Why China Is Unwilling to Revalue the Yuan

The following guest post was contributed by Ian Lamont, an MIT Sloan Fellow. He was previously the managing editor of the Industry Standard, and has also researched China’s state-run media and communications policies.

For years, China has been subject to enormous external pressure to increase the value of its currency, or let it float on the open market. While doing so might relieve pressure on foreign economies by boosting their exports and reducing trade deficits, it runs counter to Beijing’s domestic priorities, which involve doing everything it can to preserve economic growth and domestic stability, and by extension, its hold on political power.

All countries exploit the dynamics between their political and economic systems. But China’s situation is exceptional. For three decades, the government of the People’s Republic of China has perpetuated a grand political dream, claiming a single-party political mandate from the Communist ideals espoused by Mao Zedong, while simultaneously drawing power from the capitalist canon. Beijing has been able to pull it off, largely through the promise of spreading wealth and opportunities to even the poorest of villages and maintaining benefits for cadres and workers in state-owned enterprises which cannot easily be absorbed into the capitalist system. A high rate of GDP growth is required year after year to maintain this state of affairs.

A sudden change in the value of the Yuan could have the effect of throwing a wrench into the works, potentially setting off a chain reaction of factory closures and layoffs across the interconnected networks that drive China’s export-oriented economy. In the short term, China might be able manipulate legislation, the banking sector, and welfare levers to prop up key industries or regions. But in the long term, it is uncertain if these steps would be enough to preserve social stability or continued loyalty to the Communist Party. 

What sorts of domestic consequences would result from a slight uptick in the value of the Yuan? The currency is now trading at about 6.7 renminbi to the U.S. dollar. At the very least, Chinese exports would become slightly more expensive to foreign buyers. The resulting drop in Chinese exports would put marginal factories out of business and put their workers on the streets. Other companies would shift low-wage manufacturing to countries such as Vietnam and Sri Lanka. In the industrial parks around Shenzhen, the unemployed could be reabsorbed into the local manufacturing economy. In remote interior provinces, where economic institutions are less developed, there would be fewer opportunities, and a corresponding rise in poverty, anti-government feeling, and isolated “mass incidents.”

But what would happen in the case of extreme economic disruption, prompted by a sharp change in the exchange rate, the currency openly floating on the world market, or some other unforeseen effect of a revaluation? The social and political turmoil unleashed by a sharp, sudden slowdown of the Chinese economy could potentially lead to Tiananmen Square-scale protests, widespread domestic instability, and an exodus of migrants or refugees to neighboring countries and overseas.

China is not attempting to hide its fears. “Any significant appreciation of the renminbi will erode China’s export competitiveness overnight and impact the livelihood of tens of millions of workers,” notes an editorial authored by the pro-government China Daily and republished in China’s state-run news agency in May. The essay further describes two economic goals: To maintain a target GDP growth of 8 percent per year (a level it has achieved nearly every year for the past two decades) and contain China’s consumer price index (which it tries to keep under 3%).

Additional factors may influence China’s currency policy in the short term. One concern is foreign policy, such as relations with key trading partners. Another is nationalist sentiment, which the Communist government has manipulated to support its own hold on power. Economic injustices inflicted by foreign powers on China in the 19th and early 20th centuries — such as the treaty ports system — still play a role in China’s nationalist propaganda. These humiliations require the current generation of Chinese leaders to tread carefully around policy changes that could be viewed as kowtowing to foreign demands.

So, for foreign governments, companies, and labor groups expecting China to allow its currency to appreciate, there may be no significant movement until China’s back is truly against the wall — or the leadership in Beijing can find a face-saving way to convincingly portray a revaluation as an advance demanded by its people, as opposed to a policy shift dictated by foreigners. In addition, China’s trading partners need to be aware that a change in the value of the Yuan will not by itself erase their trade deficits or reduce their dependence on cheap manufactured goods from abroad. Such a shift may even lead to problems that have long-lasting implications for China’s people and the global economy.

171 thoughts on “Why China Is Unwilling to Revalue the Yuan”

  1. The cascade point will be once the price of oil makes it impractical for China to sustain its factories shipping cheap goods globally. The other factor which is more difficult to measure outside China, is whether China is running factories and stockpiling goods that have no buyers, this would be unsustainable if it goes on too long.

  2. I think batticus is half right: the pressure to revalue will come when the expectation that the price of oil will cause a revaluing, and that expectation starts to become self fulfilling.

  3. I’m no economist but…what the author is saying is that China won’t revalue its currency because it’s not good for China? And that kind of brilliant insight gets one a fellowship at MIT?
    How about:
    “For years, (Iran) has been subject to enormous external pressure to (curtail) its (nuclear program), or let it (be subject to) open (inspection). While doing so might relieve pressure on foreign (countries) by reducing (military threats), it runs counter to (Iran)’s domestic priorities, which involve doing everything it can to (expand regional influence) and domestic (control), and by extension, its hold on political power.”
    You could go on…

  4. Perhaps Mr Johnson or Mr Kwak or
    some other worthy can explain how
    a correct/just/appropriate exchange
    rate, between _any_ two currencies,
    can be determined. One can see, at
    the extremes(e.g. Zimbabwe) that any
    attempt to set a currency exchange
    rate by government action will fail.

    But I don’t see a huge Black Market
    in yuan — or, for that matter, in
    dollars — developing between China
    and the U.S.

    The U.S. — at least the manufacturing
    part of the U.S. — wants the yuan
    to appreciate(whether ordinary
    Murricans want the prices of their
    TVs and shirts to go up is another
    question). For reasons well explained
    in the above article, the Chinese
    don’t want the yuan to go up, or at
    least want it to go up very slowly.

    Since the Chinese have the upper
    hand(they are the ones producing
    goods for us, they are the ones
    buying our debt), they will probably
    get their way. I.e. they will set
    the exchange rate, and there isn’t
    very much we can do about it.

    Best wishes,

    Alan McConnell, in Silver Spring MD

  5. I could be a jerk and mention some prior guest post on this same topic (say around June 20 of this year), but I’m gonna let it go.

    Suffice it to say China looks out for China, China has always looked out for China and China always will look out for China. As soon as policy experts can recognize this definitively eternal fact, the sooner we can base policies and negotiations with China in reality. China will do no deal that they are not not sure in their mind they are getting the long end of the stick on, and preferably the extra long end of the stick on. PERIOD And when you open negotiations with China from the expectation of meeting them in the middle ground you come from a position of extreme weakness. Chinese only respect strength and lies.

  6. I don’t know why I typed “not” twice sequentially in the above comment. Some kind of obsessive compulsive feedback loop?? anyway…… I guess the point should be clear enough.

  7. I think it would be helpful for the readers to post yuan-dollar exchange rate over the last two decades vs trade deficit. Yuan has appreciated enormously over that period. It is a very inconvenient truth, and you rarely see US commentators mentioning that.

  8. Certainly everything Mr. Lamont says is right on the money. But let’s put the problem another way: how many American jobs should we be willing to sacrifice to support the Communist dictatorship in China?

    Personally, I vote for zero. I would say that we should agree with the Chinese that it will take them some time to move to a freely floating currency regime. So, we should label them currency manipulators and apply countervailing tariffs, and remove those tariffs on the same time frame that the Chinese use to float their currency.

    I can’t see any reason we should concern ourselves with the stability of a totalitarian regime. If they want help and understanding, they should hold open, free, multiparty elections and we’ll be happy to talk about assistance.

  9. Ted is right. And, I’ll add: The U.S. is naive if it thinks it can peacefully coexist with China. Their mentality is to be superior and dominant at all costs. The U.S. has exactly the same mentality. Zero-sum game, here. We are on a direct collision course with China. Whether we choose to remove our blinders or not. The future is clearly conflict and the buildup of U.S. naval forces in the region is proof enough. To suggest that this merely represents a ‘show of force’ on the U.S. part is naive. America is actively preparing for war with China, and vice versa. The cyber war has already been in full force for years. Sorry to sound like a war monger, but the truth is usually ugly, despite Ted K’s movie star looks.

    http://www.telegraph.co.uk/finance/economics/8031203/Capital-controls-eyed-as-global-currency-wars-escalate.html

  10. The real question in my mind is what will happen when China decides to spend all those dollars they’ve been accumulating.

    They will first buy foreign-owned assets within their sphere of influence, but I expect they’ll have more dollars left over after that exercise is completed. A general of theirs was recently advocating dumping dollars in an effort to force the US to abandon Taiwan, but those in the PRC charged with handling their western currency reserved apparently opted against this strategy, as it would surely result in a significant decrease in the value of their investment.

    Another place they will spend their dollars will be in buying up everything in the west that we will “let” them purchase (palm greasing will be involved). Think real estate, the port of Long Beach (tried and failed already), all our timber, coal, and other natural resources, including fresh water.

    This buyup of raw materials will occur gradually, nothing to get too excited about. China does not want a head-to-head military confrontation with the US, rather a long-term wearing down of our ability to fund our military. When we are out of dollars for defense, they will be the one left standing.

    In resistance to the decline of the US’ ability to control its current hegemon, I expect the US’ political right to inflame anti-Asian sentiments and manufacture a pretext for war, as a last dying gasp.

    Sort of a dark vision, I’ll admit, but it seems to be the direction our short-sighted public policy is pointing us. I would be happy to be convinced otherwise; please tell me I am wrong.

  11. We are always told that other countries are to blame for our economic problems. Over the years this has included such countries as Japan, Saudi Arabia, Mexico — take your pick.
    Now all we hear about how China and its undervalued currency have been robbing our jobs and money. Of course, never mentioned is the fact that many huge U.S. companies have a vested interest in keeping the yuan low — since they produce and subcontract a lot of their work in China. These companies also use competition and trade with China as an excuse to lower labor compensation and other costs here. As for the U.S. government, it also derives a huge benefit — a steady flow of cash from China, which has to buy U.S. Treasuries to keep its currency low.
    If the U.S. really had decided that it had to revalue its currency in relation to the yuan, it would impose it, like it did during the Plaza Accord 25 years ago.
    The hullabaloo over the yuan is nothing but political theater to blame an outside power — that happens to be a lot poorer and weaker than the U.S. — for problems made in the USA. A very old game, indeed.

  12. There’s nothing to prevent the US Fed or Treasury from unilaterally pursuing a policy of devaluing the dollar against the Renminbi. We would do well to remember that the next time the politicians complain and complain about China’s currency.

    And it’s anything but clear that a lowered Renminbi value would automatically result in a significant enlargement in our manufacturing industries. We don’t have enough highly skilled workers and experienced engineers to create this imagined additional, competitive manufacturing capacity. And the US may not even have have the infrastructure to support such modern production facilities.

    This will all take decades to build up.

    But never fear, the US had an $8000 tax credit so that people could buy over priced homes with granite counter tops.

    So any minute now we’ll be globally competitive….

    We’ve spent way too much time listening to economists for these kinds of proposals. It’s time to give someone from another discipline a chance to redesign America’s industrial landscape, maybe a car repair shop owner or a yogurt shop manager. Someone who actually works for a living.

  13. China keeps the Renminbi low by printing them and buying dollars, right? And doing so hasn’t increased inflation in China, so, according to conventional monetary policy they’ve been printing the right number of Renminbi, right?

    The U.S. controls the number of dollars, and we have lower inflation than we want. If the U.S. actually wants the dollar to fall, we have a really easy mechanism to make it do so: print dollars. We could buy Renminbi with the dollars, or just mail them to U.S. residents (in exchange for old socks: http://yglesias.thinkprogress.org/2010/07/no-law-against-helicopter-drops/). Doing so would help with our disinflation problem, and would make China choose between a low Renminbi value and 3% inflation.

    That we’re complaining about China and not pushing on the Fed to act indicates that we’re not actually serious about the problems here. We’re just looking for a scapegoat.

  14. @Ted K: “Suffice it to say China looks out for China, China has always looked out for China and China always will look out for China.”

    If only we had an America that looks out for Americans, has always looked out for Americans and always will look out for Americans. And did so unapologetically.

    That might be a nice change.

  15. The currency fiddle and capital controls drive Chinese inflation and suppress domestic consumption and investment. It’s bad for China too!

  17. The leaders of China will do what’s in their best interest, and the leaders of the US will do what’s in their best interest. China’s leaders are the Communist Party elite whose interest is to pursue a mercantilist trade policy, to maintain political support and strengthen their military power. US leaders are the corporate CEOs and billionaires, and their hired government flunkies, whose interest is to move and keep production offshore, because they can make bigger personal profits, even if this impoverishes the US and in the long run weakens it militarily. The only thing that can upset this arrangement is if China and the US get into a military confrontation (hot or cold), which is made more likely as the US military industrial base weakens due to offshoring, thereby tempting China to bully the US. In such a confrontation, would the US leaders side with the US?

    The lead culprits in this controversy are not the Chinese, but instead are the US leaders who offshored our manufacturing, engineering and R&D. They enabled,and are continuing to enable China to continue its mercantilist trade policy, so they can get even richer.

