Holding China to Account!

[Gerald]

The dire state of the world economy reflects destructive actions on the part of many players. Still, the fact that so many have behaved badly shouldn't stop us from holding individual bad actors to account. And that's what Senate leaders will be doing this week, as they take up legislation that would threaten sanctions against China and other currency manipulators. Respectable opinion is aghast. But respectable opinion has been consistently wrong lately, and the currency issue is no exception. Ask yourself: Why is it so hard to restore full employment? Its true that the housing bubble has popped, and consumers are saving more than they did a few years ago. But once upon a time America was able to achieve full employment without a housing bubble and with savings rates even higher than we have now. What changed? The answer is that we used to run much smaller trade deficits. A return to economic health would look much more achievable if we spending $500 billion more each year on imported goods and services than foreigners spent on our exports. To get our trade deficit down, however, we need to make American products more competitive, which in practice means that we need the dollars value to fall in terms of other currencies. Yes, some people will shriek about debasing the dollar. But sensible policy makers have long known that sometimes a weaker currency means a stronger economy, and have acted on that knowledge. Switzerland, for example, has intervened massively to keep the franc from getting too strong against the euro. Israel has intervened even more forcefully to weaken the shekel.

http://www.nytimes.com/2011/10/03/op...ccount.html?hp



Note: October 2, 2011