Pointing the Finger at China

Bill Tatro
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Posted: Oct 17, 2011 12:01 AM

Geithner wouldn’t do it. 

Obama wouldn’t, and even Ben Bernanke shied away. 

None of them would use the term “currency manipulation.” 

However, I’m very pleased to report there’s been a major breakthrough. 

We’ve finally done it. 

Faced with the impossible task of telling constituents that Senators, Congressmen, and the President himself have continually failed the American worker with policies that rewarded a relative few at the expense of the many, we opted to point the finger at China. 

Ignoring world trade rules, the United States Senate has labeled China a “currency manipulator” and now risks, according to the Chinese, a “trade war.” 

The irony is that many of the same politicians who support this Smoot-Hawley retread declared loudly against the continued printing of money by the Treasury and were firmly against actions of quantitative easing by the Federal Reserve. 

The expansion of the Federal Reserve balance sheet by acquiring everything from toxic subprime mortgages to student loans, I would strongly argue, had the intended consequence of devaluing our dollar. 

As any first-year Economics student knows, a declining currency causes the goods produced by that country to be much less expensive for purchase in other countries. 

The corresponding seesaw effect of declining dollar and rising foreign currency, should, all things being equal, create demand for U.S. products and thus create increased U.S. employment. 

Therefore, a falling dollar is beneficial for most U.S. corporations with international exposure, and also helpful for those same politicians for re-election. 

On the other hand, look what happened once QE2 came to an end. 

Without manipulation and allowed to float, the U.S. dollar strengthened, and became one of the best performing asset classes. 

This rising dollar was a concern for forward looking corporate earnings as it appeared the game of dollar destruction was over. 

So, who is the real currency manipulator? 

Is it China, who in a sense has pegged the yuan to the dollar and let things fall where they may? 

Or, is it the U.S. who continues to attempt devaluation against all currencies, thus benefitting a select group of chosen corporations? 

Irrespective of the answer, playing politics with world trade was tried before in the 1930s, and we all know the outcome. 

Are we willing to try it again just to win a few Senate re-elections? 


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