A Respite From Market News August 9, 2011
Posted by geoff in News.trackback
While we’re all waiting for King Putt (saw that in Monty’s Doom post this morning, and it cracked me up) to lay hands on NASDAQ and the NYSE and cure their ills, I thought I’d steer clear of all that and talk about something really interesting.
I speak, of course, of China.
Gordon Chang has an article in Forbes this morning, where he talks about China’s currency manipulation and its effect on the US dollar. Everything was going really well until he said this:
By flooding the world with them [US dollars], Chinese officials are keeping dollar interest rates abnormally low and therefore making it too easy for the U.S. government to borrow. The U.S., therefore, would not be in such a debt fix if Beijing had allowed the renminbi to float and honored its trade promises, thereby allowing a more balanced trade between the two nations.
Hunh? “Making it too easy for the US government to borrow?” We heard that with the “predatory loan” business, where eeevil banks and mortgage companies took advantage of unsophisticated borrowers to “trap” them into loans they couldn’t afford. But to say this about a country whose economic policy is formulated by some of the world’s foremost academicians, ably led by a President who knows “more about policies on any particular issue than my policy directors?”
That’s undoubtedly racist. It’s certainly silly, at the very least.
So I lied – I didn’t really talk about China yet. Let me redeem myself.
Gordon Chang also wrote a book called The Coming Collapse of China, which talks about the corruption and internal weaknesses of the Chinese economy. This is a theme you hear echoed about the blogosphere, and it’s certainly true that those problems exist. But he wrote that book in 2001. Ten years of prophesy, but no doom.
Waiting for your competition to fall on their faces, documented weaknesses or no, is a feeble, passive strategy. I’d prefer to see a strategy that addresses their strengths, rather than their weaknesses.
Meanwhile they just keep coming.
I’d prefer to see a strategy that addresses their strengths, rather than their weaknesses.
Agreed. Unfortunately, their strength is that we need them to buy our debt. This, in turn, makes it impossible for us to make more than token protestations against their piratical exchange rate policy which hugely skews the balance of trade in their favor, artificially pumps up their economy at our expense, and maintains a docile public which preserves their corrupt ruling elites. But, the trade imbalance means they have to just keep piling up U.S. debt. They’re trading consumer electronics for paper of increasingly uncertain value.
A short-sighted policy, I might add, because just like us they have been kicking the can down the road with a fiscal policy that can’t be sustained in the long term, and which will make their day of reckoning much worse. Their policy also incents bad behavior by us, e.g., devaluing the debt (and the dollar) with inflation.
It’s actually the Tea Party that has the best China strategy. If we start bringing down our debt and shoring up the dollar, the threat of trade sanctions by the U.S. will be credible. Right now, we are impotent to challenge them about this.
Waiting for your competition to fall on their faces, documented weaknesses or no, is a feeble, passive strategy.
Nope, not necessarily. It’s not feeble — worked for Reagan against the Soviet Union. And it does not have to be passive. Reagan deliberately jacked up military spending to stress their system and push it into the ash heap of history.
That’s kinda my view of Iran today. Their system is hell-bent for failure, let’s stay out of the way while they self-destruct and turn the thumb screws when we can.
Heh. I’ve read The Coming Collapse of China.
Ten years of prophesy, but no doom.
It’ll probably take an entire generation. I don’t think they’ll actually collapse, but things are gonna take a turn for the worse. They can’t continue these ponzi schemes. They can’t keep poisoning their water supplies.
And it does not have to be passive. Reagan deliberately jacked up military spending to stress their system and push it into the ash heap of history.
Yeah – I didn’t have a problem with Reagan’s foreign policy. His was not a passive strategy. But now…
Speaking of China, Flyin’ Brian is in Beijing for 2 weeks to put a couple of helicopters together and get them flying.
No kidding.
Cool, Geezer!
Tell him to try the noodles.
Great to hear that, Geezer.
Michael and I have added China to our list of place we wanna travel. Used to not be on the list, but after seeing an Anthony Bourdain No Reservations episode, we are thinking about it.
Yea. What Laura said. Try the noodles.