March 18, 2010
China's Currency Manipulation Manipulates The World
-- by Dave Johnson
This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
China's currency manipulation is a worldwide problem, not just a job-killer here.
U.S. Ambassador Calls China’s Currency Stance ‘a Real Concern’,
In a speech to students at Beijing’s Tsinghua University, the ambassador, Jon Huntsman, said that economic problems in the United States had increased pressure there for a change in the value of the renminbi, which China currently ties to the value of the dollar. That has kept Chinese exports comparatively cheap and, critics say, hampered other nations’ recovery from the global recession.“My Chinese friends like to pitch this as just an American issue. I like to say that there are many countries that feel the same way,” Mr. Huntsman said. But he focused on the growing political backlash from Americans who feel the currency policy is hurting them. [emphasis added]
The managing director of the IMN - the 'I' stands for "International" - agrees. IMF Head Says Yuan Remains Undervalued
International Monetary Fund Managing Director Dominique Strauss-Kahn said Wednesday that China's currency remains undervalued.
The resulting huge trade imbalance is hurting the entire world. From the NY Times editorial that I linked to yesterday, Will China Listen?,
China’s decision to base its economic growth on exporting deliberately undervalued goods is threatening economies around the world. It is fueling huge trade deficits in the United States and Europe. Even worse, it is crowding out exports from other developing countries, threatening their hopes of recovery.
In the Financial Times, Martin Wolf writes in China and Germany unite to impose global deflation,
[. . .] Surplus countries insist on continuing just as before. But they refuse to accept that their reliance on export surpluses must rebound upon themselves, once their customers go broke. Indeed, that is just what is happening. Meanwhile, countries that ran huge external deficits in the past can cut the massive fiscal deficits that result from post-bubble deleveraging by their private sectors only via a big surge in their net exports. If surplus countries fail to offset that shift, through expansion in aggregate demand, the world is inevitably caught in a “beggar-my-neighbour” battle: everybody seeks desperately to foist excess supplies on to their trading partners. That was a big part of the catastrophe of the 1930s, too.
The United States is not alone here. If the United States takes a stand the world will be behind us. We need to do what is right. On April 15 the President should declare China to be the currency manipulator that it is. Then trade can start to rebalance.
-- Posted by Dave Johnson at 10:48 AM PST on March 18, 2010.
March 17, 2010
Chinese Currency Manipulation: "Not A Small Issue"
-- by Dave Johnson
This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
The Chinese currency manipulation issue continues to make news.
Economist Paul Krugman lays out the stakes,
China is in effect imposing an anti-stimulus of that magnitude — which plausibly means 1.5 percent of GDP. This is not a small issue.
Senators Schumer, Graham and Brown revive legislation to push China: Schumer, Graham Push Bill to Pressure China on Yuan
Senators Charles Schumer, Lindsey Graham and Sherrod Brown revived U.S. legislation that would increase pressure on China to raise the value of its currency.. . . “President Obama has outlined a plan to double exports but you simply can’t do that if you don’t address the currency issue,” Brown, an Ohio Democrat, said at a news conference in Washington today. “China’s current policy is out-and-out protectionism.”
130 Members of Congress call on the President to act,
Today a bipartisan group of 130 members of Congress, ranging from Dennis Kucinich on the left to Joe Wilson on the right, wrote to President Obama asking him to stop Chinese currency manipulation.. . . The crisis has gotten so severe that economists who have long fought for conservative ideology and against tariffs are saying we need them to correct the imbalance.
NY Times editorial shows that establishment opinion is moving against China, Will China Listen?,
China’s decision to base its economic growth on exporting deliberately undervalued goods is threatening economies around the world. It is fueling huge trade deficits in the United States and Europe. Even worse, it is crowding out exports from other developing countries, threatening their hopes of recovery.[. . . ] The world’s battered economy is certainly in no shape to keep absorbing China’s exports, subsidized through a cheap currency policy. The more countries that say this, the more likely Beijing will consider changing course — and the less likely this disagreement will escalate into a fight that no one can win.
China says this is all just "scapegoating": Senior Chinese diplomat rejects currency move,
"I don't think the call by over 100 congressmen from the U.S. is well founded on facts. They should not blame the problems they have by finding a scapegoat in China," He Yafei, China's new ambassador to the United Nations in Geneva, told a briefing.
