once upon a time I had a closer look at those statistics on German government sites and since then I guess that this constant mantra that we are doing “it” only within the EU might be a bit misleading

quoted from my failing feline memory.

The U.S. has shown that its government is not as arrogant as it once has been. It duplicated policies from Germany (cash for clunkers) and shows a much more consiliatory behaviour in global issues. Brazil has just started to fight currency speculation. I expect the US to follow just because there is the problem of inflated prices while the economy is still way down. They are already trying to intervene in the commodity speculation arena. Let’s see what will become of all that in the end. Many say that the US government is addicted to the banks. In front of what I just said, my guess is that this is not the case (any more).

Today we see the RMB firmly pegged against the dollar since last summer. China again has the opportunity to “do the right thing” but has declined to do so, putting pressure not only on the Euro-zone but on many small economies. This article, In Recession, China Solidifies Its Lead in Global Trade by David Barboza gives some hints of the stresses that are resulting.

http://www.nytimes.com/2009/10/14/business/global/14chinatrade.html?_r=3&hp

Having lived in Japan 80s-90s, I’ve always been pessimistic about integrating China smoothly into the world economy. Events since the turn of the century have been discouraging to say the least.

BTW, I misquoted the book:

http://www.amazon.com/review/R21MVPPHXX79TZ

It’s the _Brewmerang Principle_:

“Whatever you chant, whatever you brew,
Sooner or later comes back to you.”

But most relevantly, I think it is easier to compete against one nation with a shrinking currency than with two, thanks to this wonderful global system of ours.

What the world needs is an orderly devaluation of the dollar relative to everything else. By not playing ball, China risks setting off a competitive devaluation game and/or a disorderly dollar decline. I believe this is what our friends in Europe are politely trying to point out.

Incidentally, have you noticed how many countries are issuing dollar-denominated bonds lately?

A weaker dollar benefits globalized American companies. So long as ANYBODY accepts dollars internationally, the Washington Wall Street power structure remains in place. What no one seems to notice is that we are now MONETIZING the Federal Debt. One year T bills pay nothing, they are essentially Federal Reserve Notes. America is now on a Greenback standard with the Greenbacks issued to enable Wall Street gamblers rather than production and exchange. How long can this continue? Imagine that the stock market is being held aloft by a Treasury support operation. Stranger things have happened.

Trade flows are interesting but financially they are minor. In America it’s always about the money.

that is the morality tale they fed us all but on and off I have been interested in what happened to property “acquired” during our 3rd Reich and I have come to the conclusion that the equivalent German saying of
“unrecht Gut gedeihet nicht” (wrong property doesn’t flourish)
in real life is more to the point as
“unrecht Gut gedeihet sehr” (wrong property flourishes very well)

Even if the Dollar falls vs. the Yuan/Renmibi (I still don’t know what to call it), there remains the issue of the EU’s ascendance as a reserve currency (noted in comment below). Any currency that is in the process of expanding circulation to support reserve holdings by foreign banks is going to suffer upwards pressure (some, like Reagan’s advisors, thought this was a good thing since it allows us to support an unstable level of consumption, but it comes at the cost of unnaturally gutting US industry).

China saw what happened to Japan and is not eager to follow suit. Even if it re-pegs, that does not mean it will remove currency controls (which it uses to direct resources away from consumption focused activities).

It is all the fashion to start quoting Keynes, Hume, and Friedman these days.

People actually should be re-reading Jacob Viner.

http://en.wikipedia.org/wiki/Jacob_Viner

Why? Simple. Demand for the Euro as a reserve currency is rising. Note the following chart from Hamilton:

http://www.econbrowser.com/archives/2009/06/shares1.gif

The dollar’s depreciation is partly due to the trade deficit, but is also largely due to the collective worldwide decision that it is not longer a stable reserve currency (due, largely, to the trade deficit, which occurred because of the overvalued Dollar which resulted from inherent demand for the Dollar as a reserve currency and for internal economic use – dollarization). The Euro, meanwhile, is rising partly because of inherent demand to HOLD the Euro in reserves. If you extend the lines through late 2009, I recall the Euro’s rise accelerates.

In other words, the ECB is exporting Euros, and these Euros have (as in the US) made real exports more expensive. The EU, however, is opposed to unilateral mercantilism (unlike China), and so believes that the strong Euro is a good thing.

May they wear that albatross proudly.

As to arguments that a weak dollar is bad for the US, let me note that the ONE major bright spot in recent economic reports is the narrowing of the trade gap.

The only question is whether the global economy can support a US recovery through “export led growth”.

As my daughter’s first grade reading book says in a story, it’s the Boomerang Principle in action:

“Whatever you cast, whatever you brew,
sooner or later, comes back to you.”