  18. The complaining by politicians you mention, is just political theater to get votes during election season. These guys are not going to seriously bite the hand that pays them their bribes, er “donations”.

    “Donations” are to politicians what tips are to waiters, it’s where they get most of their money from. They will not jeopardize this cash stream.

  19. In America as of late we are told to look out for ourselves, even if that results in a few squishing the many.

  20. Two recent articles on this question are particularly worthwhile reading:

    http://www.voxeu.org/index.php?q=node/5575
    by Daniel Gros. He proposes a plan to address global imbalances without risking a trade war, by deploying a “reciprocity” requirement – if the US can’t buy Chinese government bonds, then China can’t buy US bonds either.

    and
    http://seekingalpha.com/article/227660-how-will-china-rebalance
    by Michael Pettis. He points out that this is as much or more a political issue as it is economic, and lays out the panoply of approaches the Chinese might take.

  21. Hudson states: “There is little acknowledgement that the United States is as guilty of “managing the dollar” by its policy of quantitative easing that depresses the exchange rate below what would be normal for any other economy suffering so gigantic and chronic payments deficits.”

    Does he mean budget deficits that would sink the bond markets?

  22. M. Hudson:

    “To pretend that China is “manipulating its currency” by doing what central banks have done for over a century is Junk Economics Error #2. Back in the early 1970s, U.S. officials told OPEC governments that if they did not do this, it would be deemed an act of war.) This recycling of foreign balance-of-payments surpluses to finance the U.S. federal budget deficit (by buying Treasury securities) is the essence of the U.S. Treasury-bill standard since 1971.”

    M. Hudson again:

    “This policy makes the dollar a managed currency. Low U.S. interest rates and easy credit spur investors to lend abroad or buy foreign assets yielding more than 1%. This dollar outflow forces other countries to protect their currencies from being forced up. So their central banks do not throw the excess dollars they receive onto the “free market,” but keep them in dollar form by buying U.S. Government bonds. So the “Chinese savings,” “yen savings” and “Euro savings” that are spent on U.S. Treasury securities (and earlier, on Fannie Mae bonds to earn a bit more) are not really what Chinese people save in their local yuan, or what Japanese or Europeans save. The money used to buy U.S. Government securities consists of the excess dollars that the American military, American investors and American consumers spend abroad in excess of U.S. earning power. To pretend that these savings are “saved up” by foreigners (who save in their own currency, after all) is Junk Economics Error #1.”
    ————

    Just how drastically misinformed, confused, mislead etc., that the US citizens are, is perhaps unprecedented in human history. Citizens of other imperialistic nations have perhaps been ‘less’ informed. But the information age has brought about a new type of collective behavior that combines well-informed with misinformed and that combination seems to feed a collective confusion that intensifies over time. The US is after-all… simply trading virtual money for actual goods and then accusing China of maliciously causing unemployment in the US. A larger ‘glass-house’ with thinner walls has probably never been devised.

    Ray L Love

  24. If the Chinese leaders do what is in their bests interests and that at the same time improves the quality of life for the Chinese people, then good for them.

    The author of the article speaks about the manipulating of nationalist sentiment as a way for the government to support it hold on power. Can Mr. Johnson tell me what country doesn’t manipulate nationalist sentiment. The sentiment is often loudly and disgustingly spoken here in the U.S. when you here citizens talk of “American exceptionalism” etc.

    China has gone from a backward, mostly agrarian society to an rapidly increasing industrial, modern society within a generation. That is an achievement worth noting and admiring. All too many people in the West sound as if they have a mouthful of sour grapes when they consistently criticize China and its economic policies.

    Yes, they don’t want to change the manner in which the yuan is valued, because it is not good for China. Well, good for them; they actually seem to be looking out for the Chinese people. That doesn’t seem to be the case with our western societies.

    Every criticism I’ve heard about China can be equally well applied to the United States.

    And please spare me this talk of “fear” of China. Fear is for cowards.

  25. KJMClark, my goodness you sound like you still live in 1950. We’ll next be hearing you use the word Chi-comms.

    Grow up with your “dictatorship,” “totalitarian regime” silliness.

    They don’t want help or understanding, or assistance, and they don’t need it. They seem to be doing quite well without.

    American companies willingly moved production to China. As far as I know the Chinese held no gun to the heads of American CEOs and demanded it. China’s gain is our loss, and the gain for the US companies who moved production to that country. That’s the way the “capitalist” system works or did you not notice that.

  26. Yes, indeed…you can’t blame China for not revaluing their yaun upwards? Afterall, it was Bretton Woods decommission in 1971 (Nixon/Connelly) that screwed over europe, not to mention the rest of the financial universe. Funny how things go round, and come back to bite ya? China has been making headways into a funky kind of democracy for thirty years now, and the (PRC) people like it…especially the upward mobility achieved from utilizing/mirroring our capitalist system. Here’s a novel ideal – why not have the crybaby multinationals (Wall Street Crowd) raise their (chinese labor through negotiated contracts) slave-labor wages, and cast aside the suicide nets, pathetic! We as americans faught for higher wages through unions, and organized protest…so what am I missing here? Think about it…Gates, Jobs, Ellison, Dell, Buffett, etc.,etc., just to name a few would have a win-win scenario without arm-twisting our Government to pressure China – I mean how greedy can you get? The prices of imported goods would be miniscule obviously putting money into the consuming slave-labor (workforce) crowd who just might buy our imports. PS. Warning: China should have a long memory of what the west put them through during the “1st Opium War (1840-42), and 2nd Opium War (1856-60)” that scared the Nationalist Communist for life! Oh…thoughs bloody British, and Europeans…not to leave out the deceptinve/conniving Russians, for shame! (JMHO) Thankyou Mr. Lamont…and Thankyou Simon,and James for all your hard work :-)) “Go Rays”!

  27. “Here’s a novel ideal – why not have the crybaby multinationals (Wall Street Crowd) raise their (chinese labor through negotiated contracts) slave-labor wages, and cast aside the suicide nets, pathetic!”

    Not the right kind of financial innovation :)

  30. jeff simpson: appropriate thoughts but late in the game. China has been “dumping” dollars with increasing speed particularly in the past three years in all ways you mention and more, including settling contracts with certain countries in non-dollar conversion transactions.

    The talk of tariffs and renminbi floating is predominantly campaign political posturing allowing candidates to engratiate themselves with a naive electorate.

    An interesting question is the behind-the-curtain involvement of the chinese in funding various entities through channels now available compliments of our Supreme Court’s recent ruling on campaign finance. Many funding avenues are now open to not only corporations but also a host of anonymous donors through special interest groups where no reporting of sources are required.

    The Chinese have burgeoning power and wealth. To their advantage to orchestrate whatever possible in US elections given their internal goals.

    As Ted K so aptly stated, The Chinese do what is best for China.

  31. I’m sorry, but not only do I agree with the writer, but also believe that there is a far bigger chip on the table. In case no one has noticed, China, at present, fits nicely into the plans of the American globalists (that is rich and powerful American bankers, investors, and individuals). Geithner has admonished the Chinese to revalue, arguing that, without revaluation, they are gradually contributing to the deterioration of their largest market. Good argument. Red herring. The American globalists, of which Tim is a part, only want a continuation of global arbitrage to fill their now neck deep coffers. I would note that there are lots of American corporations who are more than willing to play China’s game, not to help American workers, but to avail themselves of low wage opportunities around the globe. You know the ones of which I speak.

    No, the globalists are awaiting the day when the world is in such economic chaos (dare I say, not so far away), that they will be able to get the majority of countries to go for a truly international currency. There have been mutterings, as we all remember, during the depths of the global recession, which have abated during the rebound (of some developed and developing nations), even as that rebound has not been of significant dimension to encourage real, solid hope for a full global recovery.

    There is some truth in the idea about the price of oil, the scarcity of which will necessarily have some detrimental global impact within the next decade or so, but that is not the key factor. The globalists are anxious to fulfill their one-world wishes, and, armed with a growing alliance (including, I might add, the Chinese leadership who is aware that its days are numbered by defacto reality), will be able to substantially repress the world’s serfdom and execute their plans sometime within that decade. The argument over revaluation will remain an argument, since the Chinese leadership will play its cards out until a point of globalizing currency. Then and only then will they have to withstand an internal trend toward ersatz democracy. If we thought that free elections in Afghanistan, Iran and Iraq were a joke, just wait until the Chinese move to a two party system. Theirs will end up much like ours, completely manipulated and adversarial in name only.

  32. ad said:

    “As far as I know the Chinese held no gun to the heads of American CEOs and demanded it. ”

    How ignorant is THIS guy?

    This is precisely what the Chinese did. US CEOs have a duty to serve the shareholder demand for profits, which means shifting production overseas based in part on the undervalued currency.

    So yes, they very much had a fiduciary “gun to their head” to lower costs, which they could do thanks to China’s mercantilist policy.

    Join the real world, “ad”.

  33. “explain how a correct/just/appropriate exchange
    rate, between _any_ two currencies,
    can be determined.”

    Admittedly, this is not easy. But the issue is that China is engaging in artificially promoting saving (by depressing the yuan, which raises the price of imports, subsidizes exports and thus leads to a CA surplus, which is the net national saving), thus robbing the ROW of aggregate demand at a time when there is global AD deficiency. As Krugman points out, the way to look at the issue is to look at the capital flows, not the exchange rate.

    Black market in yuan? The currency is not convertible, and China has strict controls to limit such speculation. Nevertheless, there are apparently large “hot money” flows into China. Setser has estimated them at $150 billion per year, a considerable offset to the official outflows, which amounted to $650 billion in the year and a half from 2009 through June of 2010. This still leaves a sizable net negative stimulus for the ROW.

  34. “There’s nothing to prevent the US Fed or Treasury from unilaterally pursuing a policy of devaluing the dollar against the Renminbi.”

    There’s really no way for them to do that. The yuan is not convertible, so they can’t buy it. It is not within their power to prevent China from buying dollars. The Fed is very actively trashing the dollar right now, but they can do so only with respect to currencies that “play by the rules.” Japan seems to have opted out. The Fed could buy yen, but it is the Treasury, not the Fed, that would make the decison to do so.

  35. hbj writes: “US CEOs have a duty to serve the shareholder demand for profits …”

    So it’s China’s fault American CEOs put profit ahead of your country’s national interest?

  36. Talk about “junk economics.” I can tell you that Mr. Hudson’s arguments sound pretty silly to a trained economist. Lamont makes the valid point that China may suffer severe adjustment costs if it revalues its currency too quickly.

  37. No, how American business works is not China’s fault.

    Moaning and groaning that everyone’s being so unfair with them when they refuse to play on an even field is their fault.

    They play unfair to win, the US should play unfair to win. Wen cries about the millions who might lose their jobs in China. Who the hell cares? Does he care about the millions who have lost their jobs in the US? Not in the slightest. So let’s have at it.

    Besides, even with 30% tariffs, China will be fine. They have vast reserves of impoverished citizens willing to endure sweatshop conditions and trying to breath air you can actually see it’s so polluted.

    And maybe, just maybe, if the China mercantilist machine is slowed down a bit, Chinese citizens will demand of its government a bit more focus on quality of life for its people and less on world economic domination.

  38. Odd how the US has been claiming its problems are due to China, while China has not said any of its problems come from the USA. China has the integrity to accept responsibility for its own problems and not blame them on others. The US doesn’t. The US has become a whiny rich nation which seems to mirror the large number of whiny rich in the US who claim they can’t live on a six figure income. Whine, whine, wnine. Easy to do.

  39. Thanks for the added perspective Mr. WangChiang ZhuDang. Let us know how the dumplings were at Wen Jiabao’s house tonight, ok???

  40. The capitalist system also gave us sit-down toilets. Unless you’re still afraid of getting STDs from your countrymen, enjoy arm wrestling with your pants while taking a dump, and enjoy squatting just to avoid getting piss all over the floor in a 2×2 foot stall. In which case, Zig Heil Hu Zhintao.
    http://www.latimes.com/business/la-fi-china-toilets-20101002,0,5444049.story

    When you guys learn how not to crap like apes, and have civilized public bathrooms within 20 square miles of each other, then move on to voting and property rights, ok???

  41. LOL. Ted…..I hope you had a drink in your hand when you typed these early morning rants. LMAO Bad boy!

  42. Real problem is that US companies make
    most of their money outside of US and
    they keep their money outside. That is
    not going to stop.
    If the Chinese products get more expensive
    then who is going to buy at Walmart
    and what happens to consumption led growth.

    companies are already working to open
    Vietnam. This will just speed the process.

    Funny is no one mentions that one of the
    main reason US companies moved to China
    was due to Kyoto.

  43. If the Fed were trashing the dollar, you’d see increasing inflation and inflation expectations, instead of the 1% inflation we’re actually getting. Do you have any data to support your assertion?

  45. Kyoto? How so? The U.S. is not a Kyoto signatory.

    U.S. companies moved to China to cut costs. U.S. companies keep their money out of the U.S. for tax reasons or so they claim.

