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On July 30th, an American manufacturer in China and Korea will officially announce the move of its tool manufacturing facilities to Houston, Texas. Farouk Systems will open a factory with the goal of creating 1277 jobs at a new 189,000 sq. ft. facility in the South's largest metropolis.
Farouk Shami, founder and executive chairman, says the new plant will manufacture "three of its top selling flat irons and two top-selling hair dryers, of which the company sells over three million a year."
How can this be? Thousands of American companies-electronic, machinery, auto supply, and many other sectors-have rushed to the communist dictatorship of China in the past two decades to take advantage of repressed labor and the relative freedom to pollute and get away with activities banned in the U.S.A. Millions of American jobs and hundreds of communities have suffered due to this exodus.
Why are Mr. Shami and his colleagues returning to the U.S.A?
Company officials gave several economic reasons. First, new super-automation in the U.S. increases worker productivity far beyond productivity in China. Second, the company was experiencing levels of product defects in China that were costly. Third, given the increased costs of transportation-bottlenecks to Chinese ports and the burden of crossing the Pacific helped to level the cost playing-field.
Farouk Systems' lowest wages will be $10.00 per hour or $2.75 higher than the new federal minimum wage effective this month.
The firm expects to have 1,277 employees by the end of this year and intends to expand further into the production of small home appliance such as blenders, toasters, coffee makers, vacuum cleaners and clothing irons.
Mr. Shami-a Palestinian immigrant of considerable entrepreneurial exuberance-says that this move from China "will enable us to assure the best quality, safest, and lead free products and also will help reverse the outsourcing trend by bringing manufacturing back to the U.S.A. in order to stimulate the American economy."
Is this a harbinger of a trend against industrial flight from our country? That remains to be seen. What is more certain is that trade relations between China and the US challenge put the lie to the ideology of "win-win" free trade.
The US trade deficit with China has deepened over the last quarter-century. In 1985 the trade deficit was $6 billion. In 1995 China sold us over $33 billion more than we sold to China. In 2005, the trade deficit ballooned to over $202 billion dollars. Last year it zoomed to $268 billion.
Imagine exporting so many jobs to a country which has sold us contaminated fish, defective tires, hazardous materials for medicines and housing, and lead-tainted products-to name a few of the hazardous products shipped past the porous portals of the USDA, the Food and Drug Administration, and the Customs Service.
In addition, as detailed regularly in the reports of the U.S.-China Economic and Security Review Commission (www.uscc.gov) there are the manipulated undervaluing of China's currency, import barriers, violations of the World Trade Organization's rules and other trade-distorting measures that tilt the balance heavily in China's favor.
What is the US getting out of this continually deteriorating imbalance of trade and its accompanying technology transfer to a nation that admits it has not had much success in curbing the large volume of counterfeit goods that are exported? Huge indebtedness. China does loan us money, to finance our huge deficits.
Established "free trade" economists like retired MIT professor Paul Samuelson are rethinking the classical principles of free trade and comparative advantage. When the advantages of capital, labor and technology are heavily with one trading partner, "absolute advantage" replaces "comparative advantage." With such conditions, the 19th century metaphor of trading Portuguese wine for British textiles is not operative.
So anemic is the U.S. government that it cannot even enforce a 15 year old memorandum of cooperation that relates to detecting any Chinese prison labor exports to the United States, which would be WTO-illegal. China has repeatedly violated the bilateral agreement to grant permission for U.S. authorities to visit suspect prison labor sites.
Any demand or request that Congress and the White House re-evaluate this kind of systemically unfair trade with dictatorial regimes is met with the chorus of "free trade, free trade" and the riposte of "protectionism." Dogmatic proponents of corporate-managed trade masquerading as free trade reject "options for revision", no matter what the evidence."
74 Comments so far
Show Allit's not all about the money either..... here's an excerpt from the may issue of ode on 'altruistic economics', at first seemingly an oxymoron, but the article is largely an argument for localizing economics as if people mattered....here's the first few paragraphs:
The altruism in economics
Standard economic theory states that people are interested only in their own material gain. But new insights from behavioral economics show that altruism rather than avarice is our primary motivation.
Jeremy Mercer | May 2009 issue
The City of Yonkers, New York, wound up in a distressing predicament early this year. The municipal budget was running a deficit and the economic crisis was sorely aggravating the problem. Layoffs were needed and among the casualties were six firefighters, including, most regrettably, a young man who’d recently rescued several children from a burning apartment building. The job cuts were due to go into effect the first week of January.
But then something remarkable happened. The men and women of the Yonkers Fire Department offered to work days free for six months so the city could save money and their colleagues could save their jobs. The deal was approved by 75 percent of firefighters and the layoffs were avoided. “Everyone is aware of what is going on with the economy,” explains Patrick Brady, president of the local firefighter’s union. “We banded together and voted to save our brethren.”
Amid the job losses, the home foreclosures and the bankruptcies of this crushing recession, these sorts of stories provide a rare glimmer of hope. Across the country and around the world, people are sharing jobs or accepting reduced wages in order to help their colleagues and prevent wider unemployment. (See How to avoid layoffs for more stories of recessionary selflessness.) President Barack Obama even lauded these efforts in his inauguration speech, saying it’s “the selflessness of workers who would rather cut their hours than see a friend lose their job which sees us through our darkest hours.”
Indeed, this selflessness is heartening. But such altruism is also evidence that the standard economic theory our financial system has been built upon is hopelessly flawed. For the past 50 years, economic policy has been poisoned by the cynical premise that people are innately selfish and materialistic. This is what has been taught in economics classes; this is what has informed government decisions such as bank deregulation; and this is what has spawned the Wall Street culture of “greed is good.”
Now the basic tenets of economics are being reconsidered. A growing body of experimental work by behavioral economists proves altruism not only exists but is one of our primary motivations, even in financial affairs. And if some progressive economists have their way, we may be on the cusp of a more humane era in which altruism, not avarice, becomes the trait our economic system nourishes. “It is increasingly obvious that people are motivated by morality; people are motivated by ethics,” says Herbert Gintis, an emeritus professor at the University of Massachusetts and one of the leading economists studying altruism. “We may be seeing a possible renaissance of economic theory.”
the author goes on to look at what evolutionary biologists have been looking at in cooperative species like bees and bats..... wouldn't it be amazing if we human beings could discover OUR cooperative natures and treat the planet sustaining us with as much loving attention/cooperation as, say, bees or mycelium? might not what some call 'altruism' simply be a type of common sense that was misguidedly set aside for a remarkably long period of time by our species under the delusion of economic's 'invisible hand' and our separateness from nature?
You bring up some interesting points. However, the thinking that goes into the Wall Street culture of 'greed is good' is as old as civilization itself and afflicts all humans across ethnic/cultural divides.
According to Buckminster Fuller (Critical Path):
"In the reality of physical-resource and knowledge potential we have four billion (the approx. population of the world in 1980, when this was written) billionaires on our planet, the probating and delivery of whose legacy, as amassed by the more-with-lessing contributions and loving sacrifices of all humans in all history, has been postponed by the game of making money with money by those who as yet misinformedly operate on the 1810 Malthusian assumption that 'humanity is multiplying its population at a geometric rate while increasing its life-support foods, etc., only at an arithmetic rate' --- ergo, the money-makers assume that there is nowhere nearly enough life support for all.
"Malthus said the majority of humans are designed to suffer and die far short of their potential life-span. Darwin's 'survival of the fittest' dictum has combined with that of Malthus to persuade the 'haves' to be intelligently selfish and to legally fortify their 'haveness' position against the 'have-nots'."
He goes on to further point out that the culture of 'specialization' by the controlling Elite - exploiting the talents and skills of individuals by employing them in a small field (box) wherein the individual is unable to see his/her contribution to the 'whole' - is what science (since 1950) has "incontrovertibly demonstrated...that the extinctions of all human tribes and of all biological species have always been brought about by..."
Don't forget the huge government subsidies and tax-free deals the company is going to get to build its wonderful factory in TX. Environmental regulations, rules abbout post-operative cleanup will be suspended. The normal human right of assembly (unions) will be suspended. The company sounds like its spinning its usual web of optimism, corporate responsiblity, fake hope, happy worker and corporate paradise yad yada.
Once the money had concessions and subsidies are in their rightful place, the company will make up some story about infeasibility, unfair taxation, excess labor costs, environmental burdens and so on - the regulators and inspectors will either sleep or cave; local industries will be devastated a la Walmart; the local politicians will melt into the shadows, baksheesh in hand, and the workers will be downsized to haunt the new wreckages of their former communities.
The state of Texas has a multi-billion dollar fund to help business move into the state.
To attract these companies the city of Houston will offer deals like no property tax for a decade. The state fund will partially compensate the city. Also, if the factory doesn't move in there would be no property taxes being made at that site anyways.
The jobs and economic activity building the factory is what the city is looking for. Houston, and Texas as a whole, is looking at the long term picture here.
This is one reason why 70% of all the jobs created in the nation last year were created in Texas which also happens to be the most financially secure state in the Union right now.
ps. Just how in the world are you comparing a factory that manufactures hair dryers to a wal-mart supercenter?!?
Not the factory and supercentre but the process of dismantling rights, wages, impoverishing the general community. we'll see what blackmails get applied to reduce wages, safety, benefits, evironmentals - that has a spillover into other areas. All kinds of businesses and workers' rights got clobbered when Walmart moved into the neighborhood, not just department stores.
Not the factory and supercentre but the process of dismantling rights, wages, impoverishing the general community. we'll see what blackmails get applied to reduce wages, safety, benefits, evironmentals - that has a spillover into other areas. All kinds of businesses and workers' rights got clobbered when Walmart moved into the neighborhood, not just department stores.