Wall Street takes China's side: Congress Is Playing ‘Football’ on China Currency, O’Neill Says,
U.S. lawmakers are playing political football by pressing China to boost the value of its currency, which isn’t particularly undervalued, Goldman Sachs Group Inc. Chief Economist Jim O’Neill said.. . . The concern in Congress “is sort of understandable but it misses the point,” O’Neill said today at a press conference in London. It’s “the equivalent of a football” and is part of “the usual hobby of bashing China,” he said.
CAF's Bob Borosage discusses the Showdown With "Chermany",
... The Chinese continue unprecedented measures to manipulate their currency, now starkly undervalued against the dollar. This is a centerpiece of a comprehensive mercantilist policy to grow by dominating export markets.. . . China’s Premier Wen Jiabao scorned US pressure on the Chinese to revalue its currency, summoning up the wondrous gall to accuse the US and other countries of “protectionism” for seeking to depreciate their currencies.
. . . The Chinese, meanwhile, are openly recruiting US companies with subsidiaries in China to lobby against any US action. The China lobby – think tanks, multinational companies and banks – will unleash a howl about US protectionism, warn of trade wars, discount the importance of Chinese mercantilism, and remind us of the benefits of a cheap yuan. Chinese threats to dump dollars from their $2.4 trillion cache will rattle financial markets (even though a declining dollar will cost the Chinese bigtime).
This could easily get out of hand, but the showdown with Chermany can’t be avoided. We can’t go back to a world in which the US is the consumer of last resort, borrowing $2 billion a day to buy goods from abroad. ... Rebalancing is best done cooperatively but it must be done. And it can no longer be delayed.
The Alliance for American Manufacturing issued the following statement:
“The Alliance for American Manufacturing (AAM) strongly supports efforts designed to end China’s ongoing currency manipulation, which is harming American manufacturing and its workers. In the last week, a bipartisan group of Senators have introduced legislation, and more than 130 Members of Congress have signed a letter urging the Obama Administration to take action, strong indications that the mood in Congress is growing more proactive.“The United States has lost 5.5 million manufacturing jobs in the past decade. Tackling the currency issue is imperative in saving America’s industrial sector. Economists of all backgrounds agree that an undervalued Yuan continues to make Chinese imports cheaper and American exports more expensive.
“The next step is for the U.S. Treasury Department to list China as a currency manipulator in its semi-annual report on currency exchange, due by April 15. Naming China as a currency manipulator, and taking further steps to hold them accountable, would be an important first step toward stopping the systematic dismantling of our industrial base.”
-- Posted by Dave Johnson at 11:05 AM PST on March 17, 2010.
March 16, 2010
CNN - From Unwatchable To Even Worse
-- by Dave Johnson
I haven't been able to watch CNN for years. Now they just get worse.
"Feminazis?" "Ugly feminists?
Seriously, why not just watch Fox news if you want to expose yourself to horrible right-wing crap?
-- Posted by Dave Johnson at 2:49 PM PST on March 16, 2010.
China's American Enablers
-- by Dave Johnson
This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
China argues that some American companies will suffer if China stops subsidizing manufacturing and adjusts their currency to market levels. They're right. The fight over Chinese violations of trade rules is also another story about Wall Street and big, monopolistic corporations vs Main Street and American workers.
A China Daily story says China's huge export surplus is being "misread." The Chinese government says that US companies -- the ones who close US factories, lay off workers, devastate communities and throw the costs onto the government -- are also beneficiaries of China's government subsidies. From the story,
China's large trade surplus is often used by the United States to argue why China should allow its currency to rise.Yet most US officials ignore a very important fact: a majority of China's exports to the US are produced by US-funded companies and huge profits go back into American pockets. . . .
"China's cheap labor helps foreign companies cut wage costs and increase their profits. Ironically, the rising profits go into foreign bosses' pockets and China is left to take the blame for the trade imbalance," said Tan Yaling, an expert at the China Institute for Financial Derivatives at Peking University.