  46. 1) But what would happen in the case of extreme economic disruption, prompted by a sharp change in the exchange rate, or some other unforeseen effect of a revaluation? The social and political turmoil unleashed by a sharp, sudden slowdown of the US economy could potentially lead to Tiananmen Square-scale protests, widespread domestic instability, and an exodus of migrants or citizens to neighboring countries and overseas.

    2) Why is it that no one is asking who it is that a country of semi-starved peasant rice growers obtain the capital to develop into the 2nd largest world economy in the space of 30 years? In what country do you think the bulk of those investors are located? To what degree was thier investment facilitated by thier own government?

  47. ellis – I made a similar point below.

    No one asks how it is that a nation of semi-starved rice farmers became the 2nd largest global economy in the space of 30 years. Does investment capital grow on rice?

    If the Chinese peasants did not provide the investment capital then who did? And why is no one focusing on who has benefited by the destruction of the US middle class?

  49. Here’s a thought…the G20 should agree on a maximum trade imbalance ratio that any one country can have with another country and if that maximum trade imbalance ratio threshold is breached, then the trading partner who is suffering the imbalance is allowed to raise tariffs that will bring the imbalance back down to the maximum imbalance ratio.

    Your welcome, world.

  50. The writer is so steeped in anti-Communist propaganda that he seems unable to conceive of the Chinese supporting their government unless they are constantly fed by it materialistically. Substitute “US” for “Chinese”, “Chicago”,say, for “Shenzen”, etc. in the following excerpt: At the very least, Chinese exports would become slightly more expensive to foreign buyers. The resulting drop in Chinese exports would put marginal factories out of business and put their workers on the streets. Other companies would shift low-wage manufacturing to countries such as Vietnam and Sri Lanka. In the industrial parks around Shenzhen, the unemployed could be reabsorbed into the local manufacturing economy. In remote interior provinces, where economic institutions are less developed, there would be fewer opportunities, and a corresponding rise in poverty, anti-government feeling, and isolated “mass incidents.” Are we not experiencing the equivalent and worse here in the US? But the writer assumes that China, unlike the US, could not tolerate it because presumably it has nothing else to offer. The writer’s bias makes the article worthless.

  51. I totally agree with Rockfish that this posting is very trite. Please don’t have a guest column telling us we all need oxygen to breadth…

  52. @JeffreyY: I don’t see a racist comment. Tone is subjective. I read the comment as basically implying a Chinese bias on the part of another commenter. If you are offended by his comments you can post a comment to that effect, as you have already done. Perhaps what you need to see is a warning similar to the one craigslist has on its ‘rants and raves’ section:

    Excerpt from: http://beijing.craigslist.com.cn/cgi-bin/personals.cgi?category=rnr

    “Unless all of the following points are true, use your “back” button to exit this part of craigslist:

    1. I am at least 18 years old.
    2. I understand “rants and raves” may include offensive content.
    3. I agree to flag as “prohibited” anything illegal or in violation of the craigslist terms of use.
    4. By clicking on the links below, I release craigslist from any liability that may arise from my use of this site. “

  53. Reply to Bill Gilwood:
    I don’t blame them a bit for looking out for themselves. You seem to imply, however, some kind of wrong in us looking out for ourselves. That taking care of business (our interests) on our part may involve trade war with China, or at least a credible threat to do so. We simply cannot afford to have a free-trade policy with them while they continue to employ a mercantile one, IMO.

    I’m also for sanctions against “our” MNC’s in the form of tariffs for products manufactured overseas.

    I don’t mind another economy building, but not at the expense of causing mine to be systematically undermined. They have to give us something, or else.

    The Chinese understand credible threats, IMO. They share this quality, IMO, with you, me, and every creature born. Sure, speaking softly is good, but there has to be the big stick behind it. I may well be wrong, if so, demonstrate it, but I believe Geitner has had a lot of frustration with getting Chinese cooperation during quiet talks behind closed doors.

  55. I believe there’s been quite a bit of focus on the role of US MNC’s in the destruction of our economy. You’re tilting at a strawman. Chinese currency manipulation is one of many things to be addressed.

  56. So you’re predicting that by January 1, 2011, we’ll have at least 5% inflation? If that doesn’t happen, will you admit that Paul Krugman’s right (http://krugman.blogs.nytimes.com/2010/10/02/how-the-other-half-thinks/)? Or will you just forget this prediction and say “wait 3 more months”?

    Do you really think you’re smarter than the investors who’ve driven TIPS spreads down to around 1% (and will lose money if they’re wrong about that)?

  57. hbj,

    You have the whole issue backward. The whining is on the US side of things. And the US is guilty of more trade violations than China by far. Read any one of the last 3 books by J. Stiglitz, or try getting your news from sources other than the MSM.

    The very nature of US trade is in violation of what the WTO was created to eliminate: unilateral trade arrangements that provide strategic platforms for jingoistic purposes. The US allows Colombia for instance almost unlimited access to US markets while Colombia is also allowed to protect its own markets. And guess which nation in all the world has the fastest growing stock market? Well, if you guessed Colombia you are right. But with only Venezuela and maybe a few other voiceless nations to complain, who should care if the US allows itself to be taken advantage of? Nobody that matters, that’s who. But of course if the US and China get into a shouting war over trade issues… these types of trade tricks will be made public and the US is guilty of endless such indescresions that would be in violation of WTO regulations if not for the double-standards allowed by the overwhelming influence that the US has over WTO affairs. And on top of all of these unilateral issues that exist worldwide, the US has blatantly ignored its own trade violations related to ag subsidies. Nearly every ag minister in Africa filed a formal complaint with the UN about a decade ago, knowing that the WTO was likely to ignore their petitioning, as it had since the ‘Grand Bargain’ made in Seattle in ’95, but that petition was also ignored, especially here in the US. But the Chinese have been quietly doing business with many such nations that are dissatisfied with the status quo. If all of those nations are forced to chose between the ever-meddling US and China, it is very probable that the US will lose significant ground in the grand race for global market-share. And global market-share is, in the minds of our corporatist leadership, far more important than all else. Understand that, and things begin to make sense.

  58. I recall hearing a report that, during the sharp rise in oil prices just before the financial crisis, the cost of shipping a sea-container from NYC to Shanghai almost tripled.

  59. Can’t disagree; would add that modern China is disturbingly like Wilhelmine Germany, with its’ sense of injury,entitlement, and push for “weltmacht”(pick up a copy of Dreadnought by Robert Massie). That didn’t end well.

    The US has been run for some years now by men who do not distinguish the national interest from that of the American investing class(“my base” as W called them). Their constant, omnipresent free market propaganda has lead to a situation in the the rescue of a major industrial corporation(GM) is deeply unpopular; from a national interest point of view, of course, this was an obvious and absolute necessity. And we can no longer produce the rare earths critical to many weapon systems. The Chinese dominate this production. From the national interest point of view, this is utterly insane.

    The folly of the Chinese is that,once consensus to act develops in the US, and finally overwhelms the free trade CW, action will likely be dramatic, and the disruption in China correspondingly severe. Given the vote in the House(a majority of Republicans voting in favor!), we may be close. As paul Krugman has pointed out, what else can now be done to raise employment in the US? We may be witnessing the beginnings of a serious collision.

  60. Re: @ don___”the world is awakening from a forty year hiatus – a solemn slumber in nirvana land – the solstice of fiscal armageddon is calling in its avarice crescent – righting this upside-down pendulum of equilibrium gone mad…known too only the wise as the `law of large numbers` – this collective plurality we call a paradox that equates to irrational logic – this ancient papyrus without a backbone – fleeced of its intrinsic golden garb – raped of its bounty thus naked to thy beholder – and you question…why ?”

  61. Re: @ Bob G.___Perhaps we can feed into the grand scheme of things making China close its doors once again, and restart the 18th & 19th century coolie migration to fix our infrastructure. Hey a bowl of rice and a straw mat is all I ask?

  62. don,

    Your comment seems pretty foolish when you compare your average “trained economist” in regards to their recent and continuing failures to the repeated and consistent accuracy of M. Hudson’s forecasts. You have the “silly” correct but your premise is backward.

  63. Re: @ rcthweatt___The “House” has all it money on China – don’t ever bet against the house! PS. Why are we at war currently with every nation that looks at us cross-eyed…what gives with this nonsense, while we lay naked – as a beached whale? China isn’t the problem…it’s our leadership that’s now a Fascist orientated/leaning bunch of slugs, period!

  64. Ah Ted, I believe your comment was made in jest, I see the humor in it, I was over one year in China in the early ’90’s and personally experienced their traditional disposition systems, they stink! But we must be cautious, I remember that I joined the Navy in WWII to obtain my first experience of regularly running water (under human control that is!) near my quarters. The Chinese are an ancient people and probably the core of Eastern Civilization, they are modernizing at astonishing speed and are already our equal in many if not most dimensions. It does not require much circumspection to understand that “We would not be wise to engage in mortal combat with that civilization to retain some sort of idea of “supremacy” on this globe we both occupy!”. They are learning from us, we can and should learn from them, we will be trading with them for the rest of our time on Earth, I hope!

    Pompo

  65. don,

    Here is a ‘little’ support for my previous claim on M.Hudson’s forecasts:

    “Hudson’s April 2006 Harper’s cover story, “The $4.7 Trillion Pyramid: Why Social Security Won’t Be Enough to Save Wall Street,” helped defeat the Bush administration’s attempt to privatize Social Security by showing its aim of steering wage withholding into the stock market to reflate stock market prices for the benefit of insiders and speculators – and to sell to the pension funds. His May 2006 Harper’s cover story, “The New Road to Serfdom: An illustrated guide to the coming real estate collapse,” was the first major national article forecasting – in precise chart form – the bursting of the real estate bubble and its consequences for homeowners and state and local government solvency.[1] The November 2008 “How to Save Capitalism” issue of Harper’s includes an article by Hudson on the inevitability of a large write-off of debts and the savings they back.”
    ~Wiki

    Now doesn’t that just make those “trained economists” look “silly”?

  66. don,

    Take what you call “valid”, and put a ‘duh’ after it, and then, you may be better able to understand the problem with your “trained economist” viewpoint:

    “Lamont makes the valid point that China may suffer severe adjustment costs if it revalues its currency too quickly”, ‘duh’. See how well the ‘duh’ fits there?

  67. Ray L. Love and earle,florida, I like your thinking, seriously wish more people did! Keep at it, the World is still turning and individuals can learn!

    Pompo

  68. @ Bob G.: Sorry to break the news to you, Bob, but the Chinese rulers are about as Communistic as the rulers of the USA. Ergo, critics who scorn China’s particular capitalist road are not spouting “anti-Communist propaganda.” And you literally do not know what you are talking about when you speak of “the Chinese supporting their government” since “the Chinese” are ruled by a tyranny that regularly suppresses vox populi. Worry not: Pick up an old world history text and read about the intercapitalist conflicts that culminated in WWI. With apologies to Marx’s rewrite of Hegel: The first time as tragedy (WWI), the second (WWII) as atrocity, the third (today) as nausea . . . a plague on all their houses!

  69. Mr. Johnson wrote, October 1, 2010 at 8:41 am:

    “Why China Is Unwilling To Revalue the Yuan”

    I guess someone is listening.

    Reuters wrote:

    IMF Says China Policy To Help Yuan Revalue

    YALTA, Ukraine | Sat Oct 2, 2010 5:40am EDT

    (Reuters) – “Policy moves by the Chinese government to free the yuan from a dollar peg will help the Chinese currency rise, Dominique Strauss-Kahn, the head of the International Monetary Fund, said on Saturday.”

    http://www.reuters.com/article/idUSTRE6910KV20101002

  71. We’re whining because most of our factories have gone to their country. They should be relatively content with things as they’ve been going.

  72. (slightly off-topic)

    Beware Of Greeks Bearing Bonds

    October 1, 2010 – Michael Lewis – Vanity Fair – excerpt

    “As Wall Street hangs on the question “Will Greece default?….

    But beyond a $1.2 trillion debt (roughly a quarter-million dollars for each working adult), there is a more frightening deficit. After systematically looting their own treasury, in a breathtaking binge of tax evasion, bribery, and creative accounting spurred on by Goldman Sachs, Greeks are sure of one thing: they can’t trust their fellow Greeks.

    The Bonfire of Civilization

    The day before I left Greece the Greek Parliament debated and voted on a bill to raise the retirement age, reduce government pensions, and otherwise reduce the spoils of public-sector life.

    (“I’m all for reducing the number of public-sector employees,” an I.M.F. investigator had said to me. “But how do you do that if you don’t know how many there are to start with?””

    http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010

  73. China has the option of retooling its urban factories and businesses to produce useful goods and services for its large rural population instead of subsidizing the manufacture of luxury goods and services for lazy Americans. At some point, especially as pressure rises from the rural population, China will probably realize this and revalue the yuan, leaving the United States in some trouble as the US is now dependent on Chinese manufacturing and R&D (such as it is).

