We know who’s smart and who’s not. It isn’t Secretary Paulson, who’s been speaking platitudes about a “strong dollar policy” for his entire term. Now China, main beneficiary of its basket-peg to the Dollar, makes pious noises that echo Paulson. Two birds are singing the same song, and neither is very sincere.
Strong Dollar Policy
“China supports a strong dollar,” said Zhou Xiaochuan, governor of the People’s Bank of China, at a press conference today. The Federal Reserve’s decision to cut the benchmark U.S. interest rate also affects China’s monetary policies, the effects of which must be studied, he said.
“The Fed decision has quite a big impact on China’s rate policy,” Zhou said. “What we’re concerned about is whether the Fed’s looser monetary policy will create new financial liquidity, because China’s liquidity problem is connected with excess cash in the world’s markets.”
The US trade deficit isn’t declining much, even with some recent weakening of the Dollar against European currencies. Why?
One reason our trade deficit isn’t narrowing very much? Predatory currency manipulations by China, Russia, Japan (via its interest rates), and the GCC which sells us oil. With Europe and countries where we have mutually free and flexible exchange rates, our currency has moved more towards it’s trade-predicted value and the balance-of-trade moved more into balance. Japan charges zero interest to borrow money, which investors borrow and then sell the Yen by the bucket full to make investments elsewhere – an indirect manipulation that keeps the Yen very cheap. The others intervene directly to keep their currencies cheap and the US buying. They call this “vendor financing” in business.
And now China has the nerve to complain? Ha. China has created its own problems in order to strip the manufacturing capacity of the world and plant it in China, and to employ massive numbers of Chinese workers.
A second reason for our ongoing trade deficit is the rampant US consumerism more worthy of a pack of wild glut-hogs than of human adults. This is financed, not by wages earned but rather by money borrowed. Aiding and abetting consumerism (up till now) has been cheap long term credit pushed by every bank and financial institution in the US. Too much has never been enough, no excess too extravagant. Since the borrowing is used largely for consumption, and not productive investment, consumers get deep in debt.
A word of advice to US policy makers: There is no such thing as a “consumer economy.” That term describes only half an economy. Without an equal amount of production, your policy creates impoverished parasites and billionaires. Let’s hope the next crop of business leaders and politicians makes more sense than this lot, and sings a different tune.
This one written by Old Vet.