Category Archives: Debt

Updated: 'The Truth Behind China's Currency Peg'

The synophobic narrative in this country has it that somehow China’s currency manipulation is responsible for America’s trade imbalance with that country. In a manner, the pegging of the renminbi to the dollar has enabled America’s grotesque, Fellini-worthy excesses. But the relatively austere Chinese are not responsible for our appetites.

Explains Peter Schiff:

“The peg, they argue, offers China a competitive advantage by making its products cheaper in U.S. markets, thus allowing Chinese firms to gobble up market share and steal jobs from U.S. manufacturers. The thought is that were China to allow its currency to rise, American manufactures would regain their lost edge, and both manufacturing firms and the jobs formerly associated with them would return. In this narrative, the struggle centers on the United States’ diminishing leverage in persuading the Chinese to lay down their unfair weaponry. It’s a sympathetic picture, but it tells the wrong story.

While the peg certainly is responsible for much of the world’s problems, its abandonment would cause severe hardship in the United States. In fact, for the U.S., de-pegging would cause the economic equivalent of cardiac arrest. Our economy is currently on life support provided by an endless flow of debt financing from China. These purchases are the means by which China maintains the relative value of its currency against the dollar. As the dollar comes under even more downward pressure, China’s purchases must increase to keep the renminbi from rising. By maintaining the peg, China enables our politicians and citizens to continue spending more than they have and avoiding the hard choices necessary to restore our long-term economic health.”

Update (Nov. 25): Pat Buchanan too believes the US is owed Chinese “gratitude” for “throwing open its market to Chinese goods”:

had it not been for U.S. magnanimity … Beijing would never have registered the double-digit growth rates it has seen for the past two decades. Some gratitude China is showing.

In other words, Americans had been begged to buy mounds of cheap Chinese goods they had no interest in, and, out of the goodness of their hearts, bless them, they relented, bought Chinese stuff and catapulted China to “double-digit growth rates.”

In Brief: Unemployment, Climagedon, Jihad

Debt, Economy, Energy, Environmentalism & Animal Rights, EU, Homeland Security, Inflation, Law, Propaganda, Pseudoscience, Regulation

• Mainstream press has stumbled on an alarming figure, which I reported way back on 8/28/2009 : “nearly 1 in 5 Americans is either out of work or under-employed.”

The real unemployment rate is 16.3 percent. The discrepancy between the official and the awful numbers has arisen because the former count, conveniently, “only those who have looked for work in the last four weeks.”

• Climagedon or, rather, ClimaGate. Reports The IBD: “Hacked e-mails from Britain’s Climate Research Unit are only the latest evidence of climate fraud. Just ask NASA’s James Hansen about the faking of climate data or EPA employees about the suppression of climate fact.”

For years, noted scientists and other global warming skeptics have been accused of being on the take, their research tainted and funded by grants from Big Oil and other fossil-fuel interests.
Now, it turns out, it’s the warm-mongers who are fudging the numbers and concealing the inconvenient truth.

• To further hobble the economy and contribute to the climate chicanery, the president “will propose an emissions reduction target at a U.N. climate change summit in Copenhagen next month, the White House said Monday. … Obama said during his trip to Asia last week that the U.S. and China want the Copenhagen summit to lead to an agreement that has ‘immediate operational effect.'”

“Reincarnation of the Reds” is what it is.

MORE on the Obama connection.

• Finally, “Khalid Sheikh Mohammed and the others are going to plead ‘not guilty.'” Read the cuss-studded comments from the Daily Kos coterie.
This is an unremarkable defense. Still, Obama will rue the day he brings this circus to New York. Posturing on the Left and the Right will not change the fact that a show trial of the 9/11 defendants will turn into a farce.

Stiglitz Stinks

Debt, Economy, Left-Liberalism And Progressivisim, Political Economy, Republicans

“In 2002, Joseph Stiglitz, the Nobel economics prize winner and two co-authors (Jonathan Orszag and Peter Orszag), published an article (‘Implications of the New Fannie Mae and Freddie Mac Risk-based Capital Standard’) in Fannie Mae Papers. They argued that Fannie Mae’s and Freddie Mac’s risk-based capital standard made it very unlikely that the two GSEs (government-sponsored enterprises) would ever require a government bailout. Their results suggested that ‘the risk to the government from a potential default on GSE debt is effectively zero,’ even in ‘the financial and economic conditions of the Great Depression.’ The authors apparently underestimated the possible credit losses from a deep recession, besides ignoring the possibility that the quasi-nationalized housing market and the GSEs could themselves generate a recession. Fannie Mae and presumably the learned authors are not especially proud of this paper, which has disappeared from the GSE’s site,” but our friend Pierre Lemieux, Canadian economist and libertarian extraordinaire, has reproduced it on his site.

