People like Sen. Schumer make it ALL sound so simple. Let the renminbi appreciate and the world's economic problems will be solved, and unemployment in America will fall. Yet, if you would stop and think about it, this is a distinctly implausible claim. The idea that an adjustment in one relative price in the entire global economy will rid the world of imbalances and lead to a new economic nirvana doesn't really make sense. When the Japanese tried to do in the late-1980s exactly what is now being asked of China (shift away from export-led to a domestic demand-led growth) it all ended in tears.
It is wrong to insist that China’s global rebalancing imperatives should be addressed by a realignment in a bi-lateral exchange rate with the dollar. What matters most insofar as global imbalances are concerned is China’s broad multilateral exchange rate. On that basis, China can hardly be accused of manipulation vis-a-vis the rest of the world. In real terms, the trade-weighted renminbi is up 7.5% over the past six months and fully 20% over the past five years.

Without a fix to America’s saving problem (highly unlikely in an era of trillion dollar federal budget deficits) forcing the Chinese to appreciate the RMB versus the dollar, or imposing trade sanctions on them if they don’t, is like rearranging deck chairs on the Titanic. It would only shift the Chinese piece of the US trade deficit to someone else — most likely to a higher cost producer. That would be the functional equivalent of imposing a tax hike on already hard-pressed middle class workers. Washington needs to rethink a flawed strategy of attempting to fix America’s multilateral international imbalance through a bi-lateral currency adjustment. It is bad politics driving bad economics....  Stephen Roach, Chairman of Morgan Stanley Asia

China was cut off from the rest of the world for nearly 500 years. The very day that it began opening up, the world's available workforce was essentially doubled. Let me say that again "The world’s available workforce DOUBLED". It basically flooded the world with workers who are prepared to accept wages a tiny fraction of those being paid in the West. Western powers knew this when they approved China's entry into the WTO.... Big corporations not only knew this, but lobbied heavily for it. Why? Because they were drooling over the possibility of employing these low-cost workers in their factories - which is exactly (EXACTLY) what has happened.
All during most of the 20th century, Western workers enjoyed a "monopoly" on access to global capital, rewarding themselves with wages well above the market-clearing price.
That's now beginning to change. Nominal exchange rate adjustment won't prevent Chinese workers from undercutting their Western equivalents. To think otherwise, is unwise....

My advice is to leave China alone. They have navigated high and low seas with admirable dexterity. Instead, all of these pols and their elitist economist's should strain to find ways to redirect the declining fiscal firepower of the west to reactivate domestic credit. Domestic credit is the major channel for ensuring that the necessary fiscal adjustment does not end up in even more tears.

I can't understand how people can be so ignorant. And I can't understand how people in positions of authority can be so. . .

Here's an example from todays (4/4/2010) Reuters news:

Reuters News story: U.S. delays China yuan ruling ahead of Hu visit, by Glenn Somerville (Additional reporting by Patricia Zengerle; Editing by Xavier Briand)

Here are the pieces that I believe are mis-information passing as news...

The U.S. Business and Industry Council, a trade group, said "for three more months, more American factories will close or cut back production and more of their employees will lose their jobs" because unilateral U.S. tariffs are needed to combat "predatory trade practices."

Instead, the U.S. Business and Industry Council should have said, "Why did all of those American companies move their factories to China in the first place. Those companies are the ones who caused these problems.... It's called cause and effect people....

"If we want the Chinese to take us seriously, we need to be willing to say so in public," Grassley said in a statement.
Finance Committee Chairman Max Baucus said Geithner should take a hard look at whether China is a currency manipulator and work with it and other trade partners to address Beijing's currency practices. "For years, Treasury has given China's currency practices a free pass, but it's time to re-evaluate," Baucus said. "For too long, the United States has pursued diplomacy at the expense of American jobs and exports. Further delay is not the answer."

I wish Republican Senator Charles Grassley would stop acting like its 1920, and that the US can just send its gunboats into China to solve their problems. If Americans want the Chinese to take them seriously, then they (US) needs to stop acting like the emperor of the world. Stop creating financial meltdowns which ruin the entire world economy, and stop with the idea that they are the only ones with answers to problems.... America is in fact NOT a part of the solution anymore, they are the problem.....

