Currency friction between the United States and China is on a "collision course," as both countries manage two opposing monetary and economic interests, Jim Rickards, sr. managing director at Omnis, a market intelligence firm, told CNBC on Friday.
“Bernanke is haunted by deflation," he said. "The possibility of deflation scares him to death. The Chinese, are haunted by political instability ... So these two things are on a collision course."
China, which has a history of civil unrest including Tiananmen SquareRickards said, will do everything it can to maintain the job machine, while the United States is most concerned with falling prices. To make the dynamic worse, China is exporting deflation to the United States, he went on to say.
"As hard as Bernanke tries, he is not getting the inflation he wants," Rickards added. "This is not going to change. This dynamic of these two principles is going on a collision course. Something will break; something will give."
This comes at time when Bernanke is trying to mute international criticism for the Fed's Nov. 3 decision to buy a further $600 billion in U.S. government debt. At a European Central Bank conference in Frankfurt earlier today, Bernanke attacked China for manipulating its currency.
However, revaluing the Yuan won't do much to help U.S. exports, said Rickards.
"People buy a Boeing aircraft because they are good planes," he said. "Not because the dollar is weak. As far as the U.S. side.. you could get a "phase transition" where there's a little concern about the dollar and then all of a sudden the dollar collapses all at once."