Alright, but again why are you referencing wal-mart when the article is about a manufacturing plant.
I'm not saying your position isn't valid but it doesn't apply to this topic.
I believe enticing businesses to set up shop in your community is a positive thing and if you believe otherwise i'd love you hear your opinion but comparing this factory to wal-mart is way beyond comparing apples to oranges.
At the same time, under the guise of "the war on terror" or "The Long War", the U.S. under the last three administrations has inserted itself on China's borders in the "Great Game" on the "Grand Chessboard" of Central Asia to control access to energy resources there, while keeping a powerful U.S. naval presence off China's coast and many military bases in South Korea, Okinawa and Japan, all to intimidate China. Of course, China is unwittingly funding all these huge military expeditures by its loans to us.
What we can't influence by trade, we will by military force.
I have enormous respect for Ralph Nader.
However the article above is skewered in certain ways towards an "american-centric" point of view, EVEN as Nader blasts "free-trade".
and that has to do with jumping in the same boat as is common in the USA - with the "china -fear" syndrom of congress - especiallyk democrats actually - of many decades - that China is a "currency manipulator".
ALL governments manipulate currencies to a certain extent - but NONE is a greater manipulator of currency than the USA itself.
what are all these Federal Bank "zero-sum" inter-bank lending percentages as Chairman Greenspan has allowed? that's currency manipulation ..and it FITS RIGHT into the period when china rose industrially - as the USA POLITICIANS thesmelves ALLOWED us businesses to go abroad to SEEK CHEAP LABOR.
THAT is a US POLICY that can NOT be dumped ON the chinese.
where the chinese have "cheap labor" comparative to the USA and western world - HOW DID THAT COME ABOUT - IF NOT because of the GLOBAL FINANCIAL STRUCTURE DICTATED by the USA and ITS manipulation of the "strong dollar policy" that FORCED other countries LIKE china -= through economic sanctions (such as has been done with cuba by the USA) -
UNLESS they AGREE - as the PRICE OF PARTICIPATION in the global trade DICTATED by washington - to KEEP POLICIES of CHEAP LABOR
for the BENEFIT of US Corporations?
therefore -=-=Ralph Nader is WRONG in SIMPLY stating that "china is a currency manipulator" WITHOUT FIRST DETAILING
WHOSE GLOBAL FINANCIAL, MONETARY, TRADE AND TRANSACTION, and DOLLAR HEGEMONY THROUGH CURRENCY MANIPULATION POLICIES
PUT THE GLOBE - china's cheap labor INCLUDED - in the mess that it is and the USA in the mess that IT is.
it is SIMPLY BLOWBACK because of the USA's OWN IMPERAIL policies - EVEN INSIDE CHINA before china became a communist nation -- which was ITSELF a REACTION by the NATIONALISTS of CHINA since the late 19-th century AGAINST IMPERIAL forays
LED by the USA and ENGLAND!
Mister Nader - needs to CORRECT THAT PART OF THE HISTORY between these nations - LEADING to what is TRENDY TODAY to say that "china is a currency manipulator"
EVEN IF -
in all truth --
IT IS THE USA that is the MAIN MANIPULATOR of ITS currency for DECADES and DECADES in order to promote ITS DOLLAR HEGEMONY which - is ITS TRUE IMPERIAL TOOL !! that controls the "wages" of the world - whichever countries they are!
as the ASIATIMESONLIN.com writer, Henry CK Liu - detailed - which Mister Nader NEEDS to inform himself BETTER by READING the writings of Mister Liu -
especially in a VERY DETAILED HISTORICAL exposition of HOW the DOLLAR HEGEMONY as US IMPERIALISM came about and HOW that IS a reflection of BASIC US POLICY of CURRENCY MANIPULATION
PRETENDING as "free market" ....
Mister nader needs to read Henry CK Liu's MANY , highly informed and erudite articles - FAR FAR more sophisticated than ANY american writer has ever SHOWN in these past many years -
especially concerning one titled:
"DOLLAR HEGEMONY - equals US Imperialism".....
"USA - the World's TRUE MAIN CURRENCY MANIPULATOR".
it can be summed - with these accusations about - seemingly as IF it is just by SIMPLY having CHEAP LABOR - that China's currency "manipulation" gives it UNDUE advantage over US labor or manufacturing ...when in fact -
the reasoning OUGHT to be:
"CURRENCY MANIPULATION is NOT a CAUSE of trade imbalances..."
on the contrary - TRADE IMBALANCES GENERATE currency manipulation -- and teh CURRENCY manipulation is generated by the country that HAS the trade DEFICIT...such AS the USA...in ORDER to continue to FIND "equal trade" with countries that are FORCED - through the "strong dollar" policy of hegemony to trade against the dollar with LOWERED value = expressed in their CHEAP labor! which US corporations LOVE - and HAVE loved for GENERATIONS leading TO
the US IMPERIALISM - right INSIDE china since over a century ago - which EFFECTS are only FELT TODAY as the CONTINUING Trade imbalances
PRODUCED by the USA"s OWN global Imperial policies of MANY generations.
it si BLOWBACK , in other words...but the MANIPULATOR of currency - has ALWAYS been the USA
to MAKE the US DOLLAR maintain its UNEARNEd and UNJUSTIFIED role as "world's strongest currency" .
it is a very complex history - and Mister Nader - by simply regurgitating the common usa perception of "china manipulates her currency to gain unfair trade advantage with cheap domestic labor" --
is giving short shrift to how THAT came about in history!
that is the disappointing part of his article.
HE SERIOUSLY - for all his great contributions - and intelligence and knowledge NEEDS TO READ HENRY CK LIU
and FIND OUT the TRUTH about WHICH COUNTRY is
"THE WORLD"S MAIN CURRENCY MANIPULATOR"
it is the USA - NOT china!
it has BEEN the USA -- all along!
and these trade imbalances are a RESULT of the USA"s OWN currency manipulator for Dollar Hegemony UPON WHICH ITS GLOBAL FINANCIAL EMPIRE that rules everything it does -
DEPENDS on its VERY LIFE!
This GOOD MAN is a PALESTINIAN
A PALESTINIAN
A PALESTINIAN
A PALESTINIAN,
Yesterday in a post I stated PALESTINIANS were the intellegentsia of the ME b4 being imprisoned and crushed by ,"isra-hell,"
This man is an example of an uncrushed, unimprisoned Palestinian.
He may rue the day he set up shop in Texas, Hatred is their main crop.
I will buy a Farouk Systems blender, send it to Tom (Tough Hombre) Freidman with instructions to insert himself and a gallon of low fat milk into it and grind himself into a free trade smoothie.
INGENIOUS!!!
But is it kosher?
Brilliant!
While I will applaud any new jobs brought to the US, $10 per hour is NOT a family wage job. Also, why does a Palestinian have to create jobs for Americans (Israel's best buddy)? Why aren't Americans creating jobs for Americans? Poor Palestine, I am sure they could have used the jobs more than Texans. This world is totally pathological.
$10 is the lowest starting salary not the average. Not every job is meant to be a family wage job!!
What is it then, a hobby? a pastime? a fun-filled afternoon? Why work unless you can support yourself and your family by it? A few of us have capital to invest; the rest of us have but our bodies and minds to invest.
Jeeeez!
Don't forget there are a lot of high school and college students that need jobs as well.
They don't need to support a family of 4 but rather just enough to pay rent, tuition, and buy beer.
"They don't need to support a family of 4 but rather just enough to pay rent, tuition, and buy beer."
Beer is not a necessity. It's a luxury and worse than that, it's one way to significantly impair the brain and drive up the costs of healthcare.
Bennett Miller
Shreveport, LA
I was speaking for so from my own experience. And yes beer is a necessity during college. True in massive amounts in will destroy brain cells or in the case of younger children any amount will kill brain cells. I only drank on the weekends so i think i made it out alright.
One of the biggest cost to health care is smoking so if you really want to lower health care cost then you need to make cigarettes illegal.
Still my point was correct, not all jobs are meant to be and certainly not all jobs need to be family supporting jobs.
Most poor people, if they are lucky enough to get work at all, make $7.00 an hour or so. And work split shifts, short shifts, take shit, pay heavy taxes and get dissed by the public if they work in that arena.
Ten bucks an hour is, sadly, good for the disenfranchised.
Moondoggy, GoldenMean, where are you guys-I got news.
SiouxRose, oh esoteric soul, you bring an iridescence, and a constant quiet encouragement to us all. To see beyond the lines and shadows, our entrenched thinking, the instilled program, into the form radiated by the GodHead, the light.
When I was young, it seemed that life was so wonderful,
a miracle, oh, it was beautiful, magical.
And all the birds in the trees, well they'd be singing
so happily, oh joyfully, playfully, watching me,
But then they sent me away
to teach me how to be sensible,, logical,
oh, responsible, practicle, oh clinical,
intellectual,
And I said Fuck It All. I was born in the desert, and raised in a Lion's Den, and broke away, post partum journey of the damned tempered by the truth of brutalities survived, death postponed or traded off.
The System knows not that as it crushes us we become stronger, fighters by necessity as they grow more porcine and soft. I work out in gyms, and the monied ego guys come in pretty and wear spandex when they jump around, but naked they look like the soft underbellies of trout.
We shall overcome. In a flash of fire and violence, a tsunami that will sweep the dirt back to dust, from dust to dust. And we shall grow gardens over their graves which will be unmarked and forgotten.
Insha Allah
Sioux Rose
AZJOE: No matter how hard the world kneads us, poetry never escapes the soul that has, like Blake, experienced "eternity in an hour."
Your inspired words brought a tear to my eye. I would like to send you one of my books. If you would email me at: Astrologo77@yahoo.com I will get your mailing address and deliver on this promise. You are VERY good to many in this forum, and for all the slings and arrows of outrageous fortune you have endured, you still care enough to bring a smile (or a tear) to another.