    The only good reason for China’s current policies is to acquire technical know-how and expertise in manufacturing and R&D from the short-sighted and greedy Americans. Otherwise the current policy is one of subsidizing the manufacture of goods and services for the US at the expense of China’s own population.

    China can structure a revaluation of the yuan, if it so desires, to enrich its rural population, surely a wiser course of action than current policies. Most likely there is growing interest in doing this behind the scenes in China, if it has not been planned already for years.

    The most prudent policy would be for the US and China to negotiate a phased revaluation of the yuan over a period of a few years (lets say 2 years) during which China could retool many of its factories and businesses to meet the needs of its rural population and the US could rebuild its atrophied manufacturing and R&D sectors.

    Just to be clear, revaluing the yuan will increase the buying power of salaries and savings of the rural population. If this is not enough, China can simply give yuan to the rural population (increase salaries, cheap farm loans etc.). In real economy terms, revaluing the yuan means converting Chinese industry to making farm machinery, tools, small refrigerators perhaps, and other gadgets that will increase the standard of living and productivity of the rural, agricultural population.

    Sincerely,

    John

  74. jonboinAR,

    Since Pompo has given me some much needed and appreciated encouragement, I will do my best to clarify some things.

    Our current batch of elected officials, especially those in the Democratic Party, are on record making many errant claims that will be used against them in each of the next 2 elections. Obama ‘teamers’ for example said that growth would be robust by now and that unemployment would be x by y date and etc. It will however be very easy to make them all look very foolish in campaign adds designed to do so, and this is why the original econ advisers had to go, they must take the blame to help their team.

    But the modified team must now also make some progress on unemployment or the Dem team is doomed. Their only option is to increase exports and to decrease imports but this can only occur efficiently if the dollar depreciates. It would help too of course if the yuan were to appreciate but the dollar going down is much more important due to the deficit being the other key factor. The team also made projections on the deficit and the electorate is not likely to appreciate the fact that the cost of interest on the debt is more than spending on education and so on once it widely known that the Obama stimulus spending mostly just kept guv employees from losing their jobs and not much else of any consequence.

    There are some very serious drawbacks though regarding an attempt to inflate our way out of our mess.

    1) When the dollar goes down the price of oil is very likely to go up.

    2) A falling dollar will deplete global savings in dollar related assets which will in turn have a negative affect on US exports.

    3) A dollar depreciation will make imports more expensive in the US and this will cause price inflation.

    So, the resulting price inflation just from numbers 1 & 3 will occur concurrently with the effort to increase exports, and… as that effort to stimulate exports increases, that in turn increases the competitive global pressure on US wages/incomes and this increase in competition will make wage inflation very unlikely. In other words, because it is critical to understand this, a depreciating dollar is in itself in direct conflict with increasing exports because it will have a negative influence on global AD. But more importantly, even if this tactic creates some jobs in the US they will come at the expense of aggregate purchasing power in the US.

    Put simply, the Democrats are stymied, but convinced that their success is more important than short-term global progress, but… this ploy will very probably cause a spike in poverty levels across the globe. There will also be many wealthy and powerful foreigners who could have a much lower opinion of the US ‘brand’ as a result of this tactic. And so, this tough trade talk with China is about putting as much blame on China as possible–in advance. The justification will be that China left the US ‘no choice’ other than a manipulated depreciation. It was in the best interest of mankind etc….

    In the end though it will be difficult not to see that the US shifted some of its responsibility for the AAA fraud fiasco and etc. on to the shoulders of mankind. There is no doubt about which nation caused the multitude of problems, there is only a question as to who will pay for the damages.

    Ray L Love

  75. It would be pretty to think so, but there is no sign of it as yet. The Chinese could, and should, have acted long before this; they could then have made the process as gradual as they liked, but it seems they will not act until forced by imminent US action. At that point, it may be very difficult for the US to agree to a gradual process; my sense is Americans are far angrier and concerned about this than the CW dreams-one hears and reads’we don’t make anything anymore’ everywhere now, and the massive majority in the House says something- Congressmen are not, as a rule, totally clueless about how their constituents feel.

  76. Thanks, RayLLove, for your patient explaining. I’m trying to digest it and Professor Hudson’s comments. They both go together to refute Professor Krugman’s strident China bashing which I have bought into. I’m going to try and keep my mouth shut for awhile and listen (read).

    I have a simple remedy of my own that I sometimes put out for criticism, but so far it’s been ignored, probably as too poorly informed or something:

    Can we not charge tariffs on imports in an inverse relationship to real wages paid to workers in the factories originating the products? That is, the more the workers are paid, the lower the tariff. I’m sure there’s a myriad of practical obstacles to such a policy, such as it violating WTO rules, but those aside, would it not help toward some of our purported objectives? It would discourage wage arbitrage and increase, demand as workers could afford to buy stuff, including ours.

    Again, thanks.

  77. It is premature to conclude that the yuan will be freed from the dollar peg.

    Note that the article neither describes nor confirms the policy in question, and only quotes Strauss-Kahn as saying, “I am confident that the new policy of the Chinese authorities will lead to the revaluation of the yuan.”

    There was similar hope of the yuan being freed from the dollar peg in 2005, after then-U.S. Treasury Secretary John Snow supposedly received from senior Chinese officials a commitment “to allow the yuan to be set by the interaction of demand and supply forces”:

    http://www.forbes.com/feeds/afx/2005/09/24/afx2242412.html

    At the time, “The U.S. Congress had been threatening to impose stiff trade sanctions on Chinese imports if it did not allow more market-based valuation of the yuan”:

    http://money.cnn.com/2005/07/21/news/international/china_yuan/index.htm

    While the yuan has appreciated since then, it was never freed from the peg, as Snow had been told and Congress had hoped.

  78. You’re scaring the hounds, earle. Do you really think financial armageddon is around the corner? I want to be sure to stock water and rations. Are you seeing the signs?

  79. jonboinAR,

    Forcing wages up from the global bottom is genuinely ‘the’ solution. Even main-streamers such as P.Krugman, when they are not presently overwhelmed and ‘blinded’ by their ambitions, admit to that. And, if the G8 can use the WTO for exploitative purposes I doubt that any obstacles exist regarding altruistic purposes which are in the best interest of all but the feudal few, other than the obstacles of the feudal few themselves of course.

    Krugman claims that massive stimulus directed at the poorest nations would solve many of our problems, but also, that it is not realistic to think of that as politically doable. But opinions such as these are something of a self-fulfilling prophecy. His opinion, for instance, convinces millions that an idea is unrealistic and so the idea is abandoned by those millions. I think he is using his influence poorly in that regard. He has instead decided to play the distortion and half-truth game against the Repugs and so, much of what he is promoting is misleading and based on a smug notion that his readers are not smart enough to understand it all… so he has chosen an ‘end justifies the means’ approach that is demagoguery in its essence… If you need me to provide examples of his machinations I will, I know of many: excluding prevalence rates in the health-care debate, and claims that the VA is a model of efficiency, and his use of bogus studies regarding structural employment so as not to include undocumented workers and so on. But I am not convinced that Dr. Krugman doesn’t know what is best for him in his position so I try not to waste time on that subject. He has however chosen to put his integrity aside for now but that is his choice. Maybe he thinks or knows that he will replace L. Summers and thereby have an opportunity to have some very serious influence? Personally, I have far more respect for J. Stiglitz and M. Hudson and so do many Heads of State and Finance Ministers etc. But Dr. Krugman is privy to information that I am not, so maybe he knows best?

    Anyway, what is critical to grasp is that fiat currency was not well enough understood as the advanced nations redesigned their economies around their financial services industries. Capital formation was for example the central focus of ‘The Economic Recovery Tax Act of 1981’… but, the economic engineers of that period failed to consider 2 key things.

    1) Nations have the ability and the right to create keyboard capital. 2)Nations with keyboard capital have no reason to allow access to their ‘demographic dividend’, or to their natural resources.

    So, basically, fiat currency diminished the importance of financiers at a time when financiers had control of our most integral institutions. So they are parasitic and yet deeply entrenched and vastly influential. And the economic engineers, in their misguided belief that the contribution of investors is much more integral than what it actually is, have created a dynamic that has humanity dependent on the well-being of the very investors that are draining economies of productive capital and then concentrating that capital where it is needed the least. It is quite a mess.

    But, as you suggested, the solution is not that difficult to remedy in the economic sense. Once there are enough people who understand the problems better, international boycotts aimed at individual corporations, and especially at mega-banks, will have crushing influence on stockholders… and these boycotts, will shift the balance of power over to consumers. Plus, as if the laws of nature could be in play, the nations which become the most dependent on global market share, will be the nations that are the most vulnerable to international boycotts. It will be international coalitions bound together by ideals… against a single nation’s investment-class and its dependency on equity shares. It may not be all that far off.

    Ray L Love

  80. Excerpt from:
    http://www.washingtonpost.com/wp-dyn/content/article/2010/10/01/AR2010100106981.html

    “Stuxnet malware is blueprint for computer attacks on U.S.

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    By Ellen Nakashima
    Washington Post Foreign Service
    Saturday, October 2, 2010

    A sophisticated worm designed to infiltrate industrial control systems could be used as a blueprint to sabotage machines that are critical to U.S. power plants, electrical grids and other infrastructure, experts are warning.

    The discovery of Stuxnet, which some analysts have called the “malware of the century” because of its ability to damage or possibly destroy sensitive control systems, has served as a wake-up call to industry officials. Even though the worm has not yet been found in control systems in the United States, it could be only a matter of time before similar threats show up here.

    “Quite honestly you’ve got a blueprint now,” said Michael J. Assante, former chief security officer at the North American Electric Reliability Corporation, an industry body that sets standards to ensure the electricity supply. “A copycat may decide to emulate it, maybe to cause a pressure valve to open or close at the wrong time. You could cause damage, and the damage could be catastrophic.”

    Joe Weiss, an industrial control system security specialist and managing partner at Applied Control Solutions in Cupertino, Calif., said “the really scary part” about Stuxnet is its ability to determine what “physical process it wants to blow up.” Said Weiss: “What this is is essentially a cyber weapon.”

    Researchers still do not know who created Stuxnet or why…..”

    Excerpt from:
    http://www.washingtonpost.com/wp-dyn/content/article/2010/10/01/AR2010100106981.html

  82. Their only option is to increase exports and to decrease imports but this can only occur efficiently if the dollar depreciates.
    EndQuote

    Ray: The US has spent 30 years moving industrial production offshore. This means not only that entire factories have moved – it means that entire mfg “ecosystems” have moved offshore. China boomed as it not only assembles products but it also makes the wire, the connectors, the 101 widgets that go into the finished unit. Returning these jobs to the US will take an extended period of time.

    A second issue is that the US is exporting dollars. China has a surplus of dollars. So do Brazil, Germany, Saudi Arabia, and almost everywhere else. You can borrow USD at 1% and buy Brazilian bonds that pay 11%. The Fed is increasing the supply of dollars in a world awash in dollars. The law of market returns dicate that those funds be invested where they will achieve the highest return and that is outside the USA. So the process of US indebtedness deepens, the bankers get richer and the ordinary citizen gets poorer.

  83. News flash: every country looks out for itself, often without regard for (or at the expense of) others. The US included.

    The only thing that shocks me in this whole situation is that everyone here in the US is whining about it so much. China is acting like a world power and stomping on everyone else. You know, just like we did for the past 30 or 40 years.

    Intellectually honest Americans realize that they aren’t offended by China’s behavior; they’re jealous of it.

  84. China’s economy does not rely on exports. China is a Monetarily Sovereign nation. As such it has the unlimited ability to create its own sovereign currency.

    When a Chinese factory exports to the U.S., it receives dollars, a “foreign” currency it cannot use to pay its workers. It exchanges these dollars for the renminbi China creates from thin air.

    The Chinese government amasses dollars, some of which it can use on the international stage, but mostly the dollars just “sit” there in the form of T-securities at the Federal Reserve Bank. Meanwhile domestically, China creates and distributes renminbi to its population.

    If Chinese factories did not export and did not receive dollars, the Chinese government could continue to create and distribute the same number or renminbi as now. The only difference: No pile-up of T-securities at the FRB, a difference that has no effect on the Chinese worker.

    Rodger Malcolm Mitchell

  86. Contrary to most comments here, a upwardly revalued yuan will NOT:

    1) Save heavily unionized overpaid American manufacturing jobs which in the process of extinction due mostly to technology. (BTW, the real low end jobs are already in the process of moving out of China into Bangladesh, Vietnam, Jordan, etc.)

    2) Make Americans better educated and more innovative. (Check America’s college graduate declines.)

    3) Make Americans save more and become more realistic about government entitlement programs like Social Security or Medicare.

    4) Make U.S. interest rates stay low. In fact, quite the opposite. Think how you’re going to fund # 3 above.

    5) Make the trip to Walmart or Target continue to have low prices. In fact quite the opposite.

    6) Make Americans richer and more powerful.

    In fact, quite the opposite. What it will do is make re-electing the current Congress easier. Think they’ve done a good job for you?

