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US Must Solve Its Own Economic Problems
Pinning America's economic woes on China is too easy. The real villains are Wall Street bankers and their influence
President Obama will go to Asia next week and has promised to say something about the exchange rate between the Chinese yuan and the U.S. dollar. It would be good if some enterprising journalist asked him why the United States is worried about the Chinese dumping their dollars, and why U.S. Treasury Secretary Tim Geithner recently said that the United States is committed to a "strong dollar." As a matter of accounting, a "strong dollar" is the same as an "undervalued yuan." So it makes no sense to be worried about the great "power" that the Chinese are holding over us -- that they can dump a few hundred billion dollars of their reserve holdings and cause the dollar to fall.
A fall in the dollar would be just what Obama and others are asking for when they ask the Chinese to allow their own currency to rise. This would stimulate the U.S. economy by reducing our trade deficit. It is also just what we need to resolve the long-term problem that our trade deficit represents. Although the U.S. trade deficit has been cut in half during the current recession, it will once again swell as the economy recovers unless the dollar is reduced to a more competitive level and stays there.
The manufacturing sector of the United States, including the National Association of Manufacturers and some union leaders, understand this very well. But they have relatively little political clout. The interests that dominate economic policy-making in the United States are mainly in the financial sector, as we can see by the hundreds of billions of dollars of no-strings-attached government subsidies they have gotten in this recession; and the $21 billion in executive compensation that will be paid out by Goldman-Sachs, which is particularly well represented in our government. A strong dollar is good for them because it makes anything they want to buy overseas cheaper, and of course it lowers inflation by keeping imports cheaper. The more than five million manufacturing jobs lost over the last decade are just "collateral damage" for them.
Since this conflict of interest between Wall Street and the rest of the country has been resolved in favor of the guys with the big bonuses, what we end up with is a spectacle of scapegoating. It is cheap and easy to blame the Chinese for the overvalued U.S. dollar (which is official U.S. policy) and the U.S. trade deficit. While it is true that the Chinese could allow their currency to rise against the dollar, it is also true that the United States Treasury has the ability to influence the international value of our own currency - just like China and many other countries do. Although the Chinese currency is not freely convertible, our government could push down the dollar against other major currencies, which would generate more pressure on the Chinese currency. It is also worth noting, as World Bank Chief Economist Lin Yifu pointed out this week, that only about one-third of the U.S. trade deficit for the years 1990-2007 is with China.
With respect to the Chinese holdings of dollar-denominated assets, China is holding a lot of longer-term U.S. government bonds (e.g. U.S. ten-year treasuries). If the Chinese government were to sell off a lot of these, it would drive up long-term interest rates in the U.S. Since our mortgage rates and other long-term lending rates tend to move with long-term Treasuries, this could obviously have a negative impact on the U.S. economy.
But it must be emphasized that this is a different issue from the dollar falling. Is this threat of a Chinese sell-off of longer-term U.S. treasuries something that we should worry about? Not really. First, the Chinese government does not want to hurt the U.S. economy, which still absorbs about 20 percent of Chinese exports. One reason that they have accumulated long-term Treasuries was to help push down long-term rates in the U.S., to support growth and demand for their exports during the 2001-2007 expansion in the U.S. (Some economists have even tried to blame the Chinese for the housing bubble, since these purchases helped push mortgage rates down during the bubble years. But the housing bubble was, even more than the overvalued dollar, a result of deliberate U.S. policy.) Second, the Fed can counter-act unwanted increases in long-term treasury and mortgage rates, as it has already done during this recession.
Deficit hawks and other fear-mongers in the U.S. have also used the Chinese accumulation of U.S. debt as another weapon to try and persuade people that we must sacrifice growth and employment during a deep recession, in order to avoid further debt accumulation. This too, is a dangerous misconception. Unfortunately our economic problems are made in the United States, and it is here in Washington that they will need to be fixed.
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24 Comments so far
Show Allonly brainwashed ditto heads stick to some "pure" economic idea about "not government spending ever" "free market principles"
the ones in power and with the money and influence are only about more power and more money
so they use 'deficit hawks and fear-mongers" to scare the american people
but the only thing they care about is that when the government spends money it goes them, the few
and that nothing goes to the rest of us
14 trillion to the rich
1/4 of that to regular people??
in the form of jobs programs
economic problems solved, no more depression
oh, and tax the rich to pay for it
Of course this, like all commonsense, will fall on deaf ears...
"may you live in interesting times"
This author is from the Center for Economic and Policy Research in DC. I am not familiar with him or this organization but I fear that this is just a think tank organization that is as misguided and incompetent as most think tanks in this nation, none of which foresaw this financial crash coming.
