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Hypocrisy, Thy Name Is Washington
TND Guest Contributor: Paul-Martin Foss |
Reuters reports that the US government is still not satisfied with the Chinese government’s currency policies. Talk about the pot calling the kettle black. Sure, it may not be a good thing for the Chinese government to keep the yuan trading within a narrow band, but that is an issue for the Chinese to deal with amongst themselves, not something for the US government to get involved in. You can imagine how galling it must be for the Chinese to be lectured by Americans whose central bank continues to weaken the dollar year after year and who expect other countries to suck it up and deal with it.
But this also betrays a horrendous lack of understanding and lack of appreciation on the part of American policymakers on just what China has done for the US. For years, the US has literally exported inflation to China. How does it work? The Federal Reserve creates money out of thin air, which it injects into the banking system through purchases of government bonds from banks. That lowers interest rates, spurs borrowing, and induces present consumption. China, as one of the world’s largest producers of cheap goods, ended up being the recipient of many of the newly-created dollars that resulted. Chinese firms gladly sold goods to Americans in exchange for dollars. But what to do with all these dollars?
The Chinese government sought to keep the yuan from strengthening against the dollar, so they established a narrow exchange rate band in which the yuan could trade against the dollar, then created new yuan when need to purchase all those dollars from Chinese exporters. Exporters now had yuan that they could use in China, and the Chinese government now had dollars, which they used to purchase US Treasury securities. The increased purchases of Treasury securities allowed the US government to continue running deficits and funding that deficit spending at lower rates than they otherwise would have been able to. The new yuan spurred business growth in China, fueling exports to the US. Of course, the new money and credit created in the US fueled the housing bubble that so spectacularly burst in 2007/08, and quantitative easing since then has fueled new bubbles. The new yuan creation fueled real estate and construction bubbles in China and it is only a matter of time until those bubbles burst too.
Americans for years traded money created out of thin air for Chinese goods, and now that they have reaped all the benefits, they seek to leave the Chinese holding the bag. China holds at least $1.25 trillion of Treasury securities, and the $335 billion attributed to Belgium is also largely thought to be held by Chinese interests parking them in Belgium. That’s a good 10-12% of US debt held by the public held just by the Chinese. But rather than being appreciative for receiving so many Chinese-made goods for nothing and for the Chinese government’s boost to the US government’s deficit spending, the US government continues to castigate China for not fully liberalizing the yuan.
What did other countries do when their currencies began appreciating against the dollar? Well, the Eurozone is launching its program of quantitative easing to weaken the euro, and Japan has been engaged in quantitative easing for years. That’s currency manipulation too. Yet how often do you hear American officials criticizing Mario Draghi or Haruhiko Kuroda? No, it’s the Chinese who always bear the brunt of the United States’ criticisms. If I were a Chinese official, I’d be thinking of ways to dump US Treasuries as soon as possible. US policymakers think that can’t happen, but eventually it will. When it does, and the gravy train ends, don’t be surprised to hear wailing and lamenting from US policymakers who can’t understand why the Chinese would do something so dastardly. As for us, we’ll just say, “We told you so.”# # # #
About Paul-Martin Foss:
Paul-Martin Foss is the founder, President, and Executive Director of the Carl Menger Center for the Study of Money and Banking, an Arlington, VA-based think tank dedicated to educating the American people on the importance of sound money and sound banking.
Prior to founding the Menger Center, Mr. Foss worked in the U.S. House of Representatives for seven years, including six years as Congressman Ron Paul’s legislative assistant for monetary policy and financial services, and one year as Deputy Legislative Director for Congressman Thomas Massie.
As Congressman Paul’s legislative assistant, he assisted the Congressman in his duties as Chairman of the Subcommittee on Domestic Monetary Policy by helping to develop hearing topics, agendas, and briefing Congressmen and their staffs on monetary policy topics. Mr. Foss also was responsible for the management of Dr. Paul’s monetary policy and financial services legislation, including the “Audit the Fed” and “End the Fed” bills, and was co-editor of Ron Paul’s Monetary Policy Anthology, a multi-thousand page compilation of hearing transcripts, lecture transcripts, and other documents related to Dr. Paul’s chairmanship.
Mr. Foss received his Bachelor’s degree from The University of the South (Sewanee), and Master’s degrees from the London School of Economics and Georgetown University’s Edmund A. Walsh School of Foreign Service.
This article appeared on the Carl Menger Center for the Study of Money and Banking and is reprinted with permission, “Creative Commons 4.0.”
Source: http://thenewsdoctors.com/hypocrisy-thy-name-is-washington/