So what if Stiglitz is wrong most of the time? Other than some libertarians and devotees of the school of Austrian economics, most pundits make a perfectly good living being mostly wrong.

Public goodwill runs eternal for these failed “experts.” Neoconservative talking twits had been wrong all along about the invasion of Iraq; They consistently dished out dollops of ahistoric, unintuitive, and reckless verbiage. Yet they’ve retained their status as philosopher-kings.

Why not left-liberals like the Keynesian Stiglitz? (Not to be outdone, Republicans are also Keynesians. Or Republikeynsians.)

Update III: Dollar Doubts

Business, Capitalism, Debt, Economy, Free Markets, Socialism, The State, Uncategorized

“[D]iscussion on the greenback is heating up,” notes Peter Schiff. “And while real insight on the topic is hard to find, the debate centers on the battle between two conventional opinions—both of which are wrong.”

“The first camp, which is generally supportive of government intervention in the economy, argues that dollar’s decline is a positive for both the economy and the stock market. The second camp, which tends to fall on the more conservative end of the political spectrum, views the dollar’s decline as a problem but feels that tough talk and slightly higher interest rates are all that is needed to restore ‘King Dollar’ to its throne.”

“First of all, a weak dollar is no better for Americans than a lower paying job is for a worker. And although I would prefer that the dollar remain strong, I know that currency values are a function of supply and demand, not wishful thinking. The past years of reckless monetary and fiscal policy have created conditions that must push the dollar down. Vastly expanded debt levels and monetary expansion have created a greater supply of dollars, while poor investment performance and diminished industrial capacity have lessened the demand for dollars.

The regrettable truth is that while the weak dollar will help rebalance the global economy, it is not a panacea for the U.S. The fall is no more worthy of celebration than a student celebrating falling grades on his report card. If the dollar does not recover eventually, Americans will suffer diminished living standards. To avoid this we must make difficult reforms now. If we continue our current policies, we run the risk of a complete dollar collapse. Far from helping to solve our problems, this would be a true nightmare scenario.”

More.

I am not as confident as Mr. Schiff that the dollar can be rehabilitated. The country is moving away from markets and toward the central control of the economy and the rearranging of the income curve. What with the daily growth of debt and unfunded liabilities, I hate to be cynical, but could Mr. Schiff’s optimism have anything to do with his political aspirations?

Update I (Oct. 26): Involvement in politics invariably means convincing the masses that there is a panacea to what are intractable problems. Politics are about peddling hope against all hope. Pollyanna sentiments notwithstanding—comments about waving the wand of liberty to dissolve $60 trillion in growing government liabilities are worse than useless.

If the trend in public and political sensibilities was toward liberty—decentralization and deregulation—I’d say hope is warranted.

On the theme of cynicism—and when all else fails—perhaps the Pollyannas among us can adopt the tack taken in this WSJ article; debt can hasten recovery:

“[H]ousehold debt, including mortgage debt, [is] at about $13.7 trillion, or 125% of annual after-tax income…. the U.S. government … is building up debt as fast as households are shedding it. Net U.S. government debt could reach 85% of annual economic output by 2014, up from about 58% now, according to the International Monetary Fund.”

The impetus is in the direction of serfdom.

Update II (Oct. 27): The Economist: “America needs a weak dollar to help revive its economy and reorient it towards exports and away from consumer spending.”

Would that it will. However, a weak dollar is a symptom of all these things it’s supposed to cure; it’s not a cause of over-consumption and under production.

Update III: À la Zimbabwe (and via Bloomberg): “Forty years ago, the U.S. government said the $100 bill would be the highest-denomination note. With the Federal Reserve now trying to print its way out of the financial crisis, it may be time to revisit that decision.

Reinstating $10,000 or $100,000 notes — which existed in limited fashion years ago — won’t cut it. In today’s, ‘Brother, can you spare a trillion dollars?’ economy, we need to think bigger — a $1 million bill may be in order.”