Geithner's big mouth on China: for real or rhetoric?
Saturday, February 7, 2009 at 2:31AM OPINION: "Geithner Is Exactly Wrong on China Trade," by Bret Swanson, Wall Street Journal, 26 January 2009.
NEWS ANALYSIS: "China Jittery About Obama Amid Signs of Harder Line," by Mark Landler, New York Times, 24 January 2009.
We saw Joe Biden back off from Geithner's remarks, which was smart. Here we see a bold case made that "the dollar-yuan link has been a great boon to world prosperity."
Follow the argument: a purposeful dollar imbalance in what many call "Bretton Woods II" since 1971, with China needing, after 1979, an "anchor for its complex transformation," thus the linkage starting in 1994 to the dollar, a link that "allowed a real price system to arise in China and created a single economic fabric stretching across the Pacific" in what Ronald McKinnon calls the "East Asia Dollar Standard."
The result? Unprecedented growth for both sides.
Still, as most now argue, that logic has gone as far as it can and the U.S. and Asia need to realign that relationship. Still, the Swanson argument here should be noted: we let the dollar go weak starting in 2005 and the whole process grew worse--not better.
So make no assumptions about China's undervalued currency, he says, and realize that the cheap dollar blunder cost us the Doha Round's lack of progress.
The solution? Back to the strong dollar, as Mr. Volcker is expected to argue within the Obama team. Larger point: stable currency is worth more than a trade deficit.
Hmmm. I guess I need more logic to follow this argument over the long haul.
Reader Comments (1)
Well, that's not the only way. Those millions of upside down home owners can default and let their houses go into foreclosure. Jimmy Carter style inflation or Herbert Hoover style deflation. Those seem to be the two options. I can understand why Barak Obama wanted to get out of the White House to get some adulation from elementary school children for a while.