Tuesday, November 23, 2010

Quotes of the Day: Mark Perry and Scott Grannis

Mark Perry "corrects" a Washington Post article from September:
This week, committees on both sides of Capitol Hill will plumb the conundrum of Chinese currency manipulation. The conundrum isn't that -- or why -- China is manipulating its currency: By undervaluing it, China is systematically able to underprice its exports, putting American (and other nations') manufacturing consumers and businesses that purchase China's cheap imports at a significant disadvantage. The conundrum is why the hell the United States isn't doing thinks it should do anything about it.

There are certainly plenty of senators and congressmen -- and Main Street Americans U.S. producers that compete with China -- who'd like to see the White House place some tariffs taxes on American consumers and businesses who purchase the underpriced low-priced Chinese imports. If the administration doesn't act, Congress may just consider mandating some tariffs punitive taxes against American consumers and businesses on its own.

"The Chinese sell us mountains of cheap goods, then turn around and invest most of the proceeds (equivalent to our trade deficit with China) in U.S. Treasury securities. We get the goods, and we get to keep the money. Then we devalue the dollar, and they lose on their investment. Why we would want them to stop doing this is beyond me, though if I were a Chinese citizen, I would be furious with my government for directing such massive quantities of my country's export earnings to Treasuries.

The central bank of China has no need to further increase its already-massive reserves; instead, the government should be relaxing capital constraints, allowing Chinese citizens more freedom to save and invest abroad in the types of vehicles with which they feel most comfortable. China's workforce is aging daily, and like Japan a few decades ago, China's economy cannot accommodate all the savings of the Chinese people—they are essentially forced to save overseas.

Contrary to what you read in the press—which mistakenly believes that our large trade deficit with China is something we need to worry about—China is the one that needs to worry, not us."

~ Scott Grannis


  1. I'll admit that I don't know. Sometimes I think we don't fully understand the dynamics. Perry and Grannis are super smart and I'll admit that I spent a career teaching their view. It's great when some other country wants to produce something cheaper than us for us.
    But after awhile you look up in a world of desperate people, willing to work for practically nothing and they are producing everything and in the process accumulating claims (via interest payments in the future) on what we do produce.
    You have to winder how it all gets resolved.

  2. I guess at some point the game's gotta end. The question is when, and how?

  3. While we do point our finger at China, we "play" the game too. It's hard to say stop devaluing your currency, when we devalue the dollar as well. It's just when China does it, there's a belief that it's to our disadvantage because we can't pay them back with lower valued currency. Interesting stuff!