China’s yuan, not the dollar, is too cheap

November 16, 2009

morici– Peter Morici is a Professor at the Smith School of Business, University of Maryland, and former chief economist at the United States International Trade Commission. The views expressed are his own. —

From Berlin to Bangkok, governments are screaming about the falling dollar, because they can no longer rely on reckless American consumers to power their economies.

From the late 1980s to 2007, the global economy enjoyed The Great Moderation-low inflation and sustained growth interrupted by brief recessions. Driving global growth was an eight fold increase in the U.S. trade deficit, facilitated by a doubling of the value of the dollar against other currencies from 1989 to 2002.

Deregulation and new technologies powered U.S. growth, and Americans flush with success bought whatever the world had to sell. However, when imports substantially exceed exports, Americans must consume more than they earn producing good and services, or demand for what they make is inadequate, inventories pile up, and layoffs and recession follow.

From 2003 to 2007, the U.S. trade deficit averaged $665 billion, and Americans massively borrowed from abroad to keep the U.S. economy going. They posted as collateral overvalued homes financed on shaky mortgages. When mortgages failed, banks failed, home prices dropped, and retail sales tanked. The U.S. economy was thrust into the worst recession in 70 years and pulled the rest of the world into crisis.

Imports of oil and consumer goods from China account for the lion share of the U.S. trade deficit. Americans drive big cars powered by thirsty engines. They sit on vast untapped deposits of natural gas but burn too much heating oil in the winter. Simply, conservatives in Congress are unwilling to submit to genuine energy conservation, and liberals teach developing domestic fossil fuels resources is evil.

For nearly two decades, China has maintained an undervalued currency. The Chinese government tightly regulates private trading in the yuan, and each year, purchases more than 400 billion U.S. dollars with newly printed currency to keep the yuan artificially cheap against the dollar. That is 10 percent of China’s GDP and 20 percent of exports to make Chinese goods artificially inexpensive on U.S. store shelves and juice Chinese exports.

China amasses huge trade surpluses that power its impressive growth, and the rest of the world suffers slower growth to compensate. An economic miracle sold to the world as policy genius but really built on currency mercantilism and beggar-thy-neighbor protectionism.

Japan has propped up its economy by purchasing dollars and permitting private investors to borrow yen at near zero interest rates and trade those for dollars-denominated Treasury securities. Now, Tokyo signals it will not let the yen drop much below 90 per dollar when a market equilibrium value would be closer to 80.

Other Asian export powerhouses have practiced variants of the Chinese and Japanese currency model too. It is no wonder the dollar was so strong for so long.

In recent years, private investors have grown wary of massive American borrowing. They have turned to the best substitutes available for the dollar-the euro, yen and gold-and driven up their values and pushed the dollar down against every major currency but the Beijing regulated yuan.

Now, with Americans no longer able to borrow madly to prop up global growth, protests are shouted around the world about a “cheap U.S. dollar.”

The hard facts are the dollar became overvalued earlier in this decade, in no small measure thanks to the currency policies of China and other Asian governments. Now, as private traders flee the dollar, its average value has fallen near the middle of its trading range for the 1990s.

The dollar has fallen too much against the euro and some other currencies, because China, Japan and other Asian exporters have been unwilling, in varying measures, to abandon currency mercantilism and let their currencies rise in value as free markets would require.

If China and others ceased subverting currency markets, the yuan would rise at least 40 percent, other Asian currencies would appreciate too, the U.S. trade deficit would shrink dramatically, and the new demand for American goods would rocket the U.S. economy.

With higher incomes, Americans would need to borrow less, and the global economy could go forward, embracing free trade in goods and currency.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

What American goods will suddenly flood the market if China permits the value of its currency to rise?

I can remember wave after wave of “made in …..” for the past 35 years. Back in the early 80′s Indonesia was exporting a lot of clothing. That disappeared fairly quickly. Korea was visible for a few years – also clothing. Toys-R-Us is all Chinese manufacturing. Only a year or more ago I walked down the shelves and picked at random. Everything was made in China. For archaeological purposes go to a Good Will Store and try to find another label but Made in you know where?

I have almost no consumer goods except old furniture that were made 75 to 100 years ago, that was actually made here. It was all made of better quality materials than the ersatz stuff that one tends to find now in even the higher quality stores. There is an awful lot of pressed sawdust- fiberboard and other cheap substrate material with a very thin wood or even printed plastic veneer that is passed off to the ignorant consumer as “fine” furniture. Doesn’t anyone examine the exposed edges of wood furniture anymore?

The used furniture was all garage sale or second hand furniture that was frequently cheaper even than imports. I haven’t seen a made in the USA label for years. There are apparently also massive imports from Mexico but I don’t see those labels very often except on big bags of taco shells. They export a lot of produce however.

The average pay in China, I understand, is $3000/year. Contrast that with an average pay of about $35,000/year here and what real difference will it make if China has a much stronger currency? Doesn’t that also mean that it will cost them relatively less to get the materials they need to import to continue to keep their people employed? Their heavily supervised economy could be the envy of the world if it wasn’t so draconian on human rights issues. They don’t have to raise wages – why make trouble for themselves?

