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Well, number one on day one is acknowledging something which everyone knows. They're a currency manipulator.
There's nothing I enjoy more than being told what I'm already supposed to know. And when we're done with China, let's go after Germany, Japan, Canada, and Mexico too! All the world is manipulating our world's reserve currency!
The following chart shows our real monthly trade deficit per capita (March 2012 dollars). The black line represents Germany, Japan, Canada, and Mexico. We have large trade deficits with each of them individually. The combination is a bit brutal. The red line represents China.
Click to enlarge.
It would seem that China was late to the currency manipulation party. Keep in mind that China has a whopping 1.3 billion people (roughly 4x more than the combined total of the other countries I have listed here). All things being equal, one would therefore expect to see their contribution to our trade deficit be much larger.
Perhaps China should do the rational thing and break into four smaller countries so that we don't notice them as much. Be like South Korea. Attempt to stay under the radar.
Or, alternatively, we can make China our scapegoat. It won't fix our problems but it will create some applause in a presidential debate. And in the end, isn't applause all that really matters?
Source Data:
St. Louis Fed: Custom Chart
12 comments:
October 6, 2011
China isn't the only currency 'manipulator'
NEW YORK (CNNMoney) -- A newsflash to the legislators in Washington who suddenly want to act tough against China for currency manipulation: Have you looked in the mirror lately?
How can anyone with a straight face declare that China needs to be punished for keeping the yuan artificially low when the United States is also aggressively trying to devalue the dollar with its monetary and fiscal policies?
But make no mistake. Everybody "manipulates" their currency in some fashion. The U.S. needs to recognize that and move on.
Last night I was creating a comment here but deleted it because I realized I was talking through my hat.
It included the observation that tariffs are messy, but the Fed monetizing the $2.7T SSTF over the next 20-odd years is a win-win for many.
But there are too many moving parts in this puzzle.
Like nuke-less Japan, we're now too dependent on imported energy to painlessly weaken our currency.
CR's chart does show our deficit is 60% oil now, a dire cross situation we've been in (per the chart) since the recession started.
We spend $900B/yr on military and what exactly on energy independence/economizations?
"The American way of life is not negotiable" vs. our treasury bills becoming non-negotiable.
We're still cruising in a bubble of unreality, but last year's budget standoff BS was probably only a sip from a very bitter cup.
Actually, Romney winning in November would avoid all of that. The economy would become the Republicans' problem again, and they would probably again apply their favorite solution to that.
http://research.stlouisfed.org/fred2/series/TCMDO
Third time's the charm . . .
Troy,
But there are too many moving parts in this puzzle.
Indeed.
How often have I said to you that when you have eliminated the impossible, whatever remains, however improbable, must be the truth? - Sherlock Holmes
I've come to believe that all painless solutions are impossible.
Either the spam trap caught one of my posts or I forgot to finish it, but I was thinking about this future falling dollar and our food exports.
Let's say we succeed in depreciating the dollar down 50%, so we export twice the amount of food as now for the same income.
Which would be more inflationary, just paying the farmers NOT to farm at all, or having the farmers labor to export their crops for the same money?
What is curious is paying people not to work was a major contributory cause of the Weimar inflation -- and, in fact, their postwar reparations themselves were inflationary, as they take resources out of the economy, increasing the amount of money chasing the fewer goods.
Granted, if we don't get that money back from China they'll just use it to bid up some other resource we want I guess.
When people were commenting that we were exporting inflation to China, we kinda didn't realize this trade is perfectly reversible.
This would make a good thesis in grad school, LOL.
Still only 1 page of hits for "exports are inflationary", at least your blog is #1 now, sigh.
Troy,
There was nothing in the SPAM trap today but a payday loan advertisement. I'll assume that wasn't you. ;)
I agree with your premise.
If we only export dollars and the rest of the world merely hoards them, then it doesn't seem all that inflationary in the short-term.
If we start exporting all our food because the rest of the world no longer wishes to hoard dollars, then that does start to look a bit inflationary (to say the least).
On the other hand, perhaps falling house prices can offset that to some degree. D'oh!
We're so @#$%ed.
>perhaps falling house prices
Hey, landlords gotta eat!
http://research.stlouisfed.org/fred2/graph/?g=7aK
How can home prices go down if rents never go down?
: )
Troy,
How can home prices go down if rents never go down?
Congrats! You've inspired the next post.
Stag,
Here's a simple way to look at currency manipulation.
Interest rates play a role in determining the value of a currency. If a country manipulates interest rates, they're a currency manipulator. Same deal with countries that pursue "positive" inflation.
It's not the system that gets me so much , it's the management.
mab,
It's not the system that gets me so much , it's the management.
I had a flashback to the raiders of the last mark.
And when I say mark do I mean a person who is easily deceived or taken advantage of or do I mean the basic monetary unit of Germany? Who knows!
Who knows!
Indeed! "Who" knows! In a two party system that is nearly evenly divided, a small minority can have a disproportionate amount of influence.
Did we go to war in Iraq to fight terrorism? To spread democracy? WMDs? For oil?
"Who" knows!
mab,
Did we go to war in Iraq to fight terrorism? To spread democracy? WMDs? For oil?
To protect the dollar?
Trading Places
Randolph Duke: Pay up, Mortimer. I've won the bet.
Mortimer Duke: Here, one dollar.
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