I just wish more people would think things out to their final conclusion before engaging their mouths...l.

I’ve been in a real funk lately and unwilling or maybe uninterested in writing. So I’m trying to work my way out of it.... The funk, that is....

Here’s an example of what I mean. A recent story on Reuters.com by Andy Sullivan.

Now, let’s be clear. I don’t know Andy, or have any particular opinion about him. What I am doing is using his story as an example of what I feel is why many people are so unhappy with the media. Not just with the news itself, but with the way that ‘News’ is presented these days..... I mean does anybody ‘think’ any more, or have we become that dumbed down.

Here’s some examples of what I mean - from the article:
“The U.S. government must craft a plan next year to get its ballooning debt under control or face possible panic in financial markets, a bipartisan panel of budget experts said in a report on Monday.”
Q: What bipartisan panel? consisting of what experts? Experts by whose opinion?

“Without action, investors could lose confidence in the United States, driving down the dollar and forcing up interest rates, said the former lawmakers and budget officials who crafted the report. That could cause a sharp decrease in the country's standard of living.”
Q: 'lose confidence in the United States'... These kinds of comments are so fraught with politics and bs that they would be funny in a different context.... Think about it... If people lose confidence in the US, where will they turn to invest their funds???? England, France or Germany, Russia, Japan or China, or some place we've never heard of before..... Where, exactly....????? There isn’t any other place.....

“We will be less free if we don't tackle this," said Jim Nussle, a Republican member of the commission who earlier served as a White House budget director and chairman of the budget committee in the U.S. House of Representatives.
Q: Less Free ? ?  Is this the same Jim Nussle who served under GW, who helped pass the Patriot Act... Which nearly negated the entire Constitution of the United States.... Less Free, are you joking ? ? ? How stupid do these pols think we are ? ? WE are already 'less free... the real question should be: What will you do about it ? ? ?

Then there is my favorite:
“The commission did not issue specific prescriptions but said tax increases and spending cuts would probably be needed.
Q: This means that they really had no idea on how to FIX this mess, only that it's a problem..... so my comment is: 'Do Ya Think'..... Any monkey could have done as much as these people did... (NOTE: when you look at news stories, ask yourself this question: Does this news story state a situation or problem and then offer answers or at least a suggestion on how to fix the problem that is being discussed. If not, then don’t tell me that the sky is falling, that a commission of experts (experts in whose opinion?) says so, and that they have no answer to the problem.... Just tell me the facts, and let ME (I’m an expert) decide what course of action should be taken...

Otherwise it should be in the Opinion pages... Where everyone with a nose (or opinion) can post whatever they want.....

Is that too difficult for the media to understand?

ALL countries manipulate their currency to their perceived advantage. ALL COUNTRIES. End Of Story.....

Many elitist economists, with far too many initials behind their name, are using the same old, tired excuse that some emerging countries (namely China) are manipulating their currency, and should allow it to ‘float’ in the open market.

They want China to allow their currency to rise, just as they insisted Japan do under the Plaza Accord in the 1990's. However, Chinese citizens (not just the government) have suffered enough under western mandates, and are tired of ‘kowtowing’ to western demands.

Yet the bigger truth is, the US is the one who has always manipulated their currency. It is the US who wrote the book on manipulating currency that everyone on the planet has read and now follows.... When the Fed raises or lowers interest rates, either to control inflation or to encourage more borrowing to stimulate the economy, it is in fact manipulating the currency. (See Economics 101 blog entry). When banks are allowed to create money (see Banking 101 blog entry), they are manipulating the currency.

See also a great article by Robert McTeer, published in Forbes: http://bx.businessweek.com/manipulation-of-currency/view?url=http%3A%2F%2Fc.moreover.com%2Fclick%2Fhere.pl%3Fr2679046982%26f%3D9791 (just copy and paste into your browser).

