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The Chinese are Morons Argument
The argument that China is worried that it will lose money on its dollar holding because of a fall in the value of the dollar implies that the Chinese are morons. There can be no doubt that the dollar will fall and that the Chinese will lose money on their dollar holdings. The only thing that keeps the dollar from falling now is the decision by the Chinese government to buys hundreds of billions of dollars a year. Of course China can keep the dollar from ever falling as long as it is prepared to buy ever more dollars, just as it could have kept shares of Pets.com at $100 if it continually bought more shares. (By the way, the dollar will fall because of our trade deficit, not the budget deficit. If we had the same trade deficit and the budget was in surplus by $1 trillion a year, the dollar would still fall.)
The only plausible story for China's buying of vast amounts of dollars is to support its export market to the United States. It could do much better investing its surplus in euros, yen, or almost any other currency in the world or just about any commodity. China knows it will take a bath, arguing otherwise is saying that the Chinese leadership is stupid. That view may be taken seriously by David Brooks, but it need not trouble serious people.
--Dean Baker
COMMENTS (4)
David Brooks. Ah, I had forgotten that anyone still read him. I stopped long ago, finding no nuggets to justify the aggravation. It is even worse now that his picture shows up by his op-eds. You seem to imply that I can start reading T. Friedman again. You mean he has stopped following the last craze and has started thinking for himself again? Well, at least his heart is basically in place, so I will give him a chance. Someday you will be punished for being right Dean.
Posted by: Laurent Gaudin | July 3, 2009 5:26 PM
Why would anyone manipulate the currency market to support exports ? Mark Thoma's academic following were wondering out loud yesterday about where in the world all the American jobs had gone.
Maybe some answers can be found in the data below ?
Apr-09 Year - April 09
Deficit in millions
Country Name Apr09 Yr-Ap09
China -16,753.76 -67,137.50
Mexico -4,117.02 -13,805.52
Japan -3,217.88 -12,332.19
Federal Republic of Germany -2,223.70 -7,934.91
Ireland -2,115.16 -7,283.52
Canada -1,216.12 -6,353.87
Korea, South -986.91 -4,983.78
Italy -982.52 -4,461.45
Taiwan -985.23 -4,315.18
Russia -1,219.35 -3,713.10
Totals -33,817.65 -132,321.02
Posted by: zinc | July 4, 2009 5:02 PM
China's abandonment of the $USD is the last straw that will break the dollar's back. Yes, China will suffer nominal (and real) "losses" as their $USD reserves lose value relative to certain other fiat currencies and commodities.
Of course, neither Brooks nor Baker seem willing to enlighten their readership per the natural endgame that has been consciously constructed by our Federal/bankster overlords - inflation.
The Chinese can and will diversify away from the $USD, and they have already taken many tangible steps in this direction. But American citizens are prisoners of the dollar. Dollars will be worth less (relative to EVERYTHING else) and thus, purchasing power/wealth/value of Americans is about to plummet. There will be no increase in wages to offset this sort of monetary inflation event. Consumers will be cemented in a feudal debt cycle, while savers will watch their savings "taxed" by both the IRS (directly) and inflation (indirectly).
The demise of the $USD is/was centrally-planned and it is being executed to benefit centralized power in Wash. D.C. and Wall St. That is the short version of a long true story.
Americans - not the Chinese - are the unwitting LOSERS in this game of monetary charades. The Chinese already see their fate and are preparing for it. But 99.9% of Americans still accept ALL of the government/media lies & fabrications, and have NO IDEA that their lives (and their grandchildren's lives) have already been ruined beyond repair.
This is not a Right/Left/Conservative/Liberal issue. This is a Federal problem. The very construct and role of the US Federal government needs to be re-constitutionalized, and the idea of a private-for-profit central bank (our criminal Federal Reserve) needs to be abolished, asap.
I like Dean B., and I love his commentary on our braindead mainstream media. But Dean B. still believes that a benign/benevolent Federal government (as regulator, caretaker and market participant) is a) possible, and b) morally defendable. I think he and others are wrong in this fundamental premise, and their arguments naturally diminish as a result.
Posted by: mpower | July 4, 2009 6:05 PM
China confuses us, because we insist on thinking of them in our terms.
We come from a capitalist tradition. Our highest value is maximizing profit. If we can keep an industrial economy, AND maximize profit, then fine, but if we must de-industrialize our economy to maximize profit, then OK.
China comes from a Marxist tradition. They place high value on developing the means of production. If they can make a profit AND develop the means of production, then fine. But if they must take a loss on their dollar-denominated investments in order to develope the means of production, then fine.
Posted by: SS50 | July 6, 2009 1:25 PM