China helped fuel help fuel the overheated international economy in the last decade. Now, China’s slowdown is helping put the brakes on an international recovery.
As an analysis of China in the Financial Times observed: “China’s decleration has affected a diverse range of industries and trading partners to varying degrees – and, in recent months, its economic prospects have become almost as big a concern for global investors as the fate of crisis-hit Europe and the trudging US economy.” The Wall Street Journal reported: “The seventh consecutive [quarterly] deceleration reflected a combination of weak demand from abroad, flagging investment at home, and insufficient spending by China’s households to pick up the slack.”
China is not an innocent victim of a worldwide economic slowdown. Bloomberg Businessweek recently editorialized: “Let’s be a bit more precise about who is a currency manipulator. The charge is best limited to countries that stop their currencies from appreciating even though they have big current-account surpluses -- that is, countries that block the movement of currencies toward levels that would help balance global trade. That isn’t what the U.S. is doing with QE3. It is precisely what many other countries are doing, however, hurting the U.S. and Brazil alike.”
If currency manipulation is defined this way, the leading offender is China. One measure is a country’s growth in foreign- exchange reserves: Manipulators hold their currencies down by using domestic money to buy foreign assets. Recently, and especially over the past year, China has eased this policy, but its foreign-exchange reserves still stand at a colossal $3.2 trillion.
Writing in World Affairs, Peter Navarro noted: “China manipulates its currency by pegging the value of the yuan primarily to the US dollar. To maintain that peg in the face of massive trade surpluses with the US, China must recycle hundreds of billions of dollars of that surplus back into the US every year. China does so primarily by buying US bonds – but increasingly by also scooping up US real estate, companies, and other assets.
One obvious result is a US debt to China, now approaching three trillion dollars. This debt has exposed the US to significant political pressure. China’s fixed peg also makes it impossible for the US to ever balance its trade through the normal kind of currency adjustments that are the hallmark of mutually beneficial free and fair trade. Patrick Mulloy of the US-China Commission, observes: “It’s like having a tariff on goods coming from the United States of forty or fifty percent by the amount that they’re underpricing their currency. It also gives their exports to the United States a subsidy of forty or fifty percent to capture our market and knock out domestic industries that might be competing with them.
So China did it – with US complicity – but what will China do now. Newsweek’s Hannah Beech wrote recently: “The nation with the world’s second largest economy is on the cusp of a rare political transition, yet the path that its future rulers wish to take is largely a mystery. Though much the world’s attention is focused on the Nov. 6 U.S. presidential election, what will start to transpire in China two days later is perhaps more important. The fate of the global economy hangs in part on how China’s leaders navigate potentially perilous financial and political shoals.”
George Gilder, whose new book publishes today, is one of the original pillars of Supply Side economics. As stated by Discovery Institute, which he co-founded, “Mr. Gilder pioneered the formulation of supply-side economics when he served as Chairman of the Lehrman Institute’s Economic Roundtable, as Program Director for the Manhattan Institute….”
He was the living writer most quoted by President Reagan. And he is back with his most brilliant work yet — one of potentially explosive importance if taken to heart by our political and policy thought leaders. It is a radical guide, with surprising insights on almost every page, to the creation of a new era of vibrant prosperity.
As reviewer Paul Brodsky, a professional investor in New York City, perceptively notes,
"Lewis Lehrman is one of a very small group of contemporary gold advocates able to successfully bridge the gap separating practical conservative intellectualism from fleeting, half-baked idealism. His CV lists great success across many fields including education (degrees and teaching fellowships from Yale and Harvard); industry (past president of Rite Aid); politics (narrow loser to Mario Cuomo in the 1982 New York governor’s race); finance, (past Morgan Stanley managing director); private sector entrepreneur (founder, L. E. Lehrman & Company); public sector advocate (founder, Lehrman Institute); historian (author, Lincoln at Peoria: The Turning Point); and recognized philanthropist (awarded the National Humanities Medal by George W. Bush in an Oval Office ceremony). ... Only someone erudite and elegant in demeanor could hope to pull it off . In an irreconcilably over-leveraged world where irritated bond vigilantes question economic sustainability and angry Tea Partiers protest the immorality of it all, Lehrman’s views are considered and his convictions carry weight. He brings gravitas to his cause, and he does so from within as a member of the club."
Before the Fed: JP Morgan Summons the Bank Presidents
"Finally, on the night of Sunday, November 2, Morgan summoned the presidents of the major New York banks to his new library, at the corner of Madison Avenue and Thirty-sixth Street, an Italian Renaissance-style palace he had built next door to his house to showcase his collection of rare books, manuscripts, and other artwork. Its marble floors, frescoed ceilings, walls lined with tapestries and triple-tiered bookcases of Circasian walnut, crammed full of rare Bibles and illuminated medieval manuscripts, made it an incongruous setting for a meeting of the banking establishment. Once the moneymen had gathered, Morgan had the great ornamental bronze doors to the library locked and refused to let anyone leave until all had collectively agreed to commit a further $25 million to the rescue fund."
— Liaquat Ahamed, Lords of Finance (Penguin Books, 2009, p. 54)
Lately we have been engulfed by headlines reporting financial turmoil on every continent, in almost every nation, large and small. The commissars of central planning who so marred the history of the 20th century have been replaced by central banks in the 21st. In Cyprus, the new leadership now dares to confiscate citizens’ wealth with a one-time tax of up to 60 percent on bank deposits above 100,000 euros. Self-interested prime ministers blame continental monetary policies for instigating the currency wars that they themselves surreptitiously carry on.
America recently celebrated — well, maybe we didn’t celebrate – the 80th anniversary of Franklin Roosevelt’s action to end to the gold standard. But America is also celebrating – well, maybe not everyone is celebrating – the 100th anniversary of the legislation creating the Federal Reserve System.
As Lewis E. Lehrman...
Constitution.org provides an extensive and thoughtful Memorandum of Law by Larry Becraft, Esq., of Huntsville, Alabama, on Article I, Section 10, clause 1 of the US Constitution.
Sir William Blackstone courtesy of Wikipedia
One of many interesting matters the Memorandum treats is Blackstone's Commentaries, a book that was a fixture in the...