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American stupidity

The assertion of Obama administration, that China is artificially keeping the yuan undervalued to gain a global competitive advantage isn't just misguided: It actually demonstrates that Washington lacks even a basic understanding of global economics. Given that the same U.S. leaders who have been pushing to hang this manipulator label on China and impose sanctions are the same ones who tried to end the financial crisis by creating a river of debt that will haunt US for years; I cannot say that I am surprised. These are comment of a very knowledgeable professional economic consultant from US, Mr. Keith Fitz-Gerald.

As the U.S. argument goes, pegging its currency to the dollar gives China a distinct advantage when it comes to less-expensive manufacturing and a strong export market. The implication is that somehow this is negatively impacting American economy, or - in a variation of the same logic - holding back American recovery. Washington points to the massive trade deficits US regularly run with that country as evidence of China's currency-market wrongdoing.

In reality, China's pegged currency has done two things. First, it's allowed the United States to keep its inflation rate at a much lower (and more-manageable) level than it should have been in view of the $14 trillion in debt that this country has taken on.

And, second, it has allowed China to fuel its own stimulus package while at the same time assuming a meaningful role in the ongoing global recovery.

Let's take a minute to talk about why this is true.

Every new dollar printed diminishes the value of every dollar that's already in existence. This, in turn, effectively causes the prices of goods and services to rise. In this case, by keeping the yuan pegged within a narrow band to the dollar, China ensures that the bulk of American goods and services have not inflated, despite the Treasury Department's turbocharged printing presses.

In essence, Beijing's policies have acted like the relief valve on a pressure cooker: They've kept the U.S. pot from exploding.


Washington also frequently points to Beijing's $2.4 trillion in foreign reserves as additional evidence that China is a manipulator. This, too, represents flawed logic. Trade reserves accumulate whenever a country sells more than it buys with its partners. Therefore, China's huge reserves are not evidence of currency manipulation; instead it's just proof that the rest of the world really wants to buy what China has to sell.


It's easy to feel as if America is getting the shaft here - especially at a time when so many are out of work and with the country struggling to recover from its worst financial crisis since the Great Depression. Washington isn't helping by nurturing this flawed view of reality. US administration should have been more careful while accusing China that they are manipulating yuan, when thing are as clear as sky.

 

China didn't force America to buy anything, let alone run-up US huge-and-growing deficit. Americans did this all by themselves - and with substantial gusto, I might add. American companies (American MNCs) sought out China's inexpensive manufacturing because it helped them become more profitable and become more-globally competitive. American consumers have been more than happy to go to Wal-Mart Stores and buy Chinese-made goods: They were inexpensive and the quality has reached a point where those products are as good - or better - than their U.S.-made counterparts.


If anything, Americans were perfectly content to benefit from this relationship right up to the point where it went against US - or at least, until Americans perceived that it went against US because Americans felt that the yuan is artificially undervalued in relation to the dollar. In fact, economists [really] do not have an effective way of judging whether a currency is undervalued or overvalued, mainly due to wrong currency policy of IMF (IMF, again an American creation). China's currency surpluses since 2005 have stemmed from the excessive consumption by the Americans, rather than problems with the yuan's exchange rate. If Americans keep consuming more, naturally China will make more business and so more surplus against dollar, whose fault is it?

 

The underlining fear in the mind of Obama administration is that if Chinese products continue to flood US markets the way they are doing today, American industry will not grow to create new employment opportunities for the American youth. Obama is imagining that as during 1933 depression, new generation of industries cropped up and filled the gap, the same shall repeat during this depression but that is not going to be the reality. This I say because during 1933 depression there were not as many and as aggressive American MNCs as they are today. I shall explain what I mean here. Obama administration is banging on the imagination that American talent is powerful enough to develop new inventions and create new markets so that nobody in the world can compete, so they will have monopoly and like computer and internet inventions these new inventions will bring back the lost prosperity to US. The contention is not about the possibility that this Obama administration is visualizing, the point of argument is that today America is having a much powerful force of American MNCs. These companies know for sure that to produce anything in America is always much costly than producing that in China, Korea, Singapore or India not to mention other dozen countries such as Morocco, Azerbaijan and so on. The point is, as soon as the wonderful new invention is introduced by an American talented youngman or woman, one of these American MNCs shall buy the young company and takeover the business, paying the young inventor such a fabulous price for his invention that he shall be happy to sell his new company and quit. As the invention becomes the property of the MNC the Corporation will shift the manufacturing activity to its desired country, produce that invention at much cheaper price and then bring it back to US market, draining dollar and destroying any employment that was created during that invention. So America is back to square one.

 

We do not see any desire in any of the American presidents to control these aggressive MNCs. So long as these MNCs are holding on the market, America has no future. If any economist complains the MNC will justify by saying that the Corporation is registered in the US and so whatever they earn they pay taxes and so the earning comes back to the country. Moreover, stocks are in the US shares market, the shareholdings also mainly belong to the country and so whatever they do is not against the US interests. Their wile arguments will simply shut up the administration in addition to that these unscrupulous MNCs will be buying favors of sitting Senators to protect them. So long as these MNCs are holding on the American market there is no possibility that any genuine employment will be created by any ingenious enterprise in the US for American youths.

 

Obama administration should understand that wasting time in criticizing China and India for them taking a chunk of business away from American market it will be good if they concentrate on how they can control these MNCs. It is amusing to see how American over smartness has put them in the lurch. The concept of Globalization has made US a beggar now and this policy was introduced by the same stupid or over smart US administration a few years back. Had they not introduced the policy of Globalization and forced all countries to accept it, I can say with surety that present catastrophe through which today the world market is passing would not have happened at all. One American economist had put a candid comment about this Globalization policy when it was introduce by force on the world by then superpower US, and in that he has clearly said that the sword has two edges and US President is happy to see the one side and be pleased with it. The other side if American policy makers had visualized, they would not dare introduce Globalization in the first place.

 

Over smartness immerging from over confidence has put this great nation in jeopardy that is difficult to overcome. In spite of all that has been happening in the economic world American arrogance continues unabated.

 

 

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