“It’s quite clear that global financial turbulence that we were experiencing then is now going to be more prolonged and the volatility is likely to be higher for longer than we anticipated.” –David Dodge

Mr. Dodge further added that the central bank would need to consider the growing economic risks when setting its policies (including interest rates) for the coming months.

Both Dodge and Finance Minister Jim Flaherty are urging China to increase its currency’s value, and to help expand its domestic demand and consumption. This is, by the way, supposed to help the global market in adjusting to the declining U.S. Dollar, and weaker economic growth in the U.S.A.

The current, and growing, global currency imbalances are a result of America’s huge trade deficits with its trading partners, and higher commodity prices. However, although China holds a massive trade surplus with the United States, the value of its currency (the Yuan), is set by the government; it does not change in value along with the economy’s strength. Today, the Yuan is considered to be substantially undervalued.

Exporters in several countries, including Canada, have been hurt by their appreciating currency. The Canadian government estimated that it shouldered about a third of the burden created by the depreciating U.S. dollar. According to these countries, the global currencies are not at an equilibrium where they facilitate trade.

Although I believe a revaluation of China’s currency is important to unwind global imbalances, I don’t think it is in our best interest to continue complaining about a lack of fairness or competitive disadvantage. Yes, our currency being higher than the USD does put some more pressure on us; but how we deal with this pressure is key.

The United States export sector has historically been at a huge pricing disadvantage; yet, these companies have outperformed many in the international arena. The reason being, their business operations had become more efficient and innovative – something our Canadian businesses need to focus on.

The key to economic success is not advocating for an undervalued currency; The key is to develop efficient and innovative business practices.

The U.S. Federal Reserve reported that consumer credit rose at an annual rate of 5.9-percent in August, the biggest increase since May. The rise was due to an 8.1-percent increase in revolving credit (credit card loans) and an 4.7-percent (annualized) increase in non-revolving credit (auto loans, etc.).

Most of the increase is a result of consumers looking to credit card debt as an alternative to home equity lines of credit to finance purchases – as the lines of credit are now harder to attain.

Our economies, both the Canadian and American, are increasingly revolving around the “buy now-pay later” philosophy. With all the spending, comes more debt, loans, and other bads stuff. With our banks (still) throwing credit at consumers beyond their means, credit education is becoming increasingly important in the sustainment of this credit economy.

The Burj Dubai is expected to reach even higher as construction continues, and a soaring 800-metres when finally complete. 145 floors have already been complete in the building, where a new floor is put up about every three days. The complete Burj Dubai is expected to have 165 floors.

The CN Tower held “the world’s tallest building” title for the last 31 years. Completed in 1974, the CN Tower cost $63-million CAD to build, and its construction took 40 months. The tower’s primary function is a broadcast transmission facility. The tower also has a revolving restaurant, and is one of Toronto’s main tourist attractions.

The CN Tower draws nearly 2-million visitors every year. The CN Tower is also recognized as one of the modern wonders of the world by the American Society of Civil Engineers.

More about the Burj Dubai:

• It will be situated on a man-made lake designed to wrap around the tower
• The building will be the first structure with the “world’s tallest” designation to include residential space
• The Burj Dubai is part of a new district in Dubai, which will cost US$22.7 billion
• The district will house 30,000 apartments and the world’s largest shopping mall

Some interesting facts about the CN Tower:

• More than 1,500 workers laboured five days a week, 24 hours a day to build it
• The structure was built to withstand an earthquake of 8.5 on the Richter scale
• It can withstand winds of up to 416 km/h
• Lightning strikes the tower about 75 times each year
• Its glass-cased elevators travel 22 km/h to reach the observation deck in 58 seconds
• On a clear day, visitors on the observation deck can see more than 160 kilometres (past Niagara Falls and across Lake Ontario to New York State)
• The tower’s glass floor section 113 stories above the ground can withstand the weight of 14 adult hippos
• The 360 Restaurant makes a full rotation every 72 minutes

“When I rushed there around 5 p.m., police had already sealed off the area. I saw that our boss had two deep marks in his neck,” a manager was quoted saying.