KATHY: I applaud you and your efforts! Your party is a GRAND idea. May you make HER-story, my friend. If you need help writing copy, I will do what I can. Feel free to email me if you would like any assistance with crafting arguments or positions. You have thought this out soundly, and I think you are onto something. People are definitely moved when their pockets and pocketbooks are empty, or pickpocketed by those that purport to represent them and their interests. May the Red Seas part and your efforts create a ground swell!
So now America's once vibrant middle class with strong unions is reduced to supporting their families on poverty level jobs. Texas is a good place to start with it's anti-labor anti-environment positions.
We seriously need the EFCA.
It's funny, I first brought up the idea of the Main Street Party on cd, and the first response was jokes and sneers (why don't you call it the Hoi Polloi Party, another suggested the Great Unwashed Party). I thought no wonder mainstream Americans dislike liberals, they know liberals despise them. But everyone I talk with who work at my bank, Netflix, Chase, my hardware store, fellow shoppers, anywhere I go, loves the idea. An employee told me it's illegal to do it, but she offered to sneak a petition at work to collect signatures to register the party. Other people are offering to collect signatures. People want to change thngs, they just need a direction.
CD has given me a lot. I enjoy the meeting of minds, the astute observations, the information I gain, the comments that make me laugh. There are very few people where I can have stimulating conversations as I do here. But I really like working class Americans. They are not educated, and utterly uninformed, which is not really their fault. But they are warm and generous and kind. And the young people are eager for information. We have no right to look down on others for being less educated or less informed. Our system has failed them. They trusted it and it used them for it's own ends. Most people just want a fair pay for their labor, a secure old age, a better life for their kids. And they were getting that, until around 1975 when the conservatives started gaining control of the media and distorting reality. So now we need to take our country back, and mainstream America is ready for it. We need to do it together. After all, we're all in the same pot of boiling water.
When the people fear their government there is tyranny,
when the government fears the people there is liberty.
~ Thomas Jefferson
Hi BFK, your empathy for the middle class, the worker, the proletariat, those who sell their labor to survive is cool. If I judge soul by who fed me when I was hungry, funny, it was the others with nothing, nothing. Except maybe a sandwich, always offered, shared.
One FREEZING night under the stars, the Pacific's spray on us, one swore to me we would turn Water to Fire. He was uneducated, but knew Revolution is in the wind even if he can't define the word.
Me? I was born in the desert and raised in a Lion's den, Them? Clueless but WEAK, empowered, yeah, but Not For Long. NFL. Because RIGHT MAKES MIGHT AND THEY ARE WRONG.
We Shall Over Come
When We Realize,
We Are All One.
most cordially, joe.
Great idea Kathy...!
What is the platform and what's the next step?
I've written frequently on threads about the Main Street Party. It occurred to me that we need a party that 60% of Americans would support, so no social issues, just basic economic issues that help small businesses, small farms and working/want to be working Americans. I have a manual for starting a minor party from the Oregon Secretary of State and their office has been very helpful with my questions. Being that most Americans are uninformed, each issue on the platform needs a brief explanation. I'm framing these not as populist, which most Americans do not perceive themselves as being, but mainstream views, which they are comfortable with. Once I've written a mission statement explaining why we need this party and a platform (which would be a work in progress to get started - I'm no autocrat but I don't want it to get dragged to the left) I want to advertise a community meeting to get some people involved. This is about people against corporations and we need a broad base. The basic issues include a living wage, a fair progressive tax structure, single payer health care the right to join unions, tax and regulatory support for small business, subsidies for small farms only, not agribusiness, fully funded education through college, fair elections. I wouldn't mind more ideas, but they need mainstream support. We aren't going to be able to serve the whole enchilada at once. I chose to start with my own Congressional district, which means I need about 4300 valid registered voter signatures on a petition to register the party in Congressional District 4 in Oregon (that number may change after the next gubernatorial election). State Congressional districts are smaller so we can field several candidates for state offices and then go after the federal office. No corporate money allowed. So far, everyone I've talked with in my community is eager to sign the petition. They love the idea of a Main Street Party. Once we take our country back we can start fighting among ourselves about how to run our country. That's the plan.
I'm hoping that others will pick up this idea in their own Congressional districts. Unfortunately, most politically active people are Greens, and that won't fly with mainstream America. They are strong on progressive social issues and the media has them tarred and feathered with the majority of Americans. The Greens have been around forever and can't get above 2% of the popular vote. The public can't identify with them. They do identify with the idea of a Main Street Party. I don't think it could have happened if the Republicans had won, they would still be thinking the Democrats will save them. They are getting disabused of that idea.
When the people fear their government there is tyranny,
when the government fears the people there is liberty.
~ Thomas Jefferson
Hi Kathy, I was able to get even a couple of staunch Republican voters to take interest in the MSP. See my earlier response and thanks for more details. Maybe some more of these details will get even the staunch Obama supporters to quit saying "we'll think about it later". They seem to have a knack of playing procrastination on the issues. Keep up the good work. My wife and I will try to get the MSP out there even if our state politics is rowdy and corrupt to the core.
Bennett Miller
Shreveport, LA
"Once we take our country back we can start FIGHTING* among ourselves about how to run our country."
*or you could try talking.
:O)
I think the biggest problem you will have is dissuading yourself of the idea that you are not addressing "social issues". (I sense here the instilled American paranoia about "socialism".)
"The basic issues include a living wage, a fair progressive tax structure, single payer health care, the right to join unions, tax and regulatory support for small business, subsidies for small farms only, not agribusiness, fully funded education through college, fair elections."
With respect - and not to belittle your efforts - all of these are issues of importance to the Socialists; and right they, and you, are to consider them! These concerns were also addressed by Eugene Debs' American Socialist Party as well as Theodore Roosevelt's doomed Progressive Party in the early part of the last century.
Socialism is not unAmerican.
Open your mind and read some here: http://www.wsws.org/
You might just save yourself a lot of organizational effort.
vdb, you don't need to tell me to open my mind. My father voted Socialist all his life. I'm fine with socialism, but the majority of Americans are not and I'm looking for their votes. There is no way my joining the Socialist Party or the Greens will change a thing. And I could not persuade mainstream Americans to join me. They do support populist positions, although they do not define themselves as populists. Hey, I don't make the rules, I'm just trying to work within them. So if I define those positions as mainstream, and they are happy with that, I can do that. I just want to get the job done.
By "social" issues, I'm referring to the "God, gays, guns" arguments. What I hope to see the Main Street Party accomplish, besides throwing out the corporate crooks, is create a multiparty system, based on no corporate money. We can't keep the above social issues off the table forever but for now we need to deal with the corporate takeover of our country. So far, we are not experiencing a crash, but rather a slide to the bottom. But I believe we are approaching a crisis, and in danger of becoming a fascist state. The public is worried and fearful, but not at this point in a state of panic. No one can think clearly when they are panicking. I think panic would be a disaster and leave us with no chance to regain our democracy. I suppose it would be more accurate to say to become a democracy.
I was 21 when John F Kennedy was assassinated, and I realized at that moment we were not a democracy. I watched everyone stick their heads into the sand, and I went into a depression because I realized we were living a lie. I didn't know what was going on, but I knew what wasn't going on. We were not in charge of our country. I felt heartbroken and completely betrayed.
Forty six years later I sense a groundswell of people ready to claim this country for ourselves. They just need to see a pathway to do it. Everyone I talk with loves the idea of a Main Street Party and some are even volunteering to help make it happen. And those on CD who talk with their neighbors are reporting the same response all over the country.
When the people fear their government there is tyranny,
when the government fears the people there is liberty.
~ Thomas Jefferson
Kathy, good news on Main Street Party. I was able to find a couple of staunch Republicans to get interested in it. I got them to confess their most pressing issues that's really on them. Note, this is generally not easy to do because the first thing they'll usually tell you is a social issue that has nothing to do with what is affecting them directly but with some tricks, you can get them to the Main Street issues. I told them about the Main Street Party and one of them liked the name and said that "the liberals don't care for Main Street. They voted for the bailout." I asked them about the conservatives and their relation to Main Street and both of them were actually confused about what Main Street really was anyway so I did get them to learn about it and surprisingly, no shouting or violence from those two. It's as if I accidentally activated them on the real Main Street issues. Just think if we can do this to millions more Democrats and Republicans.
Bennett Miller
Shreveport, LA
Benn, thank you so much for your efforts. I believe this party can draw people from across the political spectrum (except Libertarians) as long as we stick to the economic issues affecting the groups I listed. Some of the platform issues need an explanation, because most people either haven't heard of single payer or have been brainwashed into thinking it's socialism. The current system is actually corporate socialism. I just tell people you choose your provider, you and your provider determine your care, all medically necessary care is covered including prescription and dental, 95% of taxpayers will pay a 3.5% tax and no premiums, deductibles or copays. The government has no say in your care, it just pays the bill. Businesses pay a progressive payroll tax up to 8% for the large corporations. HR 676 fully explains the plan and payment schedule. So far only Libertarians want more information so they can find something to quarrel about. Everyone else is delighted to hear it. I did run into one lady who figuratively clapped her hands over her ears and cried Socialized Medicine! Maybe her husband is a member of the AMA.
Some states have draconian laws about minor parties. Maybe I lucked out, living in Oregon. I think this party works at this time because it doesn't matter what your political philosophy is (aside from Libertarians), it's a pocketbook issue. Small businesses are being squeezed out of existence. 30 years ago they employed 80% of workers, now it's 50%. This is not good for our country. We need to bring them back. The corporations are a giant evil growth covering our planet, destroying everything they touch.
