is supported by the state through sterilization and capital controls. If you removed these controls the Yuan will devalue not revalue making the trade deficit even worse. But that is not even the real problem. The true locus of blame for high trade deficits is with politicians and the unaccountable, unelected civil service. Their penchant to erect grand bureaucracies and spend money is what is driving both the US fiscal deficit and its dependency on China. This won't change.

The trade deficit with China is not the problem. The US political and governmental system is the problem. When it all blows up – and it will – it is going to have incredible political-economic repercussions worldwide. Maybe at that point, a reform of the US political-economy will become a priority. Or maybe not.