What was the position of CEPR on the repeal of Glass-Steagall in 1999? What was the position of CEPR on the bailout? How about NAFTA, free trade and globalization?
Is this just another rotten think tank that supported all the stupid economic policies that have created this mess, but now has an opinion on how to solve it??
"The problems we face will not be solved by the minds that created them"
The so-called "financial sector" is a gigantic and monstrous swarm of locusts determined to loot the United States. The government is the wind that carries them from one place to another to wreak their havoc.
Why not cancel and replace NAFTA, CAFTA, China PNTR, etc ... with fair trade? Too much to ask, aye Mr. President? Gotta fly around the world and pile on more global warming when a simple cancellation will cut it all down, huh? Brilliant ! More global warming from "free trade" and useless foreign meetings and more economic failures to go with it.
While we're at it, how's the borrowing from China going along? Too many years of that going on, aye Mr. President? Mark, the US will be forced to solve its own economic problems as soon as China flips the foreclosure switch and shuts our lights out until this country pays down the debts she owes China to the last penny.
the TITLE SAYS IT ALL.
US Must Solve Its Own Economic Problems
Pinning America's economic woes on China is too easy. The real villains are Wall Street bankers and their influence
by Mark Weisbrot
===========
America right now, with all these trips of Obama to asia, is another attempt by the USA to
PIGGY BACK ITSELF on OTHER NATIONS - this time to solve ITS problems - where previously - it piggy-backed on them when they were much weaker and less advanced in order to achieve its "prosperity".
that's the USA GAME - since it began:
MAKE OTHER NATIONS PAY FOR ITS PROSPERITY AT THEIR EXPENSE ....
and when it gets into TROUBLE ...MAKE THEM PAY FOR its "recovery" .
FOR OVER A HUNDRED YEARS - the UNITED STATES OF AMERICA built its Power, Wealth and Prosperity by CAUSING PROBLEMS to other nations in their times of weakness.
that is the definition of a PREDATOR STATE.
now the USA is in trouble itself and STILL WANTS to PREY upon other nations in order to save itself .
that about sums up the United STates of America...
I dunno how long the USA will last borrowing from China and other nations to feign being a rich nation but the second they make us pay up, that could get interesting. China knows the USA's tricks and could it use them against her any day. I'd sure like to know how the USA will get past this one.
If you remember back a few years, Slick Willie tried to give China one of our Naval Ship Yards (Mare Island) after it had been closed by a BRAC committee. Okay, the public outcry at the time forbid him from doing so, but times, they are a changing. I share your apprehension, but in the mean time, I've bought a twenty tape series on speaking colloquial Chinese....
I think China will not really go that far - barring a very confrontational approach from the USA (say , from a "next us president" that could be even more fascistic and wants to *regain US supremacy* - and there are many in congress that are VERY *china phobic* adn WANT to be confrontational).
china needs business or , wants to. although , i also think that if China plays its cards right - it will probably in the next 100 years NOT REALLY need the USA business as much as it does now - by force of the rise of the Asian region itself to effectively replace the USA as a viable economic region ...
so , i think that china, true to is long behavior culturaly, is always going to be very cautious and not jump into anything unless it is very sure of the outcome.
for example:
China (or all countries ought to be) is SURE that UNLESS huge investments are made , unilaterally, and in cooperation with other countries, on ENVIRONMENT, and global warming solutions - economies are going to suffer, including itself , for no one is complete independent of each other -- as in "what goes around , comes around". SO - we can see china already aiming to act on THAT but doesn't stop there - it aims to BE the world's Premiere "solar energy" power producer.
on the other hand - it is probably never sure what's going to happen should the USA economy be almost FATALLY harmed if china unloads its dollar holdings all at once or in great amounts to send a dollar stampede...so it has to be careful..
THAT is the part, imo, that gives the USA a bit of room to breathe - to either recover and FIX ITSELF in its own policies that led to its own ruinous state...or ATTEMPT to regain "dominance" and "command position" upon other countries......
which i think the USA will NEVER again have.
it really only has one CHOICE. even if the USA has to be dragged to it screaming and kicking...and that is:
to behave like an normal COUNTRY like others. ..instead of one acting as if it is its godgiven right to be the world's supreme authority.
i had to add:
although recently china HAS famously "shown off" its growing prosperity - such as with its refurbished, more modernized army, the olympics, the 60th anniversary of its communist statehood (which by the way , is not really accurate...in terms of "social revolution" because china's social revolution RESULTING in the communist party statehood REALLY had begun at least 90 years ago as a reaction to western capitalist imperialism and was protracted - in other words, its communism , and now "socialist market economy" are really NATIONALIST reactions against western imperialism) -
one is always reminded of an ancient chinese way of thinking:
"NEVER SHOW YOUR TRUE POWER".
or its variations:
"where you are strong - do not reveal it".
or as a chinese recently said in some news article:
"THE CHINESe WAY -- we believe that it is better to be indirect...".
