Paul Craig Roberts - Who Owns the Dollar?

[Starfury]

I don't normally check Buchanan's The American Conservative, but I may have to start doing that more often. PCR ties the Asian trade deficit, job outsourcing, and the housing bubble together. Nothing really new here, but it's nice to see conservatives worrying about this...

------

July 4, 2005 Issue
Copyright © 2005 The American Conservative

Who Owns the Dollar?

Our currency and our economy are held hostage by Asia.

by Paul Craig Roberts

(...)

The answer, and the key to China’s rapid development, is that corporations in First World countries—American businesses chief among them—use China as an offshore location where they produce for their home markets. More than half of U.S. imports from China, and as much as 70 percent from some of China’s coastal regions, represent offshore production by American firms for U.S. markets.

What economists overlook is that when we speak of the Chinese economy, we are speaking in large part of the relocation of American manufacturing to China. Those millions of lost domestic manufacturing jobs were not lost. They were moved. The jobs still exist, only they are not filled by Americans.

(...)

Economics relies on automatic adjustments to rectify trade imbalances. The trade deficit with China should cause the Chinese currency to appreciate relative to the dollar, raising the dollar cost of Chinese labor. In the long run—in which, J.M. Keynes said, “we are all dead”—adjustments would occur until U.S. and Chinese wage rates and living standards equalized.

(...)

Offshore outsourcing makes it impossible for the U.S. to rectify its trade imbalance through exports. As more and more of the production of goods and services for U.S. markets moves offshore, we have less capability to boost our exports, and the trade deficit automatically widens. Economic catastrophe at some point in the future seems assured.

In the meantime, even a small country could pop the U.S. housing bubble by dumping dollar reserves—which is some fix for a superpower to be in, especially one that is disdainful of the opinion of the rest of the world. Comeuppance can’t be far away.

(...)

http://www.amconmag.com/2005_07_04/article1.html

[Celebration]

1. Thanks for this

This just makes sense and sounds *conservative*. I am not sure WHAT we have in the White House now. Words cannot describe..........insanity comes closest.

[Anarcho-Socialist]

2. I think that the way out for the U.S. is currency devaluation

It was how Britain and France got out of the 1929-33 Great Depression, by setting a realistic exchange rate that made exports competitive which stimulated a growth in investment.

I know the current U.S. administration would never do it out of laissez-faire economic ideology. But If the U.S. can't find any other way out of its inability to export goods and services competitively, then it will be a good option. I'm sure other DUers have their own economic insight as well.

[enid602]

3. depression

The Great Depression was made global by the fact that almost ALL countries tried to devalue their currencies at the same time.

[RawMaterials]

4. what was needed to get out of the depression

was government spending to stimulate from the bottom up, basically anti-reginomics.
But this cant be government spending on military it has to be on health care, minimum wage, roads, and other infrastructure improvements that would employ the working class.

[many a good man]

5. Devaluation won't help if you have no mfg left

We have already crossed the point of no return. We no longer have a mfg sector left that is big enough to compete. Further devaluation can't help. We have already devalued almost 40% and the trade deficit only gets worse.

What happens if China unpegs her currency? The cycle of debt-financed imports will come crashing to an end. We won't be able to afford their exports. They won't be able to buy our debt and finance our spending habits. The billions of USD that line their central bank vaults will become almost worthless. The factories in the US are gone. We won't be able to restart them without huge govt cash infusions that we can't afford because we're already in such heavy debt. Workers won't be able to afford our own products because our wages are so low.

[muriel_volestrangler]

6. Relative to OECD currencies, the US has already devalued

Its comparative price level went from 111 in 2001 to 98 in 2004 (OECD figures), which put it undervalued compared with most western European countries. I think the big problem is China keeping its currency pegged to the dollar, when it ought to be appreciating. If it had voters it had to answer to, the pressure on the Chinese government to do it (which would give them cheaper consumer imports) would be a lot more.

[Celebration]

7. the chinese

It is amazing they keep getting away with this, isn't it? Both from us and from their populace. Now they have so many dollars stashed away that it could actually have a lot of negative consequences when and if they do finally revalue the currency, or let it float. I heard someone on CNBC say something like (paraphrased)-- be careful what you wish for. If the Chinese currency goes up 30% relative to the dollar, then Chevron will be 30% cheaper to buy!!

The Chinese have a long term strategy to use our own institutions and laws and economics policies to dominate us. We have lost our collective minds to allow it to happen.