In a recent Reuters story Glenn Somerville and Simon Rabinovitch ask:
“WHAT WOULD HAPPEN IF CHINA LET ITS CURRENCY APPRECIATE?”
“Theoretically, the cost of Chinese-made products would rise for consumers around the world. If prices rise sufficiently, other countries' goods might be substituted for those China now makes.... If Chinese consumers were empowered with a stronger currency, they might become more aggressive importers, perhaps even swinging China's trade surplus to deficit.” (emphasis added)

These writers, who have probably never been to China, ask “What would happen if China let its currency appreciate? I’ll tell you.... There would be massive unemployment, that would surpass even the Great Depression. With the US Labor Force, estimated at 153.7 million in 2007, an unemployment rate of 10% equals 15 - 16 million unemployed. A 10% unemployment figure in China equates to nearly 100 million unemployed. Lets all say that number again. 100 MILLION.

What these writers, and many other so called China experts fail to recognize is that the spending habits of Chinese citizens were formed thousands of years ago, not by the current regime in Beijing. When the ancestors of these authors were guarding against demons by wearing a garlic necklace and still hiding out in caves, Chinese traders were already practicing their economics along the original 'silk road', and these johnny-come-lately Keynesian's (and/or supply-siders also) don't have a clue....
Additionally, the Chinese are not stupid, and they have witnessed the economic problems that occurred in Japan since BOJ allowed its currency to appreciate, and as mentioned they really aren’t interested in reliving these same disastrous problems.

Everyone wants the Chinese consumer to increase their consumption rate, including the bosses in Beijing, but allowing the RMB to appreciate overnight would cause much more harm than any perceived good that may come in 30 years.
Many people in China want to be more like the west. Many elitist US economists want China to be more like the west.... I ask “why?”   Is it so that China can experience all the same economic problems that prevail in the west. Which currently include financial meltdowns, high unemployment (which BTW is going to get much, much higher in the US) with the long term potential for growth gloomy at best.

So who manipulates their currency? Every country.... and frankly, this is one time I am hoping the Chinese do NOT "want to be like Mike"....

In October, 1929, the New York Stock Market collapsed, which was then repeated in markets around the world, in what became the foremost financial crisis in history. However, it wasn't until late 1930 or early 1931 when the real damage began to happen. During that year (15 months), governments enacted lots of stupid laws meant to mollify the general population, (which was generally under-educated) with the thinking that by saving a job here at home, saves the country. Which of course it did NOT do. The unemployment numbers began to grow, and grow.....

People with bad agenda's led the fight for these laws in the 1930's and they are out front again in 2009, with their no-win strategies. Because much worse than the prolonged economic crisis that was fed by these bad policies, is the political upheavel that occurs in unstable regions. So it will be this year and into the next couple of years, as it was in the early 1930's, that bad politicians everywhere will try to protect their hides and mollify their scared and ignorant constituencies. The unemployment numbers continued to grow, and grow....

In times of fear and uncertainty, men (and women), do terrible things to each other, and unfortunately we are now in possession of this double edged sword that has NO good side. If politicians don't 'play' to these uneducated masses, then those masses rise up and throw off these very pols and install a fanatic dictator who promises to save the jobs at home, and purge those who caused their problems (See history of Adolf Hitler and the Holocaust 1932-1945, and history of rise of Japanese Militarists and conquest of China and the Pacific Rim 1930-1945).
If the pols do pass laws to protect workers and groups in their own areas, they not only give a greater purpose to the dictators mentioned above, but also suppress their own work force for longer periods by keeping prices artifically high and wages artifically low (see US history of the Great Depression, and the rise of labor unions 1930-1950). In 1937 the unemployment figure reached 25% of the workforce......

So here we are again, left with the damage to be repaired, and the confidence and jobs to be regained. The last time, it took a decade of being poor and a world war to pull the US out of a depression, and a horn-locking cold-war of nearly three decades before world trade truly started to flow again. Is this the near term future you want for your family ? Yet unemployment is growing to near 10%....

I don't pretend to have the answers, but I'm confident that in today's world, a replay will prove neither 'instant' nor necessarily provide us with the same winner. In the words of Edward R. Morrow: "Good Night, and Good Luck."

Next up: Who is really manipulating their currency ? ?