When the people fear their government there is tyranny,
when the government fears the people there is liberty.
~ Thomas Jefferson
A good start, hope it catches on and......america wakes up with jobs to go to.
Mr. Nader,
I see what you mean about "What's the US getting out of this?" but surely you understand that the "USA" plays no part. It's the management of this corporation and their profit/loss projections that are germane to this decision. They see the dollar getting weaker and the oil getting scarcer. That makes distance equal to too much cost. The oil goons have shot themseves in the foot this time.
A lot of people just like to BITCH...
... here a Palestinian man, a person who's nation and people are being trampled on by the Israeli's (americas staunchest ally, for some reason which I am yet to figure out outside of the corruption) a man who's nation Our government is treating as bad as it treats its own lower class citizens, this man is bringing employment and manufacturing back into OUR country and most of the people here are pessimistic ingrates!
What sort of business, employment or manufacturing are YOU offering to the people of our nation?
And why all the hatred towards Texas? I am not from there, only driven through the panhandle, so I am not defending them out of being a native there, but why the hatred, because George W. Bush is from there?
Don't forget there is also a great Politician, one of only a very select few honest congress people is from Texas, a nice young fellow called Ron Paul.
So I guess now, at least based on the opinions here, we all need to start hating on Chicago and Hawaii since that is where the latest destroyer of our nation comes from, Obama.
We should rejoice in the fact that an industry is actually being opened in America and not closed, like so many in the past. Since Obama has come into office so many jobs have been lost, including my own - and people continue to lose jobs and homes while Obama continues to give money to Goldman Sachs, AIG and all the other elite Banksters.
Wake up people and screw your heads on straight!
One
Big
Ass
Mistake
America
Ron Paul for President 2012!
and thank you to the Palestinian owned manufacturing company bringing business back to America!
I strongly agree with what you have to say about the Palestinian who is trying to help America out. However, I find your support of Ron Paul out of line. There are other great people in Texas. Haven't you considered Lloyd Doggett? He's about as close to being a true liberal as Texas can come up with. I find Ron Paul interesting on some issues but his stand on abortion and race is still questionable. He's also supportive of the same failed economic libertarian policies that created this mess. Jobs have been lost regardless of who's been president, not that I support Obama or Dubya. Your statement of hating Chicago and Hawaii I find offensive. Chicago I might understand but Hawaii? What exactly is it about HI that you hate about it?
enemyartistkristofeR July 18th, 2009 5:29 pm
"A lot of people just like to BITCH..."
Enemyartist,
This man may be a Palestinian immigrant but he's also an American manufacturer. The U.S. has many immigrants from a variety of countries who own businesses and employ Americans.
There is much we don't know about this manufacturer. Did he get his start borrowing from American banks? Was it American workers who made his business successfull before he moved to China and Korea so he could earn greater profits with cheap labor like many U.S. manufacturers did?
As many people have pointed out, it sounds like his initial motivation for moving the company back to the U.S. was based on a profit margin and not for patriotic reasons.
Do you think he would return his manufacturing plant back to the U.S. if people weren't desperate enough to work for $10 an hour; a wage which cannot support a family in this country?
I have no doubt that many people will benefit from this move since we're still in the range of losing hundreds of thousands of jobs each month. But please, don't make him sound like he's a savior of mankind.
"The U.S. has many immigrants . . ."
The US is MOSTLY immigrants - or their descendants.
(It always amazes me that such a "melting pot" can be so xenophobic.)
"But please, don't make him sound like he's a savior of mankind."
He wouldn't be the first man from Palestine mistaken for a "messiah".
Mr. Shami relocates to Texas for economic, not patriotic reasons. He said himself that increased automation plus transportation difficulties and expenses made the move practical. So, let's not be too grateful to someone who makes more money by returning to the US. The tax abatements sweeten the deal, too. I wonder who will be paying school taxes in that Texas district. Perhaps the workers making ten bucks an hour or maybe from the property taxes they pay on their mansions.
The acknowledgement that automation is playing a role in returning jobs to the US is enlightening, though. It implies that there will never be enough jobs to go around. If it isn't outsourcing, it will be automation. And it isn't as if there isn't work to do--improving infrastructure, educating kids properly, cleaning up the environment, supplying healthcare to all. I suggest we look for models outside the US and China to figure out how to do it. Might start by examining the Scandinavian countries, the Netherlands, and Germany.
below is merely an excerpt of a very exhaustive article detailing the EXACT components of WHICH COUNTRY is the TRUE currency manipulator - the USA:
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it si merely one among DOZENS of equally erudite articles - EVEN mister Nader will be hard put to argue against!
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The United States as the World’s Leading Currency Manipulator
By
Henry C.K. Liu
This article appeared in AToL on February 14, 2007
For decades, the US, a self-professed evangelist for free trade, has been paranoid about other nations manipulating the exchange value of their currencies for trade advantage with counterproductive distortions in global free trade. Such apprehension has even been institutionalized into law.
Section 3004 of Public Law 100-418 (22 U.S.C. 5304) requires, inter alia, the Secretary of the Treasury to analyze twice-yearly the exchange rate policies of foreign countries, in consultation with the International Monetary Fund (IMF), and to consider whether countries manipulate the rate of exchange between their currency and the dollar for purposes of preventing effective balance of payments adjustment or gaining unfair competitive advantage in international trade. Section 3004 further requires that if the Secretary considers such manipulation occurring in countries, such as Japan and China, that (1) have material global current account surpluses; and (2) have significant bilateral trade surpluses with the US, the Secretary of the Treasury shall take action to initiate negotiations with such foreign countries on an expedited basis, in the IMF or bilaterally, for the purpose of ensuring that such countries regularly and promptly adjust the rate of exchange between their currencies and the dollar to permit effective balance of payment adjustments and to eliminate any unfair advantage.
Section 3005 (22 U.S.C. 5305) requires, inter alia, the Secretary of the Treasury to provide each six months a report on international economic policy, including exchange rate policy. The reports are to contain the results of negotiations conducted pursuant to Section 3004. Each of these reports bears the title, Report to Congress on International Economic and Exchange Rate Policies.
Unfortunately, the underlying implication of the law assumes erroneously that current account surpluses can be by themselves evidence of currency manipulation by the surplus countries. In fact, as trade imbalances are the structural effects of fundamentals in the terms of trade, attempts to correct them with exchange rate adjustments are by definition currency manipulation, for they try to use exchange rates to mask dysfunctional terms of trade as functional.
Exchange rate policies cannot be substitutes for structural economic adjustments necessary for mutually beneficial trade between two economies. Nor can exchange rate policies be substitutes for sound domestic monetary or economic policy. When two economies of uneven stages of development trade, a trade surplus in favor of the less-developed economy is natural and just, until the less-developed economy catches up with the more-developed one, otherwise it would be imperialistic exploitation, not trade.
A Protectionist Nation in Free Trade Clothing
That the US, by its unilateral trade policies, has really been a nation of protectionists in free trader clothing is again highlighted by the Senate Committee on Banking, Housing, and Urban Affair hearing on January 31, 2007, headed by its new chairman Senator Christopher J. Dodd (Democrat- Connecticut) whose party won control of the Congress in the 2006 mid-term elections. The hearing was on the Treasury Department’s Report to Congress on International Economic and Exchange Rate Policy and the US-China Strategic Economic Dialogue. Hank Paulson, the 74th Treasury Secretary of the nation and the newly installed current Secretary in the Bush administration, was the lead witness.
The target of the hearing is China which has replaced Japan in recent years in the eyes of the US as prime suspect of being the world’s leading currency manipulator. Yet as Stanford economist Ronald McKinnon argues in an April 24, 2006 op-ed piece in the Wall Street Journal, China’s motivation for pegging the renminbi (RMB) is to secure monetary stability rather than achieve an undue mercantile advantage in world export markets. He points out that persistent Chinese trade surpluses and US trade deficits reflect mismatches in saving in China and the US, an imbalance that exchange rate changes can only mask but cannot correct. McKinnon concludes that “China is not a currency manipulator and the yuan/dollar rate is best left more or less where it is.”
The twice-yearly high-level US-China Strategic Economic Dialogue is a brain child of the new Treasury secretary. The first meeting, headed on the US side by Secretary Paulson, with the participation of Federal Reserve Board Chairman Ben Bernanke and several other cabinet secretaries, and on the China side by State Counselor Wu Yi, supported by Chinese counterparts of US officials, was held in Beijing last December, with the second meeting scheduled to take place in Washington in May.
The Senate Banking Committee, pursuant to statute, twice-yearly receives exchange rate reports from the Treasury, taking testimony from the sitting Treasury Secretary, and exercises oversight on government exchange rate policy which has become of critical concern for US businesses and workers who seek “a level playing field” to compete in global markets. The Treasury Report is the only report to the Congress that directly addresses international economics, exchange rate policy, and currency manipulation by other national governments. Testimony from the Treasury Secretary to Congress, if requested, is required by law.
In his opening statement as Committee Chairman at the hearing, Senator Dodd expressed dissatisfaction with US government policy for its “inability to secure opportunity and prosperity for working Americans.” Policies put in place by the Bush Administration well before the appointment of Secretary Paulson have turned record surpluses left by the Clinton Administration into record deficits, leading to under-investment in important national priorities, such as health care, schools, infrastructure and targeted tax relief for threatened businesses and struggling working families even as the nation fell deeper in debt, while producing growth only to select economic sectors such as financial services and prosperity only to the rich segment of the population. Median family income has declined by nearly $1,300 over recent years as income disparity widens. More than 3 million manufacturing jobs have been lost since 2001, the steepest and most prolonged loss since the Great Depression. This is the first economic recovery in which manufacturing jobs lost have not returned. The Senator decried the fact that “for millions of Americans, the recession has not ended, but goes on and on” for more than seven years. The statement was a fair summation of neo-populist sentiments against the adverse domestic effects of two decades of globalization.
Yet the Democrat senator is only half right. While US workers have lost jobs, the US economy has not really lost these jobs, only relocated them. The US economy has merely expanded globally and moved jobs overseas to take advantage of low-wage workers in the employ of US capital, in what economists call cross-border wage arbitrage. Economic imperialism in the age of industrial capitalism provided employment at the core to produce exports to the colonies to earn gold for the home economy. Neo-imperialism in the age of finance capitalism relocates jobs to the periphery and imports products manufactured by low-wage labor paid for with fiat currency (paper money) issued at the core, the surplus of which can only be reinvestment in the issuing economy. Dollar hegemony emerged as the dollar, a fiat currency since 1971 when President Nixon took it off gold, continues to assume to role of prime reserve currency for international trade, anchored by transactions in key commodities such as oil being denominated in dollars. US neo-imperialism is intermediated financially by dollar hegemony.
A Selective Level Playing Field
Cross-border wage arbitrage is a subset of financial arbitrage in which investments are made in low-cost countries to produce goods for sale in high income countries. Interest rate arbitrage is another subset in which funds are borrowed in low-interest currencies to lend in high-interest currencies, a routine transaction known as “carry trade” in international banking parlance. The complaints about cross-border wage arbitrage by the US, a clear beneficiary of global finance arbitrage, amount to blatant selectivity in its professed commitment for a “level playing filed.”
What Senator Dodd leaves unspoken is that the old slogan “what’s good for General Motors is good for America” has been made inoperative by US-engineered financial globalization. For US companies to compete and survive in global markets and to attract global capital, jobs need to be shifted to low-wage locations overseas to reduce labor cost. Instead of foreign governments, such as China’s, being wrongly accused of manipulating the exchange value of their currencies, US big business should be recognized as the real culprit that manipulates global labor markets to gain unfair advantage over labor, both foreign and domestic. This is a problem that a labor-friendly US government can readily solve, by passing labor regulations that reduce financial incentives for companies to layoff workers and outsource jobs to implement financial machination, as has been done in Germany.
Outside of slavery, capital and labor have a symbiotic relationship similar to a marriage. In California, a divorce is settled with equal split of property held in marriage plus lifetime alimony sufficient to maintain the non-income-producing spouse in his/her accustomed life style in marriage until remarriage. What is needed is a global level playing field between capital and labor where the closing of plants to reduce labor cost is subject to terms similar to an equitable divorce settlement to provide unemployed workers equitable compensation and living income until re-employed.
National Security Trumps Free Trade
Senator Dodd also raised nationalistic concerns by pointing out that more than one million jobs outsourced have been in critical defense-related industries, dislocating the US manufacturing base and jeopardizing US capacity to produce items vitally needed for US national security. He gave the example of plants producing special magnets used in smart bombs relocating from Indiana to China which could expose the US military to interruption of critically needed supply in the event of war. The Senator calls for significant changes in trade regulations “to adequately secure America’s future both economically and militarily.” This is of course a call for national security trumping free trade.
The military required not just exotic special magnets. It required also mundane “dual-use” items such as uniform and boots which are mostly made in China now. Still, such conditions are the results of US “free trade” policy, not created unilaterally by China. Economic nationalism is alive and well in the home of free trade in sectors that are threatened by free trade.
Exchange Rates are determined by Exchange Rate Policies, not by markets
Reflecting popular misconception, the Senate Banking Committee focused its hearing on exchange rate policy with a flawed assumption that market-determined exchange rates would solve the problem of US trade deficits. Yet market exchange rates are determined by government interest rate policies. And the very concept of a government exchange rate policy is fundamentally opposed to the concept of free markets.
For the global marketplace to be truly free and fair, all currencies must be equally subject to the impartial discipline of market forces. Yet despite neo-liberal rhetoric, no government today or even in history, particularly the US government, leaves the exchange rate of its currency to market forces. In reality, market forces anticipate and respond to government tax and trade policies as well as central bank deliberations on interest rate moves.
The differences among the exchange rate policies of different governments reflect the differences in each country’s economic, financial and monetary conditions as well as political ideology, social structure and societal values, but all governments manipulate the currency market to sustain the exchange rates of their currencies at levels best suited to their separate national needs.
The US maintains an Exchange Stabilization Fund (ESF) which is money available to the US Treasury primarily for participating in the foreign-exchange market to maintain currency stability. It holds US dollars, foreign currencies and IMF special drawing rights to intervene in the foreign exchange market to influence exchange rates, outside the domain of the central bank, without affecting the domestic money supply.
History of Exchange Rates and Currency Stabilization
After WWII, as the US emerged as the only country the industrial sector of which had been left not only undamaged but actually strengthened by war, the dollar by default became the uncontested world reserve currency for international trade. As early as April 1942, the so-called White plan, named after Harry Dexter White, US Treasury Undersecretary and a student of free trade advocate Professor Frank W. Taussig of Harvard, proposed a United Nations Stabilization Fund and a Bank for Reconstruction and Development of the United and Associated Nations. The advantages of stable exchange rates that the automatic classical gold standard had provided while it lasted from 1876 to 1914, had proved to be not so automatic after WWI. Classical gold standard was causing deflation around that world that translated into a worldwide depression while mercantilism, the quest by nations for gold through exporting, was causing protectionist reaction in all countries.
The idea of the need for international cooperation in trade and for a new “gold exchange standard” which would make wider use of gold by supplementing it with an anchor currency that would be readily convertible into gold had been developed in the 1920 international conference in Genoa, Italy, but the participating governments failed to reach agreement on account not all were ready to accept British sterling hegemony. This idea was incorporated two and a half decades later into the Bretton Woods regime with a gold-backed dollar replacing the British pound. The challenge was to devise an operative international finance architecture out of fiat currencies anchored to a gold-backed dollar to accommodate post-war international trade.
One crucial difference between the US plan by White and the British plan by John Maynard Keynes was that the Stabilization Fund (SF) proposed by the US was to be based on a mixed bag of national currencies, while the Clearing Union (CU) proposed by Britain was to operate with a new international currency to be known as bancor. The CU also had less strict rules than did the SF for its use by countries with balance-of-payments deficits. Unlike now whereas the US is the world’s largest debtor nation, the US then, as the world only creditor nation, was concerned about the potential financial exposure of the US to bad credit worldwide and about preserving the rights of creditor countries with balance-of-payments surpluses. The US team voiced serious reservations about the British/Keynes plan, which had liberal liquidity provisions and ready access to liquidity for countries with temporary trade deficits that would encourage moral hazard. Britain anticipated huge war-time deficits as revenue from many parts of the British Empire was suddenly interrupted.
The IMF, dominated by US voting power, closely followed the US/White plan for a contributory fund, although it was slightly larger, at $8.8 billion ($77 billion in 2004 dollar or $463 billion in relative share of GDP), of which the USA put in $2.75 billion ($24 billion in 2004 dollar or $145 billion in relative share of GDP), and the UK contributed $1.3 billion. Exchange rates could fluctuate 1% on either side of a par value with the dollar. The fund was designed to provide members with a cushion of credit to give them the confidence to abandon exchange and trade controls while keeping their exchange rate stable in relation to the dollars. It did not deal with how the transition from war through reconstruction to recovery was to be achieved, but certainly not by cross-border finance. The IMF was specifically not to lend for relief or reconstruction arising from the war. Article XIV allowed members to keep exchange controls for three to five years, after which they had to report annually on why controls still remained. This left open the absolute deadline for abandoning exchange controls or trade restrictions, and in fact they were not abandoned for current account purposes until 1958. The UK only abandoned its final controls on cross-border capital flows in 1979.
In addition, the US/White plan contemplated the forbiddance of exchange rate intervention, an important feature for the US, whereas the British/Keynes plan did not put much emphasis on limits on exchange rate intervention and even advocated the use of capital controls for the weaker economies, of which Britain expected to become one in the course of the war. Britain imposed exchange control soon after the war began and kept it for four decades until the new Conservative government abolished exchange control in 1979. The pre-1979 controls on direct investment restricted sterling-financed foreign investment except where it had a positive effect on the balance of payments. With respect to portfolio investment, the controls stipulated that purchase by UK residents of foreign exchange to invest overseas could be made only from the sale of existing foreign securities or from foreign currency borrowing. A third element of the controls restricted the holding by UK residents of foreign currency deposits as well as sterling lending to overseas residents. Cross-border flow of funds was not considered as desirable or necessary for domestic economic growth, if not an outright threat.
China not a Currency Manipulator
The Treasury’s Report on International Economic and Exchange Rate Policy, required by law to examine whether any US trading partners are manipulating their currencies to gain unfair trade advantage, has determined in its 2006 findings that China does not so manipulate its currency. Still, congressional and media allegations persist that China’s continued resistance to US calls to allow its currency to rise in order to reduce trade imbalances with the US has distorting effects on global markets and detrimental effects on US companies and workers. Such allegations are misplaced, not supported by either fact or theory. The distortions have been created by US trade and monetary policies and their effects on the exchange value of the dollar, rather than by China which has pegged its RMB yuan to the dollar at 8.28 yuan to a dollar within a narrow band of 0.03% for a decade, from 1995-2005, at times above and at other times below market trends.
On July 21, 2005, after repeated pronouncements that no revaluation was economically justifiable or even being officially considered, China announced a surprise 2% appreciation of its currency, putting it at 8.11 yuan to the dollar. It also announced that the yuan would henceforth be pegged with the same narrow range to a basket of foreign currencies that includes the dollar, the euro, the yen and others likely to reflect China’s trade relationships with the rest of the world. The components and weight of different currencies within the basket are not disclosed to the market. China appears to be following Singapore’s managed-float model, keeping both weights and effective bands confidential to allow maximum flexibility within a narrow range tied to a reference peg to the dollar. Many saw it as an obvious diplomatic move to appease misguided US pressure.
Manipulation involves willful, proactive volatile changes to profit from temporary technical market trends against market fundamentals. A stable exchange rate cannot be labeled as manipulative any more than a driver traveling at constant legal speed for long periods apace with the police car next to it can suddenly be accused of speeding merely because the police car slows down from loss of power.
Senator Dodd cites anonymous “credible analysts” who allegedly identify the undervaluation of the RMB by 15 to 40 percent as “a very significant cause” of the loss of jobs in the US to outsourcing. By extension, in order for the US to cure its trade problems that its own permissive monetary and anti-labor policies have created, China must revalue its currency upward by up to 40%, not because the market demands it, but because the US needs it to reduce its trade deficits. What the US is doing is asking China to pay for its own policy errors.
But the Dodd Committee needs to understand that such a cure would be worse than the malady, as it will cause dollar inflation to skyrocket in the import-dependant US economy, bringing dollar interest rates up with it, and pushing the debt-infested goldilocks US economy into sharp recession. After all, China alone, at substantial cost to its own economy, kept the yuan’s peg to the dollar all through the decade-long Asian financial crisis that began in July 1997, when all other Asian currencies devalued in quick order in a frenzied rush to the bottom.
At both the House Ways and Means Committee and the Senate Finance Committee February 6 hearings on the Bush Administration’s $2.9 trillion fiscal 2008 budget, Paulson again asserted that the US has reached a “crossover” point in its trade with China, with exports to China rising at a faster rate than imports from China. China trade has remained a sensitive topic with Congressional members who, face with pressured from constituents over jobs lost to outsourcing overseas, are pushing Paulson for action to force China to revalue its currency. Yet the only sustainable way to increase US export to China is to raise Chinese wages to increase Chinese consumer demand, not by forcing China to revalue its currency upward. Currency revaluation will only produce monetary instability that will cause deflation in the Chinese domestic market, thus dampening demand for imports from the US.
Paulson defends the Yen and criticizes the Yuan
Testifying before the all powerful House Ways and Means Committee, Paulson defended the recent fall of the Japanese yen against the euro, claiming the US Treasury saw no evidence that Japanese authorities have intervened in currency markets since 2004 to manipulate the value of the yen. European officials have been unhappy about the weak yen because it makes EU exports more expensive and less competitive in Japan and in Asian markets where the yen is a significant benchmark. “Some people might not like where it’s trading, but it’s my job to support and fight for free competitive markets, and I believe that the yen is trading in a competitive marketplace based upon underlying economic fundamentals,” Paulson said.
The fact remains that the exchange rates of a currency is fundamentally affected by the interest rate set by its central bank. Whether such intervention is manipulation is a matter of perspective.
European ministers, particularly German Finance Minister Peer Steinbrueck, are of the opinion that the Japanese yen is undervalued as a result of Japanese monetary policy and want the problem discussed at the next G7 gathering on February 9. The mismatch between EU and Japanese monetary policies is caused by Germany’s historical phobia on inflation, thus preventing euro interest rates to reach parity with near-zero yen interest rates. Low yen interest rate is beneficial to the EU and US economies, allowing carry trade, a financial manipulation to borrow low interest currencies, such as the Japanese yen, to lend in high interest currencies, such as the dollar and the euro, to provide funds to finance investment the high interest economy, such as the EU and the US. The trade-off from capital account surplus is payments imbalance from trade.
A Currency Peg is not immune to Market Forces
A currency peg with another currency is a unilateral regime. It does not require permission from the government of the pegged currency. A currency peg is not sacred or inviolable, nor is it a free lunch for the economy that adopts it. Any currency peg can broken by the market if the government that adopts it is unwilling or unable to bear the cost of sustaining it, as has happened to many currencies around the world, including the British pound’s peg to the German deutschmark which was broken by hedge fund speculator George Soros in 1992 with a spectacular profit of over $2 billion in a matter of days, draining the exchange reserves of the Bank of England and precipitating a collapse of Europe’s Exchange Rate Mechanism (ERM).
The ERM was a multilateral fixed-exchange-rate regime adopted in March 1979 as part of the European Monetary System (EMS), to reduce exchange rate volatility and to achieve monetary stability in Europe, in preparation for the Economic and Monetary Union and the introduction of a single currency, the euro, on January 1, 1999. The ERM was established by the then European Community to keep member countries’ exchange rates within specific bands in relation to one another. The purpose of the ERM was to stabilize exchange rates, control inflation rates through a link with the strong and stable deutschmark, and to nurture intra-Europe trade. It was also designed to enhance European world trade in competition with the US, creating a so-called United States of Europe and as a stepping stone to a single-currency regime in Europe.
Britain joined the ERM in October 1990 at a fixed parity of 2.95 deutschmarks to the pound, an over-valued rate intended to put pressure upon the British economy to reduce inflation rather than institutionalizing international competitiveness. British pride might have played a role in insisting on a strong pound. This chosen rate, or any fixed rate required by ERM membership, proved misguided, because it tried to benefit from the effect of a single currency for separate economies without the reality of a single currency within an integrated economy.
During the 23 months of ERM membership, from October 1990 to September 1992, Britain suffered its worst recession in six decades, with the gross domestic product (GDP) shrinking by 3.86%, unemployment rose more than a third, by 1.2 million to 2.85 million. The total price of ERM fixed exchange rate for the United Kingdom had been estimated to be as high as 13.3% of 1992 GDP. The number of residential mortgages with negative equity tripled, reaching a peak of 1.25 million, and company insolvency rose above 25,000 a year.
The British government of John Major sought to balance political and macroeconomic considerations, only to fail in its effort to support the unsupportable to prevent a devaluation of a freely traded pound by market forces. If the UK had not lost some ₤8.2 billion defending the pound's unsustainable exchange rate, it could have avoided budget deficits, tax hikes, cuts in public spending, and the unpopular value-added tax on fuel. Spending on the National Health Service could have been more than doubled for 12 months.
Withdrawing from the ERM released the UK economy from persistent deflation and provided the foundation for the non-inflationary growth subsequently experienced. It enabled monetary policy to be freed from the sole task of maintaining the exchange rate, thus contributing to economic expansion by a combination of rational monetary measures. While ERM countries were compelled to maintain relatively high real interest rates to prevent their currencies from falling outside the permitted bands, Britain enjoyed the freedom to benefit from lower rates.
Hong Kong, with its freely convertible currency pegged to the dollar, faced the same problems for a whole decade after the 1997 Asian financial crisis. After a decade-long recession, Hong Kong’s economy finally recovered with direct subsidy from China. Its economy is now again booming from the ran-away liquidity effects of the dollar debt bubble created by the Greenspan Fed’s permissive monetary policy of low interest rates but will face another crisis when the U economy faces the inevitable consequence. Waiting for an improved economy before de-pegging is like waiting for death to cure an infection, or one more high before cold turkey, a sure path to death by overdose.
The appropriate exchange rate of currencies at any particular time is that which enables their economies to combine full employment of productive resources, including labor, with a simultaneous balance-of-payment equilibrium. An excessively high exchange rate causes trade deficits and domestic unemployment, while a low one generates an excessive buildup of foreign-currency reserves and stimulates domestic inflationary pressures that lead to a bubble economy. Thus every nation with a freely convertible currency must retain the ability to adjust the external values of its currency in this unregulated global financial market and an international financial architecture based on dollar hegemony. To be fixated on a fixed exchange rate within rigid limits is to court economic disaster in the current international finance architecture of freely convertible currencies. This is the lesson why China resist full convertibility of the RMB.
The ERM was a transitional regime whose problems were finally removed once the EU moved toward a single currency in the form of the euro. Still, the anti-inflation bias of the European Central Bank continues to create conflict with monetary policy needs of national economies within euroland. The current dispute surrounding the exchange rate of the yen to the euro is the result of interest rate disparity between the two currencies, ictated by separate domestic monetary needs, not by market fundamenatls.
In a fast-changing economic environment of unregulated global markets, the value of the exchange rate that facilitates full employment and a foreign trade balance will frequently fluctuate. Speculative volatility must be countered and the exchange rate managed by the national bank to prevent disruption in the domestic economy and in external trade. However, this does not imply fixed, unchangeable bands as under the ERM. The optimum strategy for cooperation between national central banks on exchange rates requires a combination of maximum short-term stability with maximum long-term flexibility, the opposite of the effects of fixed exchange rates.
Since, under ERM, Britain's interest rate was pegged to that of Germany through the fixed exchange rate, reduction in interest rates was not available to deal with increasing unemployment and declining growth in the UK. The fact that Britain had no control over interest rates, coupled with the questionable independence of the Bundesbank, Germany's central bank, was an important factor in the final decision to withdraw the pound from the ERM fixed-exchange-rate regime.
The reunification of Germany cracked open the structural flaw in the Exchange Rate Mechanism because massive capital injection from West to East Germany had produced inflationary pressure in the newly unified in German economy, leading to preemptive increases of interest rates by the Bundesbank. At the same time, other economies in Europe, especially that in Britain, were in recession and not prepared for interest-rate hikes dictated by Germany. This interest-rate disparity magnified the overvaluation of the pound in the early 1990s.
Along with the European Currency Unit (ECU, the forerunner of the euro), the ERM was one of the foundation stones of economic and monetary union in Europe. It gave currencies a central exchange rate against the ECU, which in turn gave them central cross-rates against one another. It was hoped that the mechanism would help stabilize exchange rates, encourage trade within Europe and control inflation. The ERM gave national currencies an upper and lower limit on either side of this central rate within which they could fluctuate.
In 1992, the ERM was torn apart when a number of currencies could not keep within these limits without collapsing their economies. On Wednesday, September 16, a culmination of factors led Britain to pull out of the ERM and to let the pound float according to market forces. Black Wednesday became the day on which George Soros, hedge-fund titan, broke the Bank of England, pocketing US$1 billion of profit in one day and more than $2 billion eventually. The British pound was forced to leave the ERM after the Bank of England spent $40 billion in an unsuccessful effort to defend the currency's fixed value against speculative attack. The Italian lira also left and the Spanish peseta was devaluated.
In order to curb German inflation, an increase in German interest rates was necessary, but if the Bundesbank were completely independent of German political-economic interests as a dominant regional central bank, it would not have adopted this policy, as there were cries from all over Europe for a decrease in interest rates. By adopting tight monetary policies in response to domestic inflationary pressures that followed German reunification in 1990, German short-term interest rates, which had been rising since 1988, continued to rise, reaching nearly 10 percent by the summer of 1992. So, at a time when Britain needed a counter-cyclical reduction in interest rates, the Bundesbank sent the interest rate upwards, plunging Britain deeper into recession through the ERM. This kind of cyclical conflict is likely to surface regularly between China, the US, Japan and the EU once the Chinese yuan is freely convertible.
This was the fundamental problem with the ERM—fixed exchange rates conflicted with the interest-rate levels needed by different economic conditions in separate member economies. The British interest rate pegged to that set by the Bundesbank was crippling the British economy because the UK was in a recession and required low interest rates.
Today, the foreign exchange value of the Japanese yen has been pushed down by low yen interest rates which the Bank of Japan has been forced to maintain to keep the Japanese economy from falling into deeper recession.
The Pro and Con of Full Convertibility
The Pro and Con of Full Convertibility
The key distinction between the Japanese yen and the Chinese yuan is the degree of convertibility. EU officials point to low yen interest rates as the cause of the yen being undervalued and the US points to the limited convertibility of the yuan as the cause of its being undervalued.
It is true that the RMB’s limited convertibility allows China to resist market assaults on its currency. Yet for an economy engaged in international trade, the fact that its currency is not freely convertible is not a free ride, as many experienced traders, including former Goldman Sachs chairman and current Treasury Secretary Paulson, have repeatedly pointed out to Chinese officials. Such currency control incurs a substantial economic cost and can only be sustained if the country in question can afford that cost to preserve monetary stability.
For economies where the currencies are freely convertible, the cost can be massive attacks on their currencies by speculators, such as hedge funds, that would quickly drain the government’s foreign exchange reserves and cause a collapse in the economy’s debt market. For economies that practice exchange and capital control, the penalty would be a drain in foreign reserves and a reduction in trade in the case of a deficit. In the case of a trade surplus, the penalty would be a drain of domestic currency capital into growing foreign exchange reserves.
For a limited convertibility currency, the cost of a fixed exchange rate is absorbed internally within the domestic economy. On the other hand, a freely-convertible currency with a fixed exchange rate is mixing gasoline with fire as the British pound demonstrated in 1992. Yet a freely convertible currency with a low interest rate policy designed to stimulate the domestic economy will enhance a nation’s foreign trade competitiveness. For the case of US-China trade, a freely convertible RMB with a low interest policy will exacerbate US-China trade imbalance further against the US, not moderate it in the long run.
In that sense, to say that a currency not freely convertible and tied to a fixed exchange rate pegged to the dollar is unresponsive to market forces, let alone market manipulation, betrays a lack of understanding of how international trade is financed and intermediated in the global economy. Currency pegs are not immune to market forces; they only transmit the effects of market forces through difference economic channels. All governments participate in money markets to carry out monetary policy, buying and selling government securities to implement their interest rate policies, and in currency markets to sustain the desired levels of exchange rate. Nowadays most central banks are not even dominant market participants, having been edged out of center stage by hedge funds as major players that regularly move markets with notional values in hundreds of trillions of dollars.
US is the Head of the Currency Manipulation Snake
US is the Head of the Currency Manipulation Snake
Fundamentally, a currency peg is merely a different path to the same monetary objective as the setting of the Fed Funds rate, with the Fed Open Market Committee buying and selling government securities to maintain an announced interest rate target. As the dollar is the key reserve currency in world trade and finance, the US, through its interest rate policy, is the de facto head of global exchange rate manipulation snake and the Fed chairman the chief wizard of exchange rate manipulation.
For decades, beginning with a collapse of budgetary and monetary discipline during the Vietnam War, the US had been manipulating the exchange rate of the dollar downwards, a fact obscured in the last decade by the emergence of dollar hegemony, a regime introduced by Clinton Administration Treasury Secretary Robert Rubin to finance the US trade deficit with its capital account surplus to deliver borrowed prosperity to the US through a global debt bubble fed by the US Federal Reserve’s dollar printing frenzy.
Thus it is irony bordering on disingenuousness when Federal Reserve Chairman Ben Bernanke, in China as part of the US-China Strategic Economic Dialogue delegation led by Secretary Paulson, voiced concern for the allegedly undesirable distortions that result from an “effective subsidy that an undervalued currency provides for Chinese firms that focus on exporting.” For decades, the real market distortion has come from the Fed’s interest rate policy, liquidity bias and inflation targeting. By law, the Fed is obliged to support the Treasury’s strong dollar policy in defiance of market forces as a matter of national security. And a strong dollar policy is a professed example of currency manipulation.
Dollar interest rates have been lower than euro interest rates and higher than yen interest rates because of differing economic conditions and national phobia regarding inflation at home. The US Treasury, while maintaining a strong dollar policy, has indicated that the dollar should be freer to find its own level. Since most Asian currencies except the Japanese yen are pegged to the dollar, the only currencies affected by a fall in the dollar will be the yen, the euro and currencies linked to it, British sterling and the Swiss franc, causing a technical movement away from the dollar until the US brings its twin deficits under control. Until then the yen and the euro will bear the brunt of the weakening of the dollar, but not evenly, with the yen falling against the euro while rising against the dollar.
The High Cost of Bringing the US Twin Deficits Down
If history is any guide, the US, being an ever resilient nation, will eventually get its twin deficits under control, albeit the cost this time will far exceed the blood-letting of the Volcker victory over dollar inflation in the1979-80. In 1982, impacted by the Federal Reserve under Paul Volcker raising dollar interest rates sharply in 1979-80 to over 20% to fight run-away inflation in the US, Mexico was put in a position of not being able to meet its obligations to service $80 billion in dollar-denominated short-term debt obligations to foreign, mostly US, banks out of a GDP of $106 billion.
Volcker’s triumph over domestic inflation was bought with the destabilization of the international financial system, where US banks had acted like loan sharks in the Third World with Fed approval a decade earlier to recycle petro-dollars. History will repeat itself before the end of the first decade of the 21st century. Pushing the Chinese yuan upward would accelerate and exacerbate the historical replay.
On the eve of the meeting of the Group of Seven (G7: the US, Japan, Germany, France, Italy, Britain and Canada) on February 10 in Essen, Germany, the dollar traded at 121.6 yen and 0.7689 euro (or $1.30 to a euro). While 120 yen to the dollar is where the US likes to see the yen stay, $1.30 to a euro put Europe in a severe exchange rate disadvantage. The Chinese RMB yuan traded on the same day at 7.75 to the dollar, down 6.4% from 8.28 on July 21, 2005 when China discontinued the yuan/dollar peg, while the Hong Kong dollar is still pegged at 7.81 to the dollar. If the RMB yuan continues to rise against the Hong Kong dollar, it will force the Hong Kong dollar to de-peg from the US dollar to align with the RMB or face very unhappy consequences.
There is visible evidence that the volatility in exchange rates among major currencies has been caused by hedge fund arbitrage. Contrary to rationalization offered by apologists of the positive role of hedge funds in stabilizing and enhancing efficiency in the market, hedge funds have repeatedly shown themselves as a destabilizing and volatility-generating force that threaten the global financial system. In this context of the obvious dangers of unregulated currency markets, it is hypercritical for the world’s rich nations to urge China to loosen state control of its exchange rate and to move toward full currency convertibility.
The G7 powers also addressed the recent slide in the Japanese yen by urging financial markets to take account of Japan’s strengthening economy in an attempt to convince currency speculators of the need for caution on carry trades where investors borrow massively in low-yield currencies such as the yen to invest elsewhere for bigger returns, something that is compounding recent yen weakness. G7 guidance to markets on the ultra-sensitive matter of exchange rates was almost identical to what they said an earlier meeting in September 2006 in Singapore that failed to stem a slide in the yen. G7 governments are the equivalent of permissive parent warning the youngsters on the danger of drugs while they themselves indulge in alcohol abuse with their addictive fixation on the fantasy merits of market fundamentalism.
US Treasury Secretary Henry Paulson dismissed the EU’s complaints on the yen, saying the Chinese yuan rather than the Japanese yen was the problem because the Chinese currency was controlled by the Chinese authorities and remained too weak, whereas Japan's yen was set in freely trading currency markets. He did not address the issue of low yen interest rates set by the Bank of Japan which causes the yen to fall in the open market and provides profit opportunities for carry trade.
Foreign exchange was a hot topic at the latest G7 meeting in Germany. China was referenced in the final communiqué: “In emerging economies with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur.” In 2006, China’s annual trade surplus grew almost 75% to $177.5 billion, while GDP grew 10.7%, or the fastest rate in 11 years, as foreign reserves exceeded $1 trillion. Bloomberg reports the yuan fell by the most in a month (approx. 0.12% to 7.756/$1) following China’s central bank governor’s statement at the G7 meeting that the pace of its currency gains is “appropriate”.
The G7 also discussed potential risks from the burgeoning hedge fund industry, which is less regulated than banks and other financial institutions and geometrically higher leveraged. Loosely regulated hedge funds have become a powerful market force, initially catering to the risk appetite of the ultra-rich to profit from risk management needs of business but concern is mounting about their widespread proliferation to attract individuals and institutional investors who are attracted by the promised profit but not truly qualified to assume such risks. Instead of spreading risk throughout the financial system to prevent concentrated effects of singular defaults, hedge funds as an industry have become a prominent risk factor itself in catastrophic systemic failure.
Increasing links between hedge funds and commercial banks are also problematic, with banks lending to both sides of the same bet, profiting from handsome fees irrespective of the direction of the market but assuming exposure to counterparty risks in the event of default. Big money center banks are heavily trading credit derivatives that bet on the risk of bonds or loans default. Many investment banks have become de facto hedge funds with proprietary trading constituting the bulk of their profit.
Hedge Funds are the real Currency Manipulators
Hedge fund assets have doubled globally to more than $1.4 trillion in the last five years betting on notional values in the hundreds of trillion. The Bank of International Settlement (BIS) reports that the volumes outstanding of over-the-counter (OTC) derivatives expanded at a brisk pace in the first half of 2006. OTC contracts are traded directly between counterparties outside of exchanges which guarantee settlements for their members. Notional amounts of all types of OTC contracts stood at $370 trillion at the end of June, 24% higher than six months before. Growth was particularly strong in the credit segment, where the notional amounts of outstanding credit default swaps (CDS) increased by 46%. Rapid growth was also recorded in other market segments. Open positions in interest rate derivatives rose by 24%, while those in foreign exchange (FX) contracts expanded by 22%. Equity and commodity contracts grew at 17% and 18%, respectively. Gross market values, which measure the cost of replacing all existing contracts and thus represent a better measure of market risk at a given point in time than notional amounts, increased by 3% to $10 trillion at the end of June 2006.
The pace of trading on the international derivatives exchanges also quickened in the first quarter of 2006. Combined turnover measured in notional amounts of interest rate, equity index and currency contracts increased by one quarter to $429 trillion between January and March 2006. The combined notional value of all contracts comes to almost $800 trillion. Notional values are not the amount at risk, only the amount on which risk is calculated. But with a notional value of $800 trillion, a 1% shift in value will translate into a profit or loss of $8 trillion, 5.7 times the $1.4 trillion asset value of all hedge funds, or 61% of 2006 US GDP.
The derivative market has been described as a financial weapon of mass destruction. It makes the Chinese currency exchange rate issue seem like a small harmless firecracker.
US-China Trade Imbalance
US-China Trade Imbalance
The Senate Banking Committee also mistook the yuan/dollar peg as a significant contributor to record US trade deficits which was over $750 billion for 2006. On the surface, nearly one-third of that deficit, over $230 billion, consists of the US bilateral trade deficit with China. For China, its global trade surplus was $250 billion, about 9% of its GDP. US global merchandise trade and current account deficits rose to $850-875 billion in 2006, amounting to 7% cent of GDP and rising $100 billion annually over the past four years.
Yet when China’s trade surplus with the US is viewed in the context of global trade data, leaving out oil, the collective trade surpluses of the oil-exporting countries having become larger than China’s surplus, Germany, Japan and the rest of non-China Asia have been the large trade surplus components as shares of the US trade deficit. In contrast, until two years ago, China’s trade surplus was minor. US trade imbalances come more from Germany and Japan and less from China.
Yet US diplomatic pressure on China to revalue the yuan further continues. This pressure from the US is motivated by the misguided conventional assumption that a lower exchange rate of the dollar will reduce the US trade deficit, despite clear historical data showing that past revaluations of the Japanese yen and the German mark had not reduced US trade deficits with these major trade partners in the long run. All such revaluations did was to lower the domestic cost in local-currency terms more than raise the dollar price of Japanese and German exports. The net effect was deflation in Japan and Germany, with inflation in the US while the US trade deficit continued.
While China has become the largest nominal surplus nation in the global trading system, having surpassed Japan, its foreign exchange reserves of over $1 trillion is an enormous drain of wealth from the yuan economy into the dollar economy, leaving China with the world’s largest poor population and a large growing economy with a capital shortage. Even if China should stop building up its dollar reserves, it only means some other country will add dollar reserves to make up the difference as long as dollar hegemony allow the US to finance its trade deficit with its capital account surplus. Under dollar hegemony, dollar reserves are created by US twin deficits, independent of which foreign country holds them. The solution is for the US to stop printing fiat dollars to fund its deficits, for as long as the Federal Reserve continue its permissive monetary policy, the twin deficits will continue to expand.
Wage Disparity and Trade Balance
Even a substantial increase in the exchange value of the Chinese currency will not reduce US-China trade imbalances if Chinese wages do not converge with US wages. China has recently let the RMB rise marginally against the dollar while the dollar has fallen against virtually all other currencies, particularly the Japanese yen and the euro. The US has been trying to compensate its structural loss of competitiveness in manufacturing by forcing the dollar to fall against all other currencies, but the Chinese yuan’s peg to the dollar stands in the way of this easy way out.
In fact, the yuan/dollar peg has a supportive effect on the US strong dollar policy. US policy makers should realize that the yuan/dollar peg performs a positive function of forcing the US economy to restructure toward real productive revival, rather than the meaningless path of exchange rate manipulation. US loss of competitiveness is not caused by its currency being overvalued. It is the opposite: the loss of competitiveness is reflected in the fall of the dollar.
The DOLLAR'S FALL IS NOT CAUSED BY THE YUAN BEING PEGGED TO IT..IT IS CAUSED BY THE USA SEEKING PRODUCTIVITY GAINS BY HAVING LOW-WAGE WORKERS OVERSEAS DOING DOING THE PRODUCING.
Thus increased US global competitiveness is causing the loss of US domestic competitiveness in world trade.
While cross-border wage arbitrage causes the US to lose jobs, it institutionalizes underemployment in China, keeping Chinese wages too low to support more imports from the US. It takes the export of millions of pairs of shoes to the US to pay for one Boeing airliner. US furniture manufacturers complain about low price Chinese imports, yet there are no Chinese aircraft manufacturers to complain about the high price US airliners. That is the true imbalance in US-China trade.
In 2004, China’s global trade surplus was only 8% of US trade deficit, the same as little Netherlands. The whole Euroland global surplus was 27% of the US deficit that year, and the combined global surplus of Japan and the rest of non-China Asia was an even larger share of US deficit. Yet China alone stays in the cross-hair of US trade deficit complaint because of the large bilateral surplus reported monthly by the US Commerce Department. In the global supply chain, Germany, Japan and the rest of non-China Asia are the surplus giants. This point was insightfully made by Albert Keidel, Senior Associate at Carnegie Endowment for International Peace (www.CarnegieEndowment.org/Keidel), in his testimony before the Senate Banking Committee.
Bilateral imbalance between the US and China does not itself inform on the real global trade balance picture. China processes and re-packages large volumes of goods from other countries for final shipment to the US. The Chinese export sector is largely a re-export sector with labor and environment as main factor inputs. The US has bilateral trade surpluses with many countries, such as the Netherlands and Singapore. Keidel points out that the conventional view is that these countries with trade deficits with the US do not contribute to the US trade deficit. But these countries have large global trade surpluses, much of which are with China, sending the bulk of its manufactured components as exports to China, for finishing and packaging there, before having them shipped to US market from a Chinese port, such as Hong Kong or Shanghai.
So China is only the intermediary point for many non-China economies’ exports to the US that have deficits with the US and surpluses with China. Further, the Chinese export sector is driven by foreign investment which regularly repatriates earnings even before they reach China. The cost of production by these companies are registered as US deficit with China, but the profit is not registered as a US trade surplus because only capital, not goods, is exported.
The voice of free trade, economist C. Fred Bergsten of the Peterson Institute of International Economics, asserts that such global imbalances are unsustainable for both international financial and US domestic political reasons. On the international side, the United States must now attract about $8 billion of capital from the rest of the world every working day to finance US current account deficit and US investment outflows in plants that produce the import to the US. Bergsten told the Senate Committee that even a modest reduction of this inflow, let alone its cessation or a sell off from the $14 trillion of dollar claims on the US now held by foreigners, could initiate a precipitous decline in the dollar. Notwithstanding that this simplistic view is not shared by the Federal Reserve or the Treasury, logic shows that dollar assets can only be sold for dollars, which must then be reinvested in other dollar asset, thus poses no threat to the value of the dollar. When dollars are sold for other currencies, it merely changes the ownership of the dollars, which no reduction in the dollar money supply. Further, Bergsten and his fellow free traders want the dollar to fall. So where is the problem?
NBER declares Chinese Yuan not undervalue
National Bureau of Economic Research (NBER) Working Paper No. 12850 issued in January 2007 reports that relying upon conventional statistical methods of inference and a framework built around the relationship between relative price and relative output levels, once sampling uncertainty and serial correlation are accounted for, there is little statistical evidence that the RMB is undervalued.
NBER is a prestigious and highly respected private, nonprofit, nonpartisan research organization where Simon Kuznets’ pioneering work on national income accounting, Wesley Mitchell’s influential study of the business cycle, and Milton Friedman’s research on the demand for money and the determinants of consumer spending were among the early studies done. Sixteen of the 31 US Nobel Prize winners in Economics and six of the past Chairmen of the President's Council of Economic Advisers have been researchers at the NBER. The more than 600 professors of economics and business now teaching at universities around the country who are NBER researchers are the leading scholars in their fields.
Rising Chinese Currency will lead to US Inflation