The ruling class have basically abandoned the US economy and sees itself as a global elite based out of Wall st. and collecting profits from wherever. Today the US is seen as a high wage dead zone with to many laws that restrict them from exploiting labor and natural resources. It's nice of these pricks to base themselves here but in reality they don't really care very much for us as a nation and their actions speak vols. to this contempt. As for their relationship to DC it's really one where they dictate and DC does what they say or they twist the noose even tighter around our collective throats. Paulsens' 3 page extortion notein fall 2008 really summed up for me the relationship today. It's basically of an extortionist or bank robber to their intended victim isn't it? Hank could have reduced that note down to just GIVE ME THE $$ but such a note might have ended up like the funny scene in Woody Allen's famous bank robber scene in "Take the Money and run."
Right now , The Fascists that truly control The United States of America, are squeezing her to get control of every last bit of wealth they possibly can. They are LOOTING The nation and openly doing so.
They are doing it with the full compliance of the Congress, The Senate and The President.
The Media is totally on board with this as they are now fully part of the Corporate State.
There is no one left to speak for the people but the people themselves and the vast majority of them have been dumbed down into total compliance under various dogmas like "Patriotism, Liberty, Freedom and as The United States of America being the ONE indispensible nation the greatest in all the Worlds History".
Of all these the LATTER is the most harmful.
As your view becomes more and more recognized beyond the small progressive community that congregates around CD, it will become the basis for turbulent (possibly violent) political upheaval. This will lead to the scapegoating of those recognizing the morally and economicly naked emporer-class as being "the enemy" and reprisals will follow.
Just as surely as borrowing from China is not the answer (or casue) of our economic problems, looting and pillaging countries that are militarily weaker (but rich in resources or strategic geographic location) is not the solution to our "non-negotiable way of life".
Neither the present nor previous president will ever be able to sort out this mess until they reduce the Pentagon budget and committments all over the world and insist that the US learn to live within its more modest means and stop borrowing from the future to indulge the present.
Poet
There is no "China." There is no "United States of America."
These are Medieval throwback terms that were used to delineate nation states.
Today there is The Earth.
And on The Earth there are finite resources and an ever-increasing population. In fact, the population increases at three ADDITIONAL people PER SECOND.
The people who assume control of the resources in various parts of the world know this. They know resources are running out. They use the military when necessary to gather what's left, but that's becoming increasingly costly and dangerous.
What happens next is anyone's guess.
But as long as people maintain "family values" and continue to breed more chldren without certainty of resources, the problem will surely get worse.
People who toss around these notions that we need to rise up against the corporate state are not only naive of the power of the military and prison system, but also fail to address the underlying problems.
Increased population plus diminitioning resources plus a finite planet equals...
ivymaureen,
Weisbot's co-director at CEPR was the first to warn against a looming housing bubble burst. This was back in the summer of 2005. My wife and I heeded his warning and sold our house at the top of the market and got out.
For this, and many other accurate progressive economic analysis of the Americas, we will always be grateful.
DUMB LUCK
Of course 0bama will talk to China and try to negotiate for what he feels will benefit *his* "United States."
Of course, 0bama's United States has already received more or less matching bailouts, one from the dems, one from the repugs.
0bama's tide has not been crafted to lift all boats. We must expect that whatever negotiations he makes with the Chinese will go to benefit the same sponsors that he served by stealing for the second bailout.
Americans should get used to the idea that an "American recovery" will likely leave them behind and their corporate bosses in more closely consolidated control. Americans need to play for their own recovery, not the recovery of a largely mythical union.
Of course deficit spending can lead a recovery. But it does not have to. The history of the United States during the depression clearly contradicts the Friedmanite criticism of Keynes and FDR that became vogue with the rise of Reagan's keepers. Unemployment peaked in 1932, almost three years after the famous crash. It dropped immediately and progressively with the institution of New Deal policies, then returned quickly in the late 30's when government, ever mindful of its elites, began to rescind them.
WWII did indeed end the depression in the States, but one must recall that the States did not so fight the war nearly so extensively as it manufactured for it.
Accordingly, current American war spending does not help the American economy because the US is spending the money to kill, whereas in WWII it was receiving money to kill.
As to the New Deal spending, after the government spent the money, the taxpayers had access to the infrastructure and the services that the money and the work had created. Across the United States, throughout the 20th Century, residents drank the water, turned on the lights, studied in buildings, and ate the produce of farmlands in large part because of infrastructure created or repaired by the WPA.
Americans receive no comparable benefits from current spending, and current spending is calculated very distinctly to avoid giving them such benefits.
Folks, it makes a difference who gets the money, where it goes, and what gets built. The money itself is a kind of fiction, with a genuine power that derives exclusively from a largely false faith.
The works, however, are real.
We all need our hands back --- to do build what needs building and do what needs doing and not play for who's paying.
The New York Times
November 15, 2009
China’s Role as U.S. Lender Alters Dynamics for Obama
By HELENE COOPER, MICHAEL WINES and DAVID E. SANGER
This article is by Helene Cooper, Michael Wines
and David E. Sanger.
When President Obama visits China for the first time on Sunday, he will, in many ways, be assuming the role of profligate spender coming to pay his respects to his banker.
That stark fact — China is the largest foreign lender to the United States — has changed the core of the relationship between the United States and the only country with a reasonable chance of challenging its status as the world’s sole superpower.
The result: unlike his immediate predecessors, who publicly pushed and prodded China to follow the Western model and become more open politically and economically, Mr. Obama will be spending less time exhorting Beijing and more time reassuring it.
In a July meeting, Chinese officials asked their American counterparts detailed questions about the health care legislation making its way through Congress. The president’s budget director, Peter R. Orszag, answered most of their questions. But the Chinese were not particularly interested in the public option or universal care for all Americans.
“They wanted to know, in painstaking detail, how the health care plan would affect the deficit,” one participant in the conversation recalled. Chinese officials expect that they will help finance whatever Congress and the White House settle on, mostly through buying Treasury debt, and like any banker, they wanted evidence that the United States had a plan to pay them back.
It is a long way from the days when President George W. Bush hectored China about currency manipulation, or when President Bill Clinton exhorted the Chinese to improve human rights.
Mr. Obama has struck a mollifying note with China. He pointedly singled out the emerging dynamic at play between the United States and China during a wide-ranging speech in Tokyo on Saturday that was meant to outline a new American relationship with Asia.
“The United States does not seek to contain China,” Mr. Obama said. “On the contrary, the rise of a strong, prosperous China can be a source of strength for the community of nations.”
He alluded to human rights but did not get specific. “We will not agree on every issue,” he said, “and the United States will never waver in speaking up for the fundamental values that we hold dear — and that includes respect for the religion and cultures of all people.”
White House officials have been working for months to make sure that Mr. Obama’s three-day visit to Shanghai and Beijing conveys a conciliatory image. For instance, in June, the White House told the Dalai Lama that while Mr. Obama would meet him at some point, he would not do so in October, when the Tibetan spiritual leader visited Washington, because it was too close to Mr. Obama’s visit to China.
Greeting the Dalai Lama, whom China condemns as a separatist, weeks before Mr. Obama’s first presidential trip to the country could alienate Beijing, administration officials said. Every president since George H. W. Bush in 1991 has met the Dalai Lama when he visited Washington, usually in private encounters at the White House, although in 2007 George W. Bush became the first president to welcome him publicly, bestowing the Congressional Gold Medal on him at the Capitol. Mr. Obama met the Dalai Lama as a senator.
article continued
============================
Similarly, while he was campaigning for the presidency, Mr. Obama several times accused China of manipulating its currency, an allegation that the current Treasury secretary, Timothy F. Geithner, repeated during his confirmation hearings. But in April, the Treasury Department retreated from that criticism, issuing a report that said China was not manipulating its currency to increase its exports.
While American officials said privately that they remained frustrated that China’s currency policies lowered the cost of Chinese goods and made American products more expensive in foreign markets, they said that they were relieved that China was fighting the global recession with an enormous fiscal stimulus program to spur domestic growth, and added that now was not the time to antagonize Beijing.
China is not viewed as a trouble spot for the United States. But this administration, like its predecessor, has had difficulty grappling with a rising power that seems eager to avoid direct clashes with the United States but affects its interests in many areas, including currency policy, nuclear proliferation, climate change and military spending.
In that regard, two members of Mr. Obama’s foreign policy team said that the United States’ interactions with the Chinese had been far too narrow in past years, focusing on counterterrorism and North Korea. Too little was done, they said, to address China’s energy and environmental policies, or its expansion of influence in Southeast Asia, South Asia and Africa, where China has invested heavily and used billions of dollars in aid to advance its political influence.
