Currency Wars

To hear the Washington crowd talk about it, you'd think the only reason for our trade deficit with China is the undervaluation of the renmimbi; and that if China would just let it "float," the Chinese would suddenly start buying loads of American products, Americans would buy fewer products produced in China, and all would be right with the world.

I will take the word of the experts that the renmimbi is undervalued, but, somehow, I suspect letting it float would do very little to end the trade imbalance. For starters, even with a significantly stronger renmimbi, the allegedly gigantic Chinese "market" does not exist because only a small portion of the Chinese population would be able to afford American-made consumer goods — and those who could afford them after a change in exchange rates already can afford them now. (Why buy momentarily fashionable "originals" when perfectly acceptable knock-offs are available for one-tenth the price?) China's politico-economic structure is riddled with corruption, and its alleged "growing middle class" is a myth. The rich (that is, the connected) can have whatever they want, while the poor get by on promises and an occasional favor from some Party functionary.

On this side of the world, a stronger renmimbi would just mean higher prices paid by the lower income folks who patronize Wal-Mart and Family Dollar. The substandard crap would be just as substandard, but it still would be cheaper than locally produced crap — barring drastic increases in fuel prices that would sharply increase the rates for containerized shipping.

It would be a windfall for the multinationals — and, so what else is new?

Now, let's look at the rest of the world. Just about everybody is trying to export its way out of the Great Recession — to wit, decreasing the value of its currency in order to increase exports. The problem is that it's impossible for everybody to do that at the same time. Somebody has to be importing.

The Germans are doing pretty well because they produce the kinds of efficient industrial equipment developing nations need to keep their own exports flowing to the "first" world, and their own labor costs low — China and India being prime examples. Just about everybody else is fucked. Needless to say, it won't be long before the Chinese deconstruct the German machinery and pirate it. Once Mao died, and they discovered capitalism, there was no stopping them.

Bottom line: as long as ordinary people, wherever in the world they may be, cannot afford to win better lives for themselves and their children; and as long as the rich and powerful continue to gobble up every last trickle of gross global product, nothing will change. "Comes the revolution," my mother used to say, quoting her great-grandfather, "we'll all eat peaches and cream."

Well, actually, he said "pitches und crim."

I don't expect to be around for the revolution, but I hope my kids and grandkids will be tossing the torches at the castles and lifting the plutocrats on the tines of their pitchforks. (Probably, I should buy some pitchforks and leave them to my grandkids in my will. Pitchforks probably will no longer be readily available by then.)

Advice: buy your pitchforks now.