Isn’t a stronger Yuan a double-edged sword? As I understand it, China has so much available labor it could keep their wages depressed for years and still satisfy the needs of most of its people.

We on the other hand have a very high cost structure that cannot be propped up by any means apparently because we are a country working at relatively little at a very high rate of pay. Wall Street was living on hype and BS for years. It was beginning to resemble Las Vegas. Some of the derivatives were nonsense and things like stock index futures were like betting on the traffic of the Brooklyn Bridge. The argument against even health care reform is rather like a scene from Hitchcock’s “life boat”. Those with it are only worried that those without will swamp them.

If it isn’t China – it will be followed by India, and eventually Africa.

What is the US consumer supposed to be? A Fois Gras goose that must stuff itself with consumption until it’s liver turns diseased? Or until his or her credit card bursts into flames?

Shouldn’t we be trying instead to lower the cost of living here? It costs the developing world less to get more. We have to spend fortunes to get even junk. And most of our population is a spoiled brat. WE tend to get less “satisfaction” for a higher cost. That is not true for most of the world.

Houses are no better built. Furniture is no more substantial. The car companies were building behemoth SUVs it seems, merely to stuff them with weight and gadgets that raised the price and the profit margin and loaded the purchaser with a high finance charge, as a rule. And we even try to push a system of artificial obsolescence on ourselves and anything we can get out hands on. Even our building codes seem at times to be designed by manufacturers and the trades.

I have a computer that is five years old and already the company that made it is trying to banish me to the fringes because they claim it is obsolete. I wouldn’t have noticed that until they told me? Some of their unexplained “updates” seem designed to scuttle certain features. The machine is a sitting duck for the “update” that kills it. There is no consumer protection law worth a damned for computers it seems – even if the average consumer could prove anything was wrong at all.

Perhaps what is at risk now – and perhaps should be allowed to vanish or be replaced by something more “sustainable” (a very vague idea and one that hardly anyone seems to understand) is the consumer culture? In a few more years – as an aging baby boomer – all I will be consuming in any quantity will be medications.

Posted by Paul Rosa | Report as abusive

With all due respect, your analysis are very true. Why not consider the cheap and low Fed Fund Rate as the ’cause’ and the Asian countries policy as ‘effects’? Are we hearing another chicken and egg question?

Posted by Wyman | Report as abusive

Correct analysis, but it is easier to analyze history.

How about this: China lets the RMB float higher to cut exports and US stops its massive foreign borrowings.

Ouch!!! Yes, ain’t going to happen anytime soon. So who’s to blame? Both. Takes two to tangle. Guess we just have to wait for more pain to clear the minds and the politics.

Posted by The Real Deal | Report as abusive

…er….,but China is not the one with a huge Budget Deficit and a liberal printing press,and Helicopter……

If the China government release control suddenly and let Yuan appreciates according to free market forces, the economy of whole world will collapse. Can you imagine the price of China-made goods, especially shoes and clothing, going up by 20% to 30%? Many countries do not have enough manufacturing capacity to cope with domestic demand. The textile industry in US is almost dead.
The China sovereign fund is already actively buying assets overseas. A strong Yuan and weak Greenback will only make their purchasing power strong.

To Paul Rosa,
We cannot reduce cost of living in US/EU without sacrificing the quality of life. The cost of our goods implicitly includes cost of our health system, retirement etc. Things that virtually don’t exists in China and India.
Make them provide social services at least at US level and dis-balance will disappear.
Corporations reallocate production to countries with cheap labor while pushing for free trade to capture our remaining wealth.

The engine behind ‘China economical wonder’ are 100,000,000s peasants who lost their land in competition with big industrial farms. In desperate search for income they provide 100,000′s factories with cheap labor. This process is called industrialization. UK, US Russia all went through this.
These 100,000,000s peasants work for nothing without any safety net. They getting old and at some point somebody have to provide to them. That what should add some cost to China good…

Posted by Sergey | Report as abusive

Dear Sergey: You’re not telling me anything I don’t already know.

So what do you think is going to happen to the standard of living in the developed countries? 10% unemployed implies a drop inn standard of living doesn’t it?

You are saying that capitalism needs those cheap foreign “peasants ” as you call them, as much as the Chinese economy needs them. And capitalism has to worry about social services because it has to keep those peasants alive and happy enough to do their job. It works fine when it’s working. Don’t we all?

Posted by Paul Rosa | Report as abusive

To Sergei: I didn’t answer your comment completely. WE could reduce costs of living by redefining how we live. More ingenuity on the part of the usually passive consumers of the stuff capital driven markets produce might help.

WE might really try to come up with ingenious and lower cost ways of doing everything that we use, live in and consume. And I don’t mean merely on a personal – “we recycle” effort, but in the way we zone, design building codes and manufacturing standards. If 10 percent unemployment becomes something we have to live with for a long time – and/or it continues to grow – towns, cities and states and even the federal government might put serious