One hint of the Obama administration’s new approach came in a speech this fall by James B. Steinberg, the deputy secretary of state, who has deep roots in China policy. He argued that China needed to adopt a policy of “strategic reassurance” to the rest of the world, a phrase that appeared intended to be the successor to the framework of the Bush era, when China was urged to embrace a role as a “responsible stakeholder.”
“Strategic reassurance rests on a core, if tacit, bargain,” Mr. Steinberg said. “Just as we and our allies must make clear that we are prepared to welcome China’s ‘arrival,’ ” he argued, the Chinese “must reassure the rest of the world that its development and growing global role will not come at the expense of security and well-being of others.”
The Chinese reaction has been mixed, at best. The official China Daily newspaper ran a column just before Mr. Obama’s arrival suggesting that the United States needed to provide some assurance of its own — to “respect China’s sovereignty and territorial integrity,” code words for entirely backing away from the issues of how China deals with Taiwan and Tibet.
In the United States, the phrase “strategic reassurance” has been attacked by conservative commentators, who argue that any reassurance that the United States provides to China would be an acknowledgment of a decline in American power.
In an op-ed article in The Washington Post, the analysts Robert Kagan and Dan Blumenthal argued that the policy had echoes of Europe “ceding the Western Hemisphere to American hegemony” a century ago. “Lingering behind this concept is an assumption of America’s inevitable decline,” they wrote. White House officials shot back, insisting that it is China that needs to do the reassurance, not the United States.
In China, Mr. Obama will meet with local political leaders and will host an American-style town hall meeting with students in Shanghai. He will then spend two days in Beijing meeting with President Hu Jintao.
It seems unlikely that Mr. Obama will get the same celebrity-type reception in Beijing that he received in Cairo, Ghana, Paris and London. China seems mostly immune to the Obama fever that swept other parts of the world, and the Chinese are growing more confident that their country has the wherewithal to compete with the United States on the world stage, analysts say.
“Obama is still a positive guy, and all over the world most people think he’s more energetic, more sincere, than Bush, more a reformist,” said Shi Yinhong, a professor and an expert on United States-China relations at People’s University in Beijing. “But in China, Obama’s popularity is less than in Europe, than Japan or Southeast Asia.” In China, he said, “there is no worship of Obama.”
For instance, during the Bush and Clinton years, China might release a few political dissidents on the eve of a visit by the president as a good-will gesture. This time, American officials say, they do not expect any similar gestures, although they say that Mr. Obama will raise human rights issues privately with Mr. Hu.
“This time China will agree to have a human rights dialogue with the U.S. on some cases,” Mr. Shi said, but “the arguments have changed compared to the past. Now we say, ‘We are a different country, we have our own system, our own culture.’ ”
Helene Cooper reported from Singapore, Michael Wines from Beijing, and David E. Sanger from Washington.
the last paragraphs are quite signficant...if Obama and the americans still harbor illusions about ever trying to dominate china in any partnership or relationship or ever "changing China" to behave like the USA :
as said by either the chinese prime minister or the president - i think just some months ago:
"WE WILL Adopt things from the west and from the world that are good -- but we shall never become a *western* nation...we shall remain - as we always have been - CHINA".
I think I might get some plastic surgery on my eyelids,almost got swept away by the influence of the cd opinions.
The Weimar simply printed more money.Granted you had to purchase a wheel barrow and were paid twice daily.Fact is, most of the 14+ TRILLION economy,if that is what it is, is spent by and decided by our pentagon warriors,to protect us from ourselves.Their instructions come from the real warlocks.
We the people,have been suckered,one per cent of the population has looted and then stashed their vast obscene wealth in offshore banks,aided and abetted by their criminal cronies.In prague thousands of Europeans protested the IMF World bank's dirty deeds.Masks are illegal there so some protesters wore clown noses.The USSA ers are still quiet and mostly uninvolved,still trying to believe what they were raised to believe.The coup,like the patriot act, got missed.The dollar is the new Peso,like it or not.
China hasn't matched our space dominance,Yet.The Chinese know how to dismantle the space satelites,which control the USSA space nukes.USSA haven't been able to figure out how to protect their satelites.So the one upmanship is for now at an impasse.USSA is a teenage country as opposed to elderly China and that is reflected in their willing complicit aggression,strange out of control spending,easy targets for the propaganda manipulation.The real American problem is their belief in everything they see on TV."IN DEBT WE TRUST" Aaron Russo