  87. Re: @ Lester___”is not the instinctively and logic axiom of gravity rendered useless in a vacuum – does not a feather have the same weight of a shot-put – would you not argue against the illusionist that our financial house is in a state of suspended animation – where the twilight confuses naught?” PS. The only sign I see is stop the insanity!

  88. An Australian economist interviewed by Max Keiser has said a — solution to deflation is to raise wages. — Are there any thoughts on the pros and cons of this heterodoxy?

  89. When I tested this link on the post it would not connect. It is vital and goes into detail about what this author states generally. The shifts of capitalism between the domestic and the international flow is matched by exploitations of the rural village/town small scale entrepreneurs by the more centralized urban financiers who also benefit from the international interests more directly. It should be read with a critical eye, but it is loaded information from an internal scholar and direct observer. Hopefully this link will work directly:
    http://www.lawyersgunsmoneyblog.com/2010/06/sunday-book-review-capitalism-with-chinese-characteristics

    (as found listed from google search )
    Sunday Book Review: Capitalism With Chinese Characteristics …
    #
    Jun 27, 2010 … Although the PRC in the early 1980s didn’t resemble a Friedman-esque capitalist wonderland (and lacked rule of law and democratic …
    http://www.lawyersgunsmoneyblog.com/…/sunday-book-review-capitalism-with-chinese-characteristics – Cached

  90. Clearly, that economist was no businessman. Is he suggesting that your local drugstore give all its employees salary increases, as its contribution to deflation prevention? Have him name the business that volunteers to hurt its bottom line by increasing its costs.

    The sole prevention and cure for deflation: Sufficient federal deficit spending to increase the money supply beyond demand increases. This also would benefit the economy by supplying such goods and services as universal health care, better road and bridges, retirement income, etc.

    Rodger Malcolm Mitchell

  92. It is for almost a decade that the North America became to be depended on Chinese economy. All what we have to do now is to find the tools to increase the growth of our economy and reduce this dependency. We shouldn´t have to forget on our patriotism that we can rely on…

  93. Yes, if workers have more money to spend, they have more purchasing power. So should business simply give workers more money? Today, businesses are suffering, and that economist’s solution is for business to raise its own costs!

    Ah, the old ivory tower. As I said, this guy never has run a business. Probably never even worked for a business.

    He is right however, that workers need more money. Where can it come from? Not from businesses, which are short of money. Instead, workers should get money from the federal government, which has the unlimited ability to create money.

    Where to begin? Eliminate FICA. (See: http://rodgermmitchell.wordpress.com/2009/09/08/ten-reasons-to-eliminate-fica/) This would give both workers and business more money, and end the recession.

    Rodger Malcolm Mitchell

  94. We are dependent on China only in the sense that China is our servant. See: http://rodgermmitchell.wordpress.com/?s=deal%3F

    To satisfy our desires, China could ship us every yard of cloth and every ounce of steel in their country; they could burn all their coal and oil; they could employ every man, woman and child in dismal sweatshops; they could empty their nation of all physical resources, and still we would have plenty of dollars to send to them, simply by touching a computer key.

    This may be more easily understood by looking at Saudi Arabia, with whom we also have a trade deficit. One day, the Saudis will have sent us every drop of their oil, leaving their country a hollow, empty sand dune, while we blithely will go on producing dollars.

    Who has the better deal?

    Rodger Malcolm Mitchell

  95. If wages rose in China it would:

    – raise the standard of living
    – support an emerging working and middle class
    – create domestic demand for consumer goods
    – enhance social and economic stability

    This would also:

    – raise the cost of imported goods in North America
    – makes American made goods more competitive
    – stimulate inflation in North America

    So what are the pros and cons of this scenario?

  96. Rodger, the US Fed has increased the money supply through quantitative easing. But according to some experts (Michael Hudson, Simon Johnson) this is being exploited by the carry trade.

    Talk about free money this is astonishing:

    “The House Ways and Means Committee is demanding that China raise its exchange rate by 20%. This would enable speculators to put down 1% equity – say, $1 million to borrow $99 million and buy Chinese renminbi forward. The revaluation being demanded would produce a 20,000% profit, turning the $100 million bet (and just $1 million “serious money”) into making $2 billion. It also would bankrupt Chinese exporters who had signed dollarized contracts with U.S. retailers.”

    — America’s China Bashing

    20,000% profit on a $1 million “down payment” !!! Now that is speculation.

  97. http://www.time.com/time/world/article/0,8599,1862717,00.html
    In 2006 recession and unemployment hit China’s domestic economy (above link). (2006)

    Then, In late 2008 Paulson visited China to request more currency reform despite a 15% strengthening of the Chinese currency since 2006 (undoubtedly cooperative given the hard hit domestic restraints and downturn in 2006 from the domestic recession noted above article).

    While the Chinese have proven less threatening than is made out since 2008 to the present, Paulson was lectured by Chinese economic thinking:

    (2008)

    “The record will show that over the course of the past two years, China did in fact raise the value of its currency against the dollar more than 15%. But it will also show that during his last visit to Beijing as Treasury Secretary — which ended today — Paulson and his team had to ask the Chinese government not to backtrack on its commitment to “continued currency reform,” as a Treasury spokesman put it. The RMB has recently weakened against the dollar, raising global alarm bells that China might try to devalue it as a way to revive its gasping export sector, putting pressure on other exporters to weaken their currencies and stirring up protectionist sentiment in Washington — particularly among U.S. labor unions, which heavily backed President-elect Barack Obama. For its sake, China blandly replied that the recent fluctuations in the RMB market were in line with market forces.
    Then, to top off what had to be a miserable two days, Paulson had to listen to lectures from a series of Chinese officials about all the additional steps the U.S. must take to solve its economic mess. The U.S. had to stop consuming and start saving, because “global imbalances” were at the root of the financial crisis, People’s Bank of China Governor Zhou Xiaochuan told Paulson. And, added Vice Premier Wang Qishan, Washington needed to “take all necessary measures to stabilize its economy and the financial market to ensure the security of China’s assets and investments in the U.S.”

    Read more: http://www.time.com/time/world/article/0,8599,1864669,00.html#ixzz11KCRKdT4

    In 2008: http://www.time.com/time/world/article/0,8599,1864669,00.html

  98. BEW writes: “The record will show that over the course of the past two years (2006 – 2008,) China did in fact raise the value of its currency against the dollar more than 15%.”

    OMG, that must have been one huge gravy train for the currency speculators. So bubble economies are unavoidable and good for hedge funds right?

  99. Dubai’s default triggered the European crash this year and had an enormous impact on our own domestic economy but strengthened the dollar against the Euro competitively. This competitive concern of the Euro against the dollar was a petrodollar interest (substrate to the global peg) and dominance if not total supremacy of the dollar.
    While China has been a distraction, corporate greed in Dubai by our own sell outs like Carlyle& Halburton, Blackwell, and their off shore financial communities who make their homebase outside the USA are hand in hand with the Financial Sector distortions that go unattended.
    We blame the Chinese while our own corruption goes unpunished and America goes complacent with regulatory arguments that are already being tainted with perverted incentives.

    We should drop the pretense and partner with Chinese for recognitions and a gradualist policy that holds mutual interest for both our domestic economies. The strengths of both “DOMESTIC” contingencies will determine the peace or hostility of the next 50 years.
    International financial elitism has run its global course and we will never balance international economies from the top down. It will however lead us to a police state and a global tension that is bound to be centralized by war and political military protection of the elites and their TBTF corrupted domination of finance. Felonialism is the new colonialism and we are at the center of its resource base as well as its primary target. It is not the Chinese we have to worry about…its the financial international cartel itself.

  100. Pump- N – Dump is what has been taught to the world economies and has been the gowth and dependency trend at least since the mid 1980s, but certainly is rooted in private equity finance as a hostile form of acquisition over infrastructure in the mid 1970s. It seems to have contaminated the world with its downsizing strategies and its malicious “creative destruction” over “distressed assets” progressively using finance as a wrecking tool. A junkyard mentality that grows to depend on self serving and exclusionary manipulations for its profit only ideology.
    Markets are not for exchange and mutual benefit but for exploit and rent seeking (strip mining)ownership that builds nothing for social wealth but intentionally restructures everything and everybody under leveraged royalties as Bush’s term the “New Ownership Society” directly implies.
    These are economies of rent seeking scale that have no restraints. When we accuse the Chinese of being currency manipulators (according to the textbook mechanical definitions) we ignore the fact that the international financial system is rigged as one great ponzi scheme from the top down. We should be more concerned that they have not adopted our worst practices and have adopted a process that is still benign. God help us if the Chinese decide to do business the “American way” we seem to have propagate both against the world and against our own people.
    It used to be said that if you want the truth follow the money. Today, follow the petrodollar and the domination of currency around the world with its asset accumulations for the New Sovereign Private wealth of Nations. Mercantilism is prenatal compared to this system.

  101. Bruce E. Woych has some wise and sharp words. And I like whatever fragment of digital papyrus with backbone earle.florida speaks from :) But not to discount thoughtful comments from others here.

  102. The TRIFFIN DILEMMA essentially points to a inverse contradiction between international flow and domestic stability:

    Global imbalances and the Triffin dilemma | Analysis & Opinion |
    Jan 13, 2009 … The whole concept of a single reserve currency (the dollar) and a principal reserve asset (US Treasury bonds) is set to undergo a profound …
    blogs.reuters.com/…/global-imbalances-and-the-triffin-dilemma/ – Cached – Similar
    http://blogs.reuters.com/great-debate/2009/01/13/global-imbalances-and-the-triffin-dilemma/ (main article)

  103. http://www.ratical.org/corporations/LAWCAP.html – Cached
    Legally Pigally, and the definitions of FINCAP and LAWCAP, from … (1980)

    World-power-structures competitive struggle is big Finance capitalism and lawyer capitalism in a systemic process of debt leveraged monetary capture:

    http://www.ratical.org/corporations/LAWCAP.html – Cached

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

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

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

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

    ” * China’s Currency Change Isn’t Necessarily a Win for the United States” by Carnegie Endowment (paste and google search this if it is not lit).

  105. Ray: A problem lies, I fear, in getting the “common” folk organized enough to strike and apply other kinds of pressure. First of all, there’s a powerful tendency toward intellectual laziness. By this I don’t mean so much Krugman or other Economics Phd’s cherry-picking their statistics. I mean most folks I know have way less of a clue than I have as to what’s going on, and that’s versus me, maybe 1/4 of the way there. They are terribly subject to propaganda that might appeal to their emotions. Hence, Tea Party types organizing AGAINST their own economic interests. Then you have to try and achieve some sort of international solidarity. Oy! My head hurts.

  107. “But I don’t see a huge Black Market
    in yuan — or, for that matter, in
    dollars — developing between China
    and the U.S.”

    Perhaps that is because China has strict currency controls in place.

  108. I happen to agree with Rodger on this one. China is in a situation where it’s trying to hold on to a failed socialist ideology while, at the same time, capitulating to capitalism by poaching American demand. As long as they continue down this “little bit pregnant” path, we have them by the short hairs.

    It’s pretty absurd that, in order to thrive, a country of 1.3 billion would need the demand of a country of 300 million.

  109. Rodger,

    How come everything the Federal Gov’t sticks its nose in never comes down in price? We’re in a deflationary recession, yet, health care, college tuition and, now, housing are still beyond affordable levels.

    Could it be your “Free Money” propping up these markets?

  110. China is a big illusion, everything they achieved they achieved because they were let into American market. The moment this door will shut there will be nothing left. All their reserves are “funny money” worth as much as Americans want them to worth and all the tension comes from the fact that Chinese realize they got screwed.

  111. From Wiki under ‘Triffin Dilemma:

    In the wake of the Financial crisis of 2007-2008, the governor of the People’s Bank of China explicitly named the Triffin Dilemma as the root cause of the economic disorder, in a speech titled Reform the International Monetary System. Zhou Xiaochuan’s speech of 29 March 2009 proposed strengthening existing global currency controls, through the IMF. [1] [2]

    This would involve a gradual move away from the US dollar as a reserve currency, and towards the use of SDRs (IMF Special Drawing Rights) as a global reserve currency.

    Dr Zhou argued that part of the reason for the original Bretton Woods system breaking down was the refusal to adopt Keynes’s Bancor which would have been a special international currency to be used instead of the dollar.

    American economists such as Brad Delong have agreed that on almost every point where Keynes was overruled by the Americans during the Bretton Woods negotiations, he was later proved correct by events.[3]

    Dr Zhou’s proposal attracted much international attention; [4] in a November 2009 article published in Foreign Affairs magazine, economist C. Fred Bergsten argued that Dr Zhou’s suggestion or a similar change to the International Monetary System would be in the United States’ best interests as well as the rest of the world’s.[5] While Dr Zhou’s proposal has not yet been adopted, leaders meeting in April at the 2009 G-20 London summit did agree to allow $250 Billion of SDRs to be created by the IMF, to be distributed to all IMF members according to each country’s voting rights.
    ———————-

    The above goes along way toward explaining the official position of the Chinese regarding their need for a soft-peg.

