China and the U.S. are the only big players in the currency game. And with neither of them stepping up to bat, the game is in dangerous territory. Other nations will now do whatever they can to reduce the value of their currencies in order to stimulate more exports — and therefore create more jobs.Sadly, the electorate in the US, which just went to the polls, has no clue about this huge problem distorting their society. Since they are unaware of it, it played no role in their voting. Political parties exist in order to mobilize people to engage government in fixing near and dear to the heart of the party members. But both political parties in the US have been co-opted by the politicians and serve their interest, not that of the electorate. Since the party and the politicians never talk about the real issues, the voters never realize they are perpetuating the problems by not giving any party a mandate to fix the problems.
The underlying problem isn’t just or even mainly an international imbalance. It’s an imbalance within many nations — especially inside the United States and China. In the U.S., more and more income is concentrating at the top, thereby reducing the relative purchasing power of the vast American middle class. That means more pressure on exports to fill the gap.
In China, more and more income is going to the productive sector of its huge economy rather than to Chinese consumers, thereby reducing the relative purchasing power of the Chinese relative to what the nation is producing. That means more pressure on exports to fill the gap.
Sunday, November 14, 2010
Robert Reich Diagnoses the China/US Currency Problem
Here's a bit from a post by Robert Reich that nicely sums up the problem confronting both China and the US. Both have governments that are dysfunctional because they are "captive" to a segment of the population and allowing a dysfunctional situation get worse rather than making the hard choices needed to fix the problem: