$1.4 trillion out of thin air
The U.S. government has created out of thin air (“manipulated” into existence if you prefer) $1.4 trillion since September 2008 (around the time of the financial crisis) to March 2010. (Source: U.S. Fed.) In December 2008, James Grant wrote an article in the WSJ criticizing the Fed “printing like mad … and is the wrong approach with potentially dire consequences.”
What’s the point? Everyone who hold assets denominated in dollar are immediately going to have their wealth diluted in proportion to the amount “printed” (it’s computer based now, and so the physical printing is no longer necessary). China and Japan are the two largest foreign holders of American debt, so the value of their holdings decrease. The vast majority of holders of dollar denominated assets are in fact Americans. Their purchasing power is now reduced. Who is “manipulating” who?
For some Americans who do not want to be viewed as hypocrites, they should resist the urge to label China a “currency manipulator.” Otherwise they should apply that label to the U.S. government first and then every other country on this planet. Every country “manipulates” by “printing” currency, adjusting interest rates, and even indirectly by becoming more productive.
$-3.467 trillion net international investment position year-end 2008
“The U.S. net international investment position at yearend 2008 was -$3,469.2 billion (preliminary), as the value of foreign investments in the United States exceeded the value of U.S. investments abroad.” (Source: Bureau of Economic Analysis)
What’s the point? The world on aggregate is relying less on American capital. If the U.S. government continue to spend uncontrollably, it will continue to support how this graph has trended in the last decade.
-2.5% savings rate in 2009
“In 2009, the broadest measure of domestic US savings – the net national savings rate – fell to a record low of a -2.5 percent of national income. This is the sum total of depreciation-adjusted savings by households, businesses, and the government sector.” (Source: Stephen S. Roach, chairman of Morgan Stanley Asia)
What’s the point? America is consuming more than it can afford. Her budget is partly funded through borrowing from around the world, including China and Japan. Will China or Japan be as willing to lend U.S. money if the U.S. do not run a current account deficit? No.
90 countries U.S. run trade deficit with
While China is the largest trade deficit country for the U.S., there are actually 90 countries who the U.S. run trade deficits with. This is a multilateral issue with the U.S. squarely in the middle of it.
Instead of counterproductive China bashing, the US would be far better served if it took a deep look in the mirror and faced up to why it is confronted with a massive multilateral trade deficit. America’s core economic problem is saving and it’s not China. (Stephen S. Roach, chairman of Morgan Stanley Asia)
What’s the point? The 130 Congressmen urging the Obama administration to label China a “currency manipulator” and take action against the yuan – in the eyes of the Chinese, they are behaving very irresponsibly to both the American citizens they serve and the U.S.-China relationship.
12% of China’s total trade is only with the U.S.
China’s trade with Hong Kong and Taiwan regions almost equal that with the U.S.. South Korea and Japan respective trade with China combined easily beats the volume between U.S. and China. (Derived from US-China Trade Statistics) U.S. only represents 12% of China’s trade with her partners.
What’s the point? U.S. media like to give Americans the impression that the U.S. is indispensable and that a trade war would only harm China. It is commonly known that American corporations rely heavily on cheap Chinese labor to keep Corporate America competitive around the world. A trade war between U.S. and China may shift America’s manufacturing to some other countries, or even bring some manufacturing back to the U.S., but what would be the net result? It would certainly harm both countries and make them losers.
China’s savings rate at 30% to 40%
China’s savings rate is very high relative to the U.S.’s -2.5%. At the 2009 Strategic Economics Dialog between the Chinese and the U.S. governments, they announced it was critical for China to encourage domestic consumption while the U.S. to encourage higher savings rate – to curb the growing trade imbalance between the two countries.
What’s the point? Very simple, indeed. Americans need to consume less. That will reduce U.S. imports from China. Chinese need to consume more, and that will drive U.S. exports to China. Again, Stephen Roach said it the best:
Currency, or relative price, adjustments between two nations are not a panacea for structural imbalances in the global economy. What is needed, instead, is a shift in the mix of global savings. Specifically, the US needs deficit reduction and an increase in personal savings, while China needs to stimulate internal private consumption.
Washington’s scapegoating of China could take the world to the brink of a very slippery slope. It wouldn’t be the first time that political denial was premised on bad economics.
Undoubtedly, China’s 8-10% GDP growth in the next couple of decades will increase Chinese consumption, even if the Chinese government does nothing further to spur them. The U.S. should sell more of what the Chinese want; certainly for those items the U.S. is willing to sell to France or Japan and so forth, there is no reason for the U.S. to restrict them when comes to China.