    Ray

  112. Vasily,

    You would do well to learn more about the ASEAN Trade-zone (13% of global trade) and about all of the other trade arrangements that China has set up around the world.

    And the yuan is no ‘funnier’ than what the dollar is.

  113. Why the above comment posted where it did is a mystery to me? It is possible that this site is too sophisticated for me… (this is an excellent site).

  114. The same shifts have happened to my posts;…:the powers that Be…”

    Good research raylove, all the way through this threaded stream. I studied your every post as it was also very well thought, written and presented. Nice Work! Bruce

  115. You clearly have the Tiger by the tail here tippygolden press. This amounts to a continuous float to all international boats that are “ALLOWED” in the water. In the meantime while this insidiously devilish mechanics make some elitist financial communities very rich, it does so by zero sum gaming of real subsistence money and increases poverty in the shadows of the globe.

    Thanks for your kind comment (elsewhere).

    I would say that the currency question globally is a solution awaiting the correct questions. Those questions will only derive from all of us “risking skin” to ask a great deal more questions for the details. Ultimately we need to demand responsibility and accountability. But we will not have the understanding until we open the doors of this one way power scalar and reverse the asymmetrical flow of information that permits the distortions and imbalances (…forced dependency spirals). The Financial “China Syndrome” we are now querying is based on a lot of “noisy traders” (Wall Street term for misinformation…more or less…to drive the “herd” in the direction of its own self-interest). I do think that there are “experts” out there who could clarify this “reverse mercantilism” of complex financial institutions (protected by state to the point of corporate nationalism)…but then, why would they blow their careers,…spoil the profiteering…and risk making very dangerous enemies?

    Keep the faith…a democratic globe of peaceful co-existence may well depend on your inertia.
    EVERYONE DOES COUNT!

  117. jonboinAR,

    Not to suggest that international boycotts will be easy… but, there is a very big difference between uniting against an obvious injustice, caused by exploitation, corruption, or negative externalities or whatnot, and uniting behind a ideology held in common. Think of how progressive thinkers the world over might react to spiking health-care costs related to specific food and beverage or tobacco products. Americans for example often denigrate less advanced nations for not providing better care to the citizens of those countries while many of those Americans simultaneously benefit from the exports of goods that are known to cause diet-related diseases. These types of unnecessary costs can be tolerated for only so long in a world that must become more efficient as population pressures increase and so on. So the ‘uniting’ need only be against something without the restraint of agreeing on what should be done regarding idealogical choices as applied to policy.

  118. When you write about the “US” you may want to clarify who you mean. You are talking about corporatists who could care less about the US. Americans are not offended by China’s behaviour, nor are Americans jealous of it, Americans are offended by the behaviour of the US government, who, as it turns out, only represent corporatists.

  119. Actually, the cascade point is commodity (input) prices generally. China relies heavily on imported raw goods to sustain manufactured cheap goods. If the dollar devalues (as will/needs to happen with rounds of QE to offset growing debt obligations and trade imbalances), this lifts commodity input prices for currencies pegged to the dollar, which squeezes profit margins if manufacturers cannot raise prices. If they do raise prices to US importers, demand drops – the question is how fast China can shift the end target for production away from the US. It has also made no secret of seeking to secure commodity supplies using dollars with falling value, perhaps to help buy time to complete the transition.

    Fundamentally, a lot of this comes from China’s willingness to hold dollars as IOUs. China wants the Yuan to be an international reserve currency, but has not come to terms with the requirement that any provider of such a currency must generate debt (aka, print money and become a net importer) to sustain global demand for liquidity.

    Or perhaps it has come to terms, and its solution is to keep its currency scarce but undervalued via mercantilism. But one of the tenets of true mercantilism was accumulation of gold – what is China accumulating? Dollars? A basket of foreign currency reserves? Foreign equity assets?

  120. The “Worlds Fiat Currency System”, now backed only by a sovereign governments worthless paper`chase (papyrus/ ancient notes of debt via Cradle of Civilization) with only a handshake, and a wink doesn’t cut it anymore, and certainly the fast approaching (questions being asked?) apostasy future – nor does a electronic cyber confirmation stored in the ones mainframe house of IOU index cards…fit the billing! China will buy our debt…as much as they need to control their yaun – but china is, and (and other emerging markets India,Brazil, and the Saudi’s just to namw a few ) has been for some time now…buying “Gold & Silver” with the appetite of a thousand year old “Resurrected Dragon” using America’s “Black Market Dollars” to do its bidding (in the open-market, and the open source market) while we sell/lend our Gold Reserves to GS, BOA, JPMC, and the IMF? The “Bretton Woods (1971)” decommissioning was the “Irrational Logic End-it-All”, and has put (United States) our “Entire Fiscal House in Ruin”! Remember this old addage…no accountability leads too malfeasance, and fiduciary bankruptcy that only a fool’s fool would be cajoled in partaking, period! Yes, indeed…our gold-backed curency was fleeced/robbed in broad daylight of its intrinsic (useless worth throughout the ages?) value, and backed by a “Hubris Quasi-Hedgmony State-of-Affairs” that only the mighty arrogant could invision would last forever…at the locked & loaded “Sawed-Off Shotgun” of America’s mighty ubiguity, “In Your Face! Finally, I would like to pose a question that concerns, and bothers me – why is half of all the world’s precious metal Gold/Silver held in “Private (no accountability/ transparency?) Banks”? Thusly, why would they accumulate this vast wealth…this intrinsically non-interest bearing metal, why? The biggest & largest mining companies of these precious medals is “Rio Tinto Gold Mining”, and “Goldfields Co. mining…all controlled by private entities,all controlled by private banks? The bottom line? The worlds financial sovereign governments must get back their “Equipoise Mojo”! Please, just back up your paper with a tangible hard asset too the tune of 10% +/+ of your reserves – what’s wrong with that – or is insanity the flip side of the equation? JMHO

  121. Well, you make some valid points. But economists are not forecasters. Their models generally *assume* market efficiency. That turned out to be pretty foolish for macroeconomists recently.

    But two wrongs don’t make a right. And although poor logic can occasionally reach the right conclusions, that is not generally a recommended path. It seems clear that Hudson does not fully grasp the fallacy of “immaculate transfer,” the importance of the distinction between private and official capital flows, or the difference between currency manipulation and changes in currency values that come from overall monetary loosening or tightening. That is why Japan legitimately objected when China bought yen-denominated assets. Nor would Krugman be complaining about China’s currency values if they came from an overall monetary loosening in China.

    Stated another way, China’s currency interventions, combined with its capital controls, are equivalent to forcing its residents to save more, with the corresponding trade surplus and reduction in AD in the ROW. During a time of deficient global AD, this is behaving badly.

  124. I think you might benefit from reading more of M. Hudson’s articles that are linked to above. For someone who remains unidentified to claim that someone of M. Hudson’s accomplishments does “not fully grasp” a widely understood concept, is, well, a little much.

    You might also give some more study on the notion that saving is a negative. Perhaps if you could provide me with factual material showing where other nations were harmed when the US had high savings rates or something along those lines. Don’t waste any time on the accounting identity spiel I’ve heard enough on that. China’s savings is its safety net.

  125. Ignoring the “will” (don’t accept getting “screwed”)

    of 300 million people in USA is obviously easy for “globalists”

    but ONE BILLION people horrified by the insane pollution and the “screw” – now that’s impressive psychotic megalomania on the part of “globalists”.

    Opium Wars – Part 3, 4…, 1000?

  126. Ian Lamont,

    It goes further than you postulated. If the yuan is devalued the banking sector will be exposed. If anyone here thinks U.S. banking is bad, you have not studied the problems within the Chinese banking sector.

    Currently the banks are solvent because the Chinese people are aggressive savers. You can attribute this to the lack of social services (such as social security) within the Communist state (ironic). The inflow of liquid capital allows the state banks to hide their insolvency and bad loans, which some estimate to be in the neighborhood of 50%. If Chinese factories slow down, deposits will slow, or worse reverse resulting in withdrawals (no unemployment benefits). The lack of performing and illiquid loans would result in a collapse of the Chinese banking system.

  128. The recent drop in the dollar versus the euro and the pound. But I doubt it can produce inflation, or even prevent deflation – the euro bloc will break first. Perhaps you were misled by the phrase “trashing the dollar.”

  129. There is a difference between monetary expansion and currency manipulation. For example, the former discourages domestic saving, whereas the latter (when used to suppress the local currency) forces greater domestic saving. This is counterproductive in a period when AD is deficient and output is demand-determined (like now).

  130. “You might also give some more study on the notion that saving is a negative.”

    I give up. Since you evidently prefer the logic of Hudson to Krugman, I should have done so earlier. Nevertheless, you might try Paul Samuelson’s introductory text. Read about how the economy works in a liquidity trap. Despite claims to the contrary, the analysis is still valid. Just see Krugman’s recent post … oh, I forgot ….

  131. “For someone who remains unidentified to claim that someone of M. Hudson’s accomplishments does “not fully grasp” a widely understood concept, is, well, a little much.”

    Which widely understood concept? The doctrine of “immaculate transfer?” Stiglitz made the same error not long ago. Just goes to show the benefits of division of labor – even astute economists can’t know it all. Can’t be the role of saving in today’s world of deficient AD …

    What difference could it make if I were to identify myself? If you take Hudson over Krugman, you’ll presumably take him over me.

  132. http://www.counterpunch.org/hudson09202010.html
    Definitely worth reading carefully.

    Neomi Klein showed us in her work “SHOCK DOCTRINE” that the process of crash and burn equity transfer/…subsequent financial capture and finally capital flight/ …is roughly a cycle of creating not just over leveraged desperation and dependency in whole economies, but a process of politicizing a “client” nationalism into a puppet regime. In this article by Michael Hudson, he navigates through a process of economic “capture” that is essentially a system of cartel finance and domination. I would suggest to you that the process he is describing has now been turned on the American domestic economy. If you have not read “The Shock Doctrine: The Rise of Disaster Capitalism (2007) by Naomi Klein…I strongly urge you to do so.

    In the meantime, M.H. does a summary job in this article:
    http://www.counterpunch.org/hudson09202010.html
    Definitely worth reading carefully.
    September 20, 2010
    A CounterPunch Special Feature
    Challenging the Model of the North
    Where is the World Economy Headed?
    By MICHAEL HUDSON

  133. (1) Here is MH on the dollar/Juan counterplay:
    http://michael-hudson.com/2010/07/dollar-hegemony-and-the-rise-of-china

    (2)
    Here is an excerpt (only) of an article “report” by Peter Zeihan (Bruce E. Woych says Note the parallel model utilized hypothetically comparing the current Chinese situation to what is posited as causal to the Japanese economic collapse…something no one admits when speaking directly about the so called lost decade in Japan…which was also struck over and over with a “carry trade” exploit of the Yen…. which milked their recovery and had the Japanese begging the world to let their currency regain strength. It was this “carry trade” pump and dump international currency financial scheme that guaranteed the Japanese”decade” of failure that followed, as much as anything structural to Japan’s own economy).

    Reprinting or republication of this report on websites is authorized by prominently displaying the following sentence at the beginning or end of the report, including the hyperlink to STRATFOR:
    STRATFOR
    China: Crunch Time
    March 30, 2010 | 0856 GMT

    By Peter Zeihan
    “This report is republished with permission of STRATFOR”.
    China’s Limited Options
    “China, which unlike Japan is not a U.S. ally, would have an even harder time resisting should Washington pressure Beijing to buy more U.S. goods. Dependence upon a certain foreign market means that market can easily force changes in the exporter’s trade policies. Refusal to cooperate means losing access, shutting the exports down. To be sure, the U.S. export initiative does not explicitly call for creating more trade barriers to Chinese goods. But Washington is already brandishing this tool against China anyway, and it will certainly enter China’s calculations about whether to resist the U.S. export policy. Japan’s economy, in 1990 and now, only depended upon international trade for approximately 15 percent of its GDP. For China, that figure is 36 percent, and that is after suffering the hit to exports from the global recession. China’s only recourse would be to stop purchasing U.S. government debt (Beijing can’t simply dump the debt it already holds without taking a monumental loss, because for every seller there must be a buyer), but even this would be a hollow threat.”
    .
    STRATFOR sees a race on, but it isn’t a race between the Chinese and the Americans or even China and the world. It’s a race to see what will smash China first, its own internal imbalances or the U.S. decision to take a more mercantilist approach to international trade.
    “This report is republished with permission of STRATFOR”

    Reprinting or republication of this report on websites is authorized by prominently displaying the following sentence at the beginning or end of the report, including the hyperlink to STRATFOR:
    “This report is republished with permission of STRATFOR”

  134. Here is the critical “model” from the excerpt that I mentioned (but inadvertantly left out of the excerpt in editing it to a resonable size for this stream…)

    (Bruce E. Woych says Note the parallel model utilized hypothetically comparing the current Chinese situation to what is posited as causal to the Japanese economic collapse…something no one admits when speaking directly about the so called lost decade in Japan…which was also struck over and over with a “carry trade” exploit of the Yen…. which milked their recovery and had the Japanese begging the world to let their currency regain strength. It was this “carry trade” pump and dump international currency financial scheme that guaranteed the Japanese”decade” of failure that followed, as much as anything structural to Japan’s own economy).

    (direct quoted excerpt) from STRATFOR report
    By Peter Zeihan
    “This report is republished with permission of STRATFOR”.

    “If — and we must emphasize if — there will be force behind this policy shift, the Chinese are in serious trouble. As we noted before, the Chinese financial system is largely based on the Japanese model, and Japan is a wonderful case study for how this could go down. In the 1980s, the United States was unhappy with the level of Japanese imports. Washington found it quite easy to force the Japanese both to appreciate their currency and accept more exports. Opening the closed Japanese system to even limited foreign competition gutted Japanese banks’ international positions, starting a chain reaction that culminated in the 1990 collapse. Japan has not really recovered since, and as of 2010, total Japanese GDP is only marginally higher than it was 20 years ago.”

  135. tippygolden: Bruce E. Woych says Note the parallel model (posted below on Oct. 5) utilized hypothetically comparing the current Chinese situation to what is posited as causal to the Japanese economic collapse…something no one admits when speaking directly about the so called lost decade in Japan…which was also struck over and over with a “carry trade” short selling exploit of the Yen…. which milked their recovery and had the Japanese begging the international finance world to let their currency regain strength. It was this “carry trade” pump and dump international currency trading financial scheme that guaranteed the Japanese”decade” of failure that followed, as much as anything structural to Japan’s own economy.

  137. don,

    You seem to have economics confused with celebrity game shows. It is insulting for me to have you assume that I might be so shallow as to think that one economist is always right while another is always wrong. I hope you can understand that you are putting our conversation on a level that is a waste of my time.

    Making unsupported claims such as: “Stiglitz made the same error not long ago”, that impugn without taking the responsibility that comes with ‘why’; and from an anonymous participant who claims to know more about an integral aspect of a study that the impugned person is one of the most respected and learned people in that field of study, is… lacking in integrity. You have in fact, with your anonymity, removed some of the moral hazard from your statements and so, I suspect that you feel free to say whatever you please without any concern for the consequences. If, for example, if you were face to face with Joe Stiglitz, would you tell him he dosn’t understand this: “…the difference between currency manipulation and changes in currency values that come from overall monetary loosening or tightening”, not likely but if you did he would get a good laugh out it.

    So some guy only identified as ‘don’ has claimed that his logic proves that two very accomplished economists “fail to grasp” something as simple as how interest rates having an influence on currency values. But of course when I then pointed out that this “fail to grasp” ‘business’, ‘was a little much’… then you drag poor ol’ unappreciated Joe Stiglitz into your tangled web but only based on yet another unsupported claim regarding “immaculate transfer”. Just because “Paul Krugman” is ‘popular’ does not mean that dropping his name is sufficient support for questionable and impugning claims made in anonymity.

    Plus, that Japan discouraged China from buying BOJ bonds does not outweigh the point that M. Hudson made here: “Back in the early 1970s, U.S. officials told OPEC governments that if they did not do this, it would be deemed an act of war.) This recycling of foreign balance-of-payments surpluses to finance the U.S. federal budget deficit (by buying Treasury securities) is the essence of the U.S. Treasury-bill standard since 1971.”

    Yet… with this and and all of the other evidence that I have provided you with, here and at ‘Econbrowser’, you still contend that only “China is behaving badly”, mostly based on unsupported claims and some ‘drive-by’ impugning.

    And then to recommend P. Samuelson as a study on liquidity trap conditions, when his textbook was so influential on the very economists who created our current liquidity trap, well, I already mentioned what a waste of time this conversation has been, enough said.

  138. Never mind Triffin Dilemmas – “Mad Money” cult is claiming “optimism” with this observation:

    “…the mortgage and housing market can’t hurt us anymore….”

    Even after the census, there is NO DATA on how many total foreclosures were done in order to pretend derivative wealth is “real”, unlike how UNREAL the people who lost their homes are.

  139. “Making unsupported claims such as: “Stiglitz made the same error not long ago”, that impugn without taking the responsibility that comes with ‘why’; and from an anonymous participant who claims to know more about an integral aspect of a study that the impugned person is one of the most respected and learned people in that field of study, is… lacking in integrity.”

    Krugman pointed out Joe’s error in the NYT. I can only imagine Joe was a bit mortified. (Joe had made the oft heard claim that revaluation of the yuan wouldn’t help the U.S. trade balance, because that was determined by U.S. net national savings – that is the essence of the “immaculate transfer” fallacy.)

  140. I owe you an apology, of sorts. I looked up Michael Hudson’s vita, and I was very surprised to see that he is a professor of economics (at U. of Missouri). I was not surprised to see that his vita contains not a single article in a top tier economics journal (AER, JPE, QJE, Econometrica, E.J., REStat, etc.), or even one in a second tier economics journal (National Tax Journal, J. of International Economics, J. of Public Finance, J. of Money Credit and Banking, J. of Finance, etc.). (FYI, my vita contains both – I know, a cheap claim for someone who remains anonymous.) That may explain his hubris in attacking Krugman with such poorly thought out arguments.

  141. the mere fact that posts like this exists is because the common discourse is usually so far skewed to “china’s yuan valuation is bad for america (or everyone else)” that rarely you get any information on why china is doing this or what implications this has for china.

    the reason why posts like this rarely come out is even more ludicrous common sense assumptions;

    1. if china slips up and spins completely out of control this is somehow good for US hegemony

    2. everything that international governments do must be in the interest of America

    so yeah, take your own pronoucenements about the triteness and obviousness of this post as the reflection of how stupid and close minded the level of discourse is about this topic in general.

  142. That is an admirable goal, but very hard to accomplish with high unemployment and excess capacity. In fact, the Fed is going to have a vry hard time preventing deflation uner these circumstances. Without wage increases from reaching supply constraints, the only way to generate inflation is through expectations – mind games. But that is a bit risky – with no solid traction to work with, expectations may be for deflation until they are wrenched so dramatically that they swing to unacceptable inflation.

    Roosevelt tried a number of things to get prices to rise in the face of deficient AD, from slaughtering young pigs to fostering unions. Not so sure those were good strategies. What finally worked was fiscal stimulus so massive it removed excess capacity.

  143. Re: @ don___Roosevelt (FDR) didn’t end the depression, period! Can someone say “No Steel Exports/No Oil Exports” to keep perpetual/endless(?) war with China going? Yes…when you have your feet cut out from under you – what’s one too do? The British brought us into WWI ,and likewise WWII. So who’s gonna bring us into WWIII ? JMHO

  145. don,

    You seem to be suggesting, considering much of what you have said, that recognition among your peers is bad for an economist in regards to competence. Your argument is a little confusing, but I suppose that is what you are getting at.

    M. Hudson’s understanding of things has clearly allowed him to forecast what those who ‘have’ been published in Tier 1 material have failed to see coming, even when it was beyond obvious. So, it is good that you checked to see if M. Hudson has been marginalized by the core group of corporate-serving incompetent fools who dominate the field of economics. His reputation seems to be unsullied. May he continue not to be blinded by petty ambition. I suppose the old saying about truth ‘setting one free’ has something to do with his long history of seeing past the folly of it all.

  146. don,

    IIRC, the FDR stimulus was smaller than the GI bill and much smaller than the other deficit spending related to WW2. It is also controversial as to whether any “excess capacity” was in fact removed by the stimulus or whether it was mainly the build-up for war that put people back to work in any meaningful way. Your use of the word “massive” is at the very least… overstated.

  147. Pax Americana is dead. Face it. Accept it. Live with it. The entire world is antiAmerika and with just cause, since we are responsible for marauding other nations resources to feed the US predatorclass, slaughtering hundreds of thousands of other nations innocent civilians, piloting the entire global economy to the brink or economic collapse, and doing absolutely NOTHING to rectify those terrible wrongs. All the world economies are working to extricate their peoples dependence on the US. China specifically, who financed the US credit binge, is very stealthily excoriating America from it’s balance sheet. The Chinese are not stupid, and cannot make any rash moves that will injure their economy and people, – but the writing is on the wall – and China is going to over time unhinge itself from America, and quit buying American debt in the form of treasuries and dollars.

    Ditto Saudi Arabia, Japan, and a host of other countries. The fiction the US economy, the socalled US government, treasuries and the dollar are the socalled safehaven are over. Amerika is toast, – and what we all will witness and burden and hazard in the nearterm is an orderly unraveling of Amerikan economic dominance and a global retrenchment into a mix of currencies, commodities, and asset backed “safe haven” of financial products excluding Amerika.

    Our problems are to severe and toxic, our financial , political and judicial systems too hopelessly corrupt and criminal, and our too society divided and and depressed to bet on any hope of an American future.

    We make too little, we sit on oceans of imponderable debt, we ruthlessly abuse out labor force, we do not abide by the rule of law, our society is being ripped apart by the wild and ferociously expanding divides between thehaves and thehavenot, and the den of vipers and thieves in the predatorclass are bent on devouring our “once more perfect union”.

    China and the rest of the world today is linked to dollar, and US treasuries as the global socalled safehaven But, all the worlds nations, and China specifically seeking and will obtain altrenatives, and when that day arrives – and it will be soon. Amerika is toast, – and wingnut, redkneck Amerika pipedreams of Pax Americana are dead and rotting.

    Plan accordingly.

    In a world where there are no laws, – there are no laws for anyone predatorclass biiiiaaatches.

  148. A fundamental problem is that income generated through derivatives is allowed to be classified as productive enterprise as opposed to extractive or predatory. The complex financial machinations that make a handful rich are very far removed from the original idea that finance involved pairing investors with entrepreneurs looking to borrow to enable new commerce. The production of tangible goods is no longer the end goal, no longer the way to get rich (at least not nearly as fast as the various forms of non-productive skimming including high frequency trading, derivatives posturing, etc.). The sooner we stop including this in our GDP calculations the better. But that will be many years out given the conventional wisdom of today’s current economists.

  149. Appendum: Rockefeller contolled the oil, and Morgan the steel. Rockefeller’s bank “Chase Bank” was the largest of all banks in America…with Morgan a distant second at best. When the two merged in 2007/08 becoming JP Morgan Chase. Rockefeller’s became the sole owner of this publicly held entity (strange) with Morgan’s…just a name for “Old Times Sake” to confuse the public? PS. Here’s a tidbit that might tweek ones curiousity…in the late 50’s, early 60’s, Japan asked the United States to “Nuke” the Chinese but their (unbelievable, but true) request was eventually turned down (they…america actually thought about it because of Japan’s geography, and gargantuan trading influence as a strategic allied-partners presence in Asia. All this history sheds light on China’s yaun, and there sceptism to comply to what seems “A Gang Rape”? Thanks Ian, and Thankyou Simon and James “Go Rays”!!!

  151. First of all, they are “spending” them.

    Treasury bonds are assets – you use assets as collateral – they have been buying up commodities and investing in infrastructure – all without spending those hard earned dollars? Chinese companies have good credit internationally – everyone knows they are sitting on trillions, they can make payment.

    Why spend them – why liquidate your assets if you don’t need to?

  153. From Michael Pettis:

    “Because when the PBoC decides on the level of the RMB against the dollar, it does not do so by passing a law, and making it a capital crime for anyone to trade at a different price. What it does is far simpler. It offers to buy or sell unlimited amounts of RMB against the dollar at the desired price.

    No one will sell dollars for less than what they can get from the PBoC, nor will anyone buy dollars for more than what they can pay the PBoC, so all transactions get done at that price. That is how the PBoC (or any other central bank that intervenes in the currency market) sets the foreign exchange value of its own currency.”

    http://mpettis.com/2010/02/what-the-pboc-cannot-do-with-its-reserves/

    China is treating the USD as a “gold standard” – the rest of the world’s means of final payment settlement. They have set a fixed price for this “gold. (Whether this is fool’s gold or not is a different question).

    Kind of strange that operating a fixed exchange standard is seen as manipulation. Also, the idea that a sovereign nation can manipulate its own currency doesn’t really make sense.

    China is doing something, but I don’t think it is currency manipulation.

  154. http://en.wikipedia.org/wiki/Triffin_dilemma

    “The Triffin dilemma (less commonly the Triffin paradox) is the observation that when a national currency also serves as an international reserve currency (as the US dollar does today), there are fundamental conflicts of interest between short-term domestic and long-term international economic objectives.

    This dilemma was first identified by Belgian-American economist Robert Triffin in the 1960s, who pointed out that the country issuing the global reserve currency must be willing to run large trade deficits in order to supply the world with enough of its currency to fulfill world demand for foreign exchange reserves.

    The use of a national currency as global reserve currency leads to a tension between national monetary policy and global monetary policy. This is reflected in fundamental imbalances in the balance of payments, specifically the current account: some goals require an overall flow of dollars out of the United States, while others require an overall flow of dollars in to the United States. Currency inflows and outflows of equal magnitudes cannot both happen at once.