Cheung Shu-hung, co-owner of Lee Der Industrial Co., apparently hung himself in his factory. The motive behind is suicide was not given, but I’m sure it wouldn’t take a genius to figure out. Cheug, and his company Lee Der, was under immense pressure by Chinese officials (who are eagerly trying to protect the country’s crucial export industry from a bad reputation of being potentially unsafe/dangerous). They have been trying to regain international consumer confidence, after a handful of recalls in the recent past, with new regulations, inspections, and increased pressure on manufacturers, like Cheung himself. Cheung’s Lee Der was temporarily banned from exporting products, causing him financial stress and damage.

Chinese goods have been under fire after a chemical additive in pet food caused the death of some pets in the United States; and toxic ingredients were found in a long list of products, from seafood to toothpaste, which were recalled or rejected by a number of countries worried about safety.

I guess we are just facing another drawback of globalization and increased international trade. I honestly don’t think it’s much of a reason to worry anymore. Sure we need to be concerned about the safety of current products, but I doubt we will be hearing much of “China” and/or “recalls” too much in the future. The reason – Chinese businesses and officials are just as concerned about their success as we are concerned about our health and safety. Because of the increased pressures they are facing internationally, they WILL without a doubt adapt; meaning they will have “safety” on the top of their list of requirements to succeed. Therefore our concerns, and their motives, will align and prove to be mutually beneficial.

A leading supplier of toiletries for luxury hotels, Gilchrist & Soames, recalled complimentary tubes of Chinese-made toothpaste worldwide today after tests proved contamination of potentially toxic chemicals. Full story here.

After hearing of no assurance from Fed Chairman Bernanke about lowering interest rates anytime soon, I guess investors were looking for Bush’s help – the one he’s been providing during his term? President Bush said he expects investors to reassess their risk and begin to focus more on the economy’s fundamentals, which he said are solid and sound. Unsurprisingly, based on market stupidity, investors reacted to his comments; because stocks are climbing as I write this.

If you’re one of the investors hitting buy orders now, I think it’s best you reassess the credibility of your American president – the same one who took a healthy vibrant economy to one on its death bed in less than 7 years.

Enough said. I’ll let you be the judge on Bush’s vote of confidence:

• “I’m not an economist, but my hope is that the market, if it functions normally, will be able to yield a soft landing,” Mr. Bush said. “That’s kind of what it looks like so far.”
• “So the conditions for a — you know — for the marketplace working through these issues are good, and that’s how I look at it, “ Mr. Bush said.
• “It’s the nature of the markets,” he said.

Again this is not a surprising move, as the policy makers have been continuously tightening policy measures to constrain the economy. Today’s step follows an increase in interest rates on July 20, and a reduction in the tax on interest income from bank deposits – an attempt to lower the incentive of individuals looking to bet on the country’s blazing-hot stock markets.

China has already raised this reserve requirement 6 times this year. The country’s central bank has also raised interest rates three times this year so far. We can most likely expect further action; higher reserves, and higher interest rates.

I warn you all once again, this is the time to step out. The bomb’s ticking is getting louder as China’s economy further heats. For those of you who survived the dot-bomb, don’t be too optimistic – you lucked out. But the chances of lucking out with China’s economy blowing, are very slim – no matter which part of the world you are in.

China’s 2007 growth projection was also raised to 11.2 percent (from a previous forecast of 10 percent). IMF’s research department reported strong growth in exports and investments, along with some growth in its domestic consumption (a positive sign that China’s economy may finally be starting to shift from excessive reliance on exports). Together, China, India, and Russia account for more than half the year’s 5.2 percent growth projection.

The U.S. economic performance will still be pulled back by its housing downturn. Nevertheless, business investment is recovering, and consumer demand seems to be holding up, the IMF added.

As for Canada, economic growth will be stronger than expected this year, but weaker in 2008. Those forecasts probably came in wake of consumer spending in Canada being much stronger than expected. The news that also sent the loonie flying past 96 U.S. cents, and raised expectations of further interest rate increases, which in turn took the stock markets for a dive.

All in all, from the IMF report, it is evident that Canadian’s aren’t the only ones facing the possibility of higher interest rates. With the rest of the world’s (mainly China, India, and Russia) strong growth, and supply constraints, inflation poses a much greater risk globally – especially with high energy prices, rising commodities and food prices, and more pressure in labour markets. It is likely that most central banks, including the Bank of Canada, will need to further tighten monetary policy.