This story is correct. SOME Americans do benefit from closing our factories. Actually, "benefit" might even be the wrong word here. SOME Americans are getting fabulously wealthy from these policies, beyond anything seen before in history, with the rest of us falling further and further behind as a result. Wal-Mart, for example, with their stores full of Chinese goods, has for decades been wiping out regional and local retailers and lowering the local wage and tax base.
So yes, SOME Americans are doing very well, thank you, from these policies. They gain a quick buck today, the rest of us pay the costs later. In Wall Street's War Against The Real Economy & We, The People, I wrote,
Over and over again we see the consequences of conservative economics and Wall Street domination: Short-term profits for a very few with devastating long-term consequences for the rest of us.
Wall Street firms have been making vast fortunes from this game,
The private equity company-buyout game works like this: buy a company, borrow against the company name and assets and put the proceeds straight into your pocket, sell off assets, outsource jobs, lay people off, cut pay and benefits for the rest, close facilities and factories, externalize costs onto the community, cheapen whatever the company makes or does, run up the debt some more, squeeze money out and pocket it and then sell. Hopefully you make off with the pension fund in the process.
They have been backed by American conservatives who have have long argued in favor of these "free market" and "free trade" scam that, close US factories, instead importing goods subsidized by China's government. A few get fabulously wealthy at the expense of the rest of us. To persuade people to support this nonsense they say that adjusting China's currency to market rates would "punish" consumers. Typical of this line is this from the Heritage Foundation a couple of years ago, China's Undervalued Currency Benefits Americans,
To the extent that the renminbi is undervalued ... the benefit goes to U.S. consumers and businesses, which pay lower prices for Chinese goods imported into the United States.. . . U.S. consumers have the most to lose by congressional efforts to force revaluation of the renminbi. Chinese goods in the U.S. are cheap because the renminbi is cheap. Revaluation will weaken the purchasing power of the American consumers, mostly from the middle and lower economic strata, who depend on Chinese products to maintain their standard of life.
So here we are at a crossroads. April 15 the President has to officially declare that China is manipulating its currency and impose tariffs that will start to bring back factories and jobs to America. There is going to be tremendous pressure from the usual suspects to do the wrong thing, but the wrong thing has been going on long enough.
-- Posted by Dave Johnson at 10:11 AM PST on March 16, 2010.
March 15, 2010
Pass Health Care And Start Fixing It
-- by Dave Johnson
I hate the health care bill. I hate that they are going to order us to buy insurance form the greedy monopolistic corporate snakes.
But it gets people care they need, and we can immediately start working to fix it, get Medicare buy-in and ultimately single-payer. If it doesn't pass, then there is nothing to build on, and won't be. So pass it and then get to work fixing it.
-- Posted by Dave Johnson at 11:11 PM PST on March 15, 2010.
Upload Your "I Am Not Wall Street's ATM" Pic
-- by Dave Johnson
Upload your picture expressing that you are not Wall Street's ATM, at I Am Not Your ATM
Go have a look!
-- Posted by Dave Johnson at 1:54 PM PST on March 15, 2010.
Today's Radio Show
-- by Dave Johnson
I'll be doing my regular segment on the Fairness Doctrine radio show shortly. You can listen live at the link.
I'll be talking about the Chinese Currency Showdown.
-- Posted by Dave Johnson at 1:31 PM PST on March 15, 2010.
Chinese Currency Showdown
-- by Dave Johnson
This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
China is holding down the value of its currency, which means goods made there cost less everywhere else. This undercuts American companies that make things, so they close factories here and buy from there. This costs us jobs, forces down our wages and savings rate, and forces the country to borrow heavily. This imbalance has built up to a breaking point. It is past time to face facts and something about it.
Just how much is China undervaluing their currency? Paul Krugman today: "This is the most distortionary exchange rate policy any major nation has ever followed." Yes, that much. And the result? Krugman says: "And it’s a policy that seriously damages the rest of the world."
A NY Times story yesterday explained how it works,
China buys dollars and other foreign currencies — worth several hundred billion dollars a year — by selling more of its own currency, which then depresses its value. That intervention helped Chinese exports to surge 46 percent in February compared with a year earlier.
This creates a huge, huge -- and growing -- imbalance. China undercuts everyone else so they can't afford to manufacture and have to buy things made there instead. Of course, that means China is sitting on massive piles of foreign cash. This is a bubble that grows and grows and grows. Everyone is worried, and it just gets worse.
