China as the Bad Guy?
In anticipation of the state visit by Chinese Leader Hu Jintao, I spoke about the pressure on US politicians to do something about the Chinese currency problem with RT America’s Alyona Minkovski on the Alyona Show last night. The video is below. My take here is that the pressure on Obama to do something, anything about China has diminished due to the upswing in the economy and the Republican house leaders unwillingness to go protectionist. Meanwhile Hu is looking to make America look like the bad guy and deflect criticism onto the US because of quantitative easing.
As a juxtaposition to my comments, you might find the following analysis from Paul Tudor Jones on the structural problems in the US-China relationship interesting. I have posited that this unbalanced relationship could eventually end in Murder-Suicide, something that I still believe could happen and that Tudor Jones took head on in a recent newsletter (Hat tip Scott via Business Insider). But for now, tensions are waning somewhat.
Here’s Tudor Jones with his thoughts on the structural problems in Chimerica. Enjoy.
Creditor nations assume exchange rate risk. China knew this when it decided to save in dollars to bolster exports. No tears to shed for China on this score.
The US is faced with leakage from both a CAD and an increased desire of the domestic private sector to net save. The government needs to run deficits large enough to cover that leakage to avoid unemployment. As a monetarily sovereign nation with a fiat currency, the US has no operational problem in doing this, but it apparently doesn’t realize it. The losses from foregone opportunity and degradation of resources, especially human resources, are huge and mounting.
Creditor nations assume exchange rate risk. China knew this when it decided to save in dollars to bolster exports. No tears to shed for China on this score.
The US is faced with leakage from both a CAD and an increased desire of the domestic private sector to net save. The government needs to run deficits large enough to cover that leakage to avoid unemployment. As a monetarily sovereign nation with a fiat currency, the US has no operational problem in doing this, but it apparently doesn’t realize it. The losses from foregone opportunity and degradation of resources, especially human resources, are huge and mounting.