    Implication In 2008 Meltdown

    In the wake of the Financial crisis of 2007-2008, the governor of the People’s Bank of China explicitly named the Triffin Dilemma as the root cause of the economic disorder, in a speech titled Reform the International Monetary System. Zhou Xiaochuan’s speech of 29 March 2009 proposed strengthening existing global currency controls, through the IMF. [1] [2]
    This would involve a gradual move away from the US dollar as a reserve currency, and towards the use of SDRs (IMF Special Drawing Rights) as a global reserve currency.”

  156. http://seekingalpha.com/article/228356-understanding-the-trade-war-with-china?source=email

    Charles Hugh Smith

    * Understanding the ‘Trade War’ With China by Charles Hugh Smith

    Quote:

    “If we grasp that what matters to China is the dollar’s relative value to its other trading partners’ currencies, then we reach a new understanding. What would cause China to dump Treasuries is not a desire to “punish” the U.S. but to weaken the dollar globally to keep Chinese goods cheap in Japan, Europe and elsewhere.

    Many in America share this same goal: keep the dollar weak. In this sense, China and the U.S. are “allies” which are bonded by the yuan-dollar peg into a partnership against all other currencies and trading blocks.

    Thus the yuan-dollar peg is more a sideshow played out for the domestic audiences in the U.S. and China. China’s leaders don’t want to “lose face” with their populace by seeming to cave in to U.S. demands, and American politicos desperately want to to appear “strong” with China to give the illusion that

    1) they “care” about “creating jobs” in the U.S. (hahaha)

    2) the “problem” is the yuan-dollar peg (it isn’t)

    3) they deserve being re-elected because they’re “taking a strong stand” on this (worthless, nonsensical “issue” that won’t create a single job–barf!)

    Thus we can predict this issue will magically disappear after the November elections. The whole Kabuki play is staged direct from Central Casting: Inscrutable Chinese leaders, blustering know-nothing U.S. Congressmen hoping to leverage a tempest in a teapot into another term in power, and so on.

    What would cause a real conflict between China and the U.S. is a true “strong dollar” policy. If the U.S. leadership changes in either 2010 or 2012 and the new leadership grasps the folly of beggar-thy-neighbor currency wars, then the U.S. might seek to strengthen rather than weaken the dollar. Were that to occur, China would soon suffer a major decline in global competitiveness as the U.S. dollar rose in value.

    The lesson here is the advertised “conflicts” may mask both the differing interests and unstated partnerships between China and the U.S.”

    http://seekingalpha.com/article/228356-understanding-the-trade-war-with-china?source=email

    Charles Hugh Smith
    * Understanding the ‘Trade War’ With China by Charles Hugh Smith

  157. China has not realized yet that its biggest strength lies in its own domestic market. currency appreciation will help the Chinese consumer so existing factories will switch their focus from export to domestic markets. coming from an emerging market where fx rates change wildly, i tend to agree with chinese leaders that the change has to be gradual. neither consumption/savings trends, nor companies’ distribution channels can change overnight.

  158. “Europe shouldn’t join the choir” clamoring for a higher yuan, Wen told a business conference yesterday before an EU- China summit in Brussels. “If the yuan isn’t stable, it will bring disaster to China and the world. If we increase the yuan by 20-40 percent as some people are calling for, many of our factories will shut down and society will be in turmoil.” “If China’s economy goes down, it’s not good for the world economy,”

    “If the euro continues to bear a disproportionate burden in the adjustment of global exchange rates, the recovery of the euro area’s economy might be weakened,” EU Economic and Monetary Commissioner Olli Rehn said on Oct. 5. (He doesn’t mention what this might mean for the fringe of the euro area under extreme stress from their huge debt burdens, probably for fear of inspiring an undesired reaction – further widening of the interest rate spreads on debt of the stressed countries.)

    That about sums up what is going on. I think the bigger danger is that the euro bloc will prove too fragile to support the weight of Chimerica and end up losing its highly-indebted members, i.e., that some will default on their sovereign debt. If that happens, it may make Lehman’s look like a stone in a pond compared to a tsunami. And Ben’s policies, combined with Timmy’s waffling, will be prime causes.

  159. This threaded stream is a remarkable example of what is possible.

    http://en.wikipedia.org/wiki/Swarm_intelligence (link only)

    http://en.wikipedia.org/wiki/Self-organization (link only)
    Collective intelligence
    Retrieved from “http://en.wikipedia.org/wiki/Collective_intelligence”
    From Wikipedia, the free encyclopedia
    Jump to: navigation, search

    Collective intelligence is a shared or group intelligence that emerges from the collaboration and competition of many individuals. Collective intelligence appears in a wide variety of forms of consensus decision making in bacteria, animals, humans, and computer networks. The study of collective intelligence may properly be considered a subfield of sociology, of business, of computer science, of mass communications and of mass behavior—a field that studies collective behavior from the level of quarks to the level of bacterial, plant, animal, and human societies. The concept also frequently appears in science fiction as telepathically linked species and cyborgs.

    The above definition has emerged from the writings of Douglas Hofstadter (1979), Peter Russell (1983), Tom Atlee (1993), Pierre Lévy (1994), Howard Bloom (1995), Francis Heylighen (1995), Douglas Engelbart, Cliff Joslyn, Ron Dembo, Gottfried Mayer-Kress (2003) and other theorists. Collective intelligence is referred to as Symbiotic intelligence by Norman Lee Johnson. [1]

    Some figures like Tom Atlee prefer to focus on collective intelligence primarily in humans and actively work to upgrade what Howard Bloom calls “the group IQ”. Atlee feels that collective intelligence can be encouraged “to overcome ‘groupthink’ and individual cognitive bias in order to allow a collective to cooperate on one process—while achieving enhanced intellectual performance.”

    Collective intelligence (CI) can also be defined as a form of networking enabled by the rise of communications technology, namely the Internet. Web 2.0 has enabled interactivity and thus, users are able to generate their own content. Collective Intelligence draws on this to enhance the social pool of existing knowledge. Henry Jenkins, a key theorist of new media and media convergence draws on the theory that collective intelligence can be attributed to media convergence and participatory culture (Flew 2008). Collective intelligence is not merely a quantitative contribution of information from all cultures, it is also qualitative.

    One CI pioneer, George Pór, defined the collective intelligence phenomenon as “the capacity of human communities to evolve towards higher order complexity and harmony, through such innovation mechanisms as differentiation and integration, competition and collaboration.”[2] Tom Atlee and George Pór state that “collective intelligence also involves achieving a single focus of attention and standard of metrics which provide an appropriate threshold of action”. Their approach is rooted in Scientific Community Metaphor.

    Levy and de Kerckhove consider CI from a mass communications perspective, focusing on the ability of networked ICT’s to enhance the community knowledge pool. They suggest that these communications tools enable humans to interact and to share and collaborate with both ease and speed (Flew 2008). With the development of the Internet and its widespread use, the opportunity to contribute to community-based knowledge forums, such as Wikipedia, is greater than ever before. These computer networks give participating users the opportunity to store and to retrieve knowledge through the collective access to these databases and allow them to “harness the hive” (Raymond 1998; Herz 2005 in Flew 2008). Researchers[3] at the MIT Center for Collective Intelligence research and explore collective intelligence of groups of people and computers.”

  160. Having read 13 BANKERS we know that America is now under the care custody and control of the Wall Street banking fraternity. Unfortunately CHINA is not a member of this illustrious club. CHINA represents a thorn in the side of the Wall Street establishment. By fixing their YUAN exchange rate they are in control of their destiny; despite disproportionate capital inflows from Europe and North America which normally would present an opportunity for pricing adjustments. Massive profits have resulted for international corporations who are refusing to increase employment in North America. CHINA gets the blame. China is growing faster than anyone predicted. That frightens the Americans for some peculiar reason.

  162. *BEST SELLING BOOK IN CHINA: CURRENCY WARS!
    Currency Wars – Wikipedia, the free encyclopedia
    Currency Wars by Song Hongbing, also known as The Currency War, is a bestselling book in China, reportedly selling over 200000 copies and is reportedly …
    en.wikipedia.org/wiki/Currency_Wars – Similar

    http://en.wikipedia.org/wiki/Currency_Wars (link to book)

    (2nd)

    http://en.wikipedia.org/wiki/Currency_war (link to basic overview)

    Facts and Fiction: the truth is certainly a combination of both; and each contribute to the other in turn!

  163. *BEST SELLING BOOK IN CHINA: CURRENCY WARS!
    Currency Wars – Wikipedia, the free encyclopedia
    Currency Wars by Song Hongbing, also known as The Currency War, is a bestselling book in China, reportedly selling over 200000 copies…
    en.wikipedia.org/wiki/Currency_Wars – Similar

    http://en.wikipedia.org/wiki/Currency_Wars (link to book)

  164. Perhaps the problem of low economic growth in the USA has been exasperated by Americans increasing their personal savings in the last 24 months. US states are also in shutdown mode. Even the US defence budget will eventually be under scrutiny. All this adds to the deflation/de-leveraging pressure which alarms everyone. Some added Chinese inflation with a major revaluation could be the short-term answer for the American frustration. Obviously China does not like lectures from any foreigner for historical reasons. America must show some respect also because China buys US govt debt in the trillions. Thank goodness Prez Obama is in the White House. A statesman not appreciated in America after regulating Wall Street. China and America do not need protectionism (to be used like a weapon) to solve their economic imbalances. Nor slanderous insults from politicians in the coming US November elections to score points with an electorate poorly informed by the US mass media: FOX NEWS?

  165. American commentator: HOLTHITZ….”there is socialism in America; but only for the rich” quote from KEISER REPORT interview on RT today.
    Reference: Wall Street investment banks (plus AIG) US govt bailouts; as sanctioned.

  168. More from Michael Hudson on the Global systemic of Economic Monetarism: (Excerpt with link to full article):

    Why the U.S. Has Launched a New Financial World War — and How the Rest of the World Will Fight Back
    By Michael Hudson, CounterPunch
    Posted on October 12, 2010
    http://www.alternet.org/story/148481/

    What is to stop U.S. banks and their customers from creating $1 trillion, $10 trillion or even $50 trillion on their computer keyboards to buy up all the bonds and stocks in the world, along with all the land and other assets for sale in the hope of making capital gains and pocketing the arbitrage spreads by debt leveraging at less than 1 per cent interest cost? This is the game that is being played today.

    Finance is the new form of warfare – without the expense of a military overhead and an occupation against unwilling hosts. It is a competition in credit creation to buy foreign resources, real estate, public and privatized infrastructure, bonds and corporate stock ownership. Who needs an army when you can obtain the usual objective (monetary wealth and asset appropriation) simply by financial means? All that is required is for central banks to accept dollar credit of depreciating international value in payment for local assets. Victory promises to go to whatever economy’s banking system can create the most credit, using an army of computer keyboards to appropriate the world’s resources. The key is to persuade foreign central banks to accept this electronic credit.

    U.S. officials demonize foreign countries as aggressive “currency manipulators” keeping their currencies weak. But they simply are trying to protect their currencies from being pushed up against the dollar by arbitrageurs and speculators flooding their financial markets with dollars. Foreign central banks find them obliged to choose between passively letting dollar inflows push up their exchange rates – thereby pricing their exports out of global markets – or recycling these dollar inflows into U.S. Treasury bills yielding only 1% and whose exchange value is declining. (Longer-term bonds risk a domestic dollar-price decline if U.S interest rates should rise.)

    “Quantitative easing” is a euphemism for flooding economies with credit, that is, debt on the other side of the balance sheet. The Fed is pumping liquidity and reserves into the domestic financial system to reduce interest rates, ostensibly to enable banks to “earn their way” out of negative equity resulting from the bad loans made during the real estate bubble. But why would banks lend more under conditions where a third of U.S. homes already are in negative equity and the economy is shrinking as a result of debt deflation?

    The problem is that U.S. quantitative easing is driving the dollar downward and other currencies up, much to the applause of currency speculators enjoying a quick and easy free lunch.”
    (full article: http://www.alternet.org/story/148481/

  170. American politicians pleading for votes by showing TV adverts of Chinese assembly line workers (making APPLES) really does lower the tone of the debate. Yes China fixes its currency; but so does JAPAN and SOUTH KOREA. IN FACT fixed currencies are more stable because hedge funds cant operate like dawn raiders engulfing and devouring the most vulnerable like GREECE. That country lost its way by listening to bankers like GOLDMAN SACHS rescheduling their debts with various guarantees. Investment banks are now pikes looking for minnows.

  171. There are two separate issues.

    First, the global system needs to encourage trade balances between nations and it is clearly not doing this now – to the detriment of the United States.

    Second, authoritarian government is something to fear, especially in countries that are rapidly becoming among the richest and most powerful on earth.

    Both issues are being ignored because US-investors and US-based corporations are doing great in China right now – so are blind to the long term consequences.

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