But China won't change policies. They are worried that the value of that pile will drop if their currency rate rises. In Pledge to China's Leaders: You Will Lose Money on Government Bonds Dean Baker writes about why this would be great for us,
The logic is very simple. At the current exchange rate, the United States is running a massive trade deficit. ...This is of course unsustainable. The only way that this deficit can be corrected is by reducing the value of the dollar. ...
. . . We should beg them to become unhappy with our fiscal and monetary policies and stop investing in Treasury bonds. The improvement in the trade deficit that will result from the fall in the dollar will create ten times as many jobs as any "jobs bill" that President Obama can possibly get through Congress.
Does all of this cash give China enormous power? In Is China's Politburo spoiling for a showdown with America? Ambrose Evans-Pritchard writes,
Michael Pettis from Beijing University argues that China's reserves of $2.4 trillion - arguably $3 trillion - are a sign of weakness, not strength. Only twice before in modern history has a country amassed such a stash equal to 5pc-6pc of global GDP: the US in the 1920s, and Japan in the 1980s. Each time preceeded depression.The reserves cannot be used internally to support China's economy. They are dead weight, beyond any level needed for macro-credibility. Indeed, they are the ultimate indictment of China's dysfunctional strategy, which is to buy $30bn to $40bn of foreign bonds every month to hold down the yuan, refusing to let the economy adjust to trade realities. The result is over-investment in plant, flooding the world with goods at wafer-thin export margins. China's over-capacity in steel is now greater than Europe's output.
Change is in the air. The establishment is moving – recognizing that we will have to confront this. Dealing with this currency manipulation is the bipartisan solution that creates 3 milion jobs and costs us nothing. How bipartisan is it? Last Week conservative Pat Buchanan wrote about what he called China's "disemboweling of America" and I agreed. I wrote,
So, this "free trade" stuff has worked out for us about as well as the "free market" stuff worked out for the economy. Free market and deregulation ideology destroyed the economy. Free trade has destroyed our ability to earn money and recover from the destruction of the economy.
The lesson to learn is if you want more jobs and don't think we should have so much debt then you want a China to raise the value of its currency against the dollar. America has avoided formally labeling China a currency manipulator and taking appropriate steps, so things continue to get worse. We can't keep hiding from reality forever. When something is unsustainable it can't be sustained.
Next month the administration is going to have to change directions. A lot of air will come out of that Chinese currency bubble that was allowed to build up over the past several years, but the result will be a world starting to return to balance -- and jobs here.
-- Posted by Dave Johnson at 11:06 AM PST on March 15, 2010.
March 14, 2010
Admin Says Israel Endangers Our Troops -- Then Does Nothing About It?
-- by Dave Johnson
After Israel's "insult" -- announcing new settlements just as the US Vice President arrived to launch peace talks -- VIce President Biden told Israeli Prime Minister Netanyahu that Israel's intransigence,
“is starting to get dangerous for us… What you’re doing here undermines the security of our troops who are fighting in Iraq, Afghanistan and Pakistan. That endangers us and it endangers regional peace.”
OK, they identified the problem: it puts our troops in danger. That was Tuesday, this is Sunday. That is five days of our troops in increased danger with no action from Obama. Now Israel has said, "too bad." Still no action.
This morning Tom Friedman pointed out one problem with letting them get away with this:
"...what the Israelis did played right into a question a lot of people are asking about the Obama team: how tough are these guys?
There is a larger problem than just whether they are tough or not. After identifying Tuesday that this is endangering our troops, as of Sunday there is no action. I remember that on August 6, 2001, the Bush administration was told, "Bin Laden Determined To Strike In US and went on vacation instead of acting.
-- Posted by Dave Johnson at 4:11 PM PST on March 14, 2010.
Supreme Court Corporate Speech Quid-Pro-Quo?
-- by Dave Johnson
So soon after Supreme Court Clarence Thomas votes to allow corporations to put unlimited money into politics his wife sets up an organization that will accept unlimited money from corporations hoping to influence politics. I wonder how much she'll be paid?
Is this the quid-pro-quo that it obviously seems to be?
-- Posted by Dave Johnson at 3:46 PM PST on March 14, 2010.
