Obama and McCain’s Olympian China Error

Well, it is obvious that China is getting stronger now, but it does not mean America is falling...

I hope to see both countries will make progress in the following decades.

nancy of 5:46AM August 15, 2008

Does anyone here know how our government got away with lowering taxes at the same time it fought a war that should cost each and every American at least a few thousand dollars apiece above and beyond the usual taxes? It borrowed from, primarily, China, which has been spending alot of the dollars it has from its trade surplus with the U.S., making them one of the biggest investors in U.S. bonds. Now we, and our children, are in hock to the Chinese.

The Chinese central bank has often talked about diversifying its foreign currency holdings into Euros and other currencies. (Some say we really invaded Iraq because Hussein tried to switch and sell oil for euros instead of dollars in November, 2000. The issue of selling oil for euros, not dollars, as the U.S. has managed to insist on, is another issue we aren't talking about but should be, because the economic implications are huge.) If China were to do that, and in effect stop loaning us money, we'd have three choices: (1) Raise interest rates, to make bond purchases more appealing. But with the economy slowing and the U.S. already having a huge repayment burden, this is unlikely. (2) Raise taxes. We'll all like that. or (3) Drastically cut government spending. That means out of Iraq, quickly.

Some people say China won't do that because the consequent depression in the U.S. would have negative worldwide repercussions. But they may eventually get tired of the value of the dollar dwindling as the U.S. continues to print more money. Essentially the power to dictate policy to the U.S. government lies not in the voters but in the hands of financiers in Beijing.

Sleep well.

Donna H. of CA 6:38AM August 10, 2008

"Elect Obama, and we'll talk about China from the American liberals' viewpoint, just like everything else we have to deal with coming off a period of Republican error."

That's what China is afraid of.

"Now there's your trouble, folks. Democrats in Congress have been concocting all sorts of legislation to punish China for moving too slowly to boost its currency as a way of reducing its huge trade surplus with America. Such efforts had little chance of success given slim congressional majorities for Democrats and a pro-trade president in the White House. The yuan's slow but steady rise also helped deflate opposition."

Foolish Americans. The way to solve the trade deficit is not by bullying China into appreciating its yuan faster. Hot inflation can lead to hot unemployment and hot lower growth, which the Chinese do not want. No, the way you address the trade deficit is by enticing the Chinese to spend more of its money here in the US moreso than we spend money over there. However, I don't think this will ever happen, at least in the short term, because businesses are finding it much more profitable to open up in a market with 1.3 billion people than to expand in a saturated market with 300 million people. Besides, running a trade deficit is not as bad as the politicians are making it out to be. The trade deficit, in terms of our overall GDP, is still very small.

Chris of AZ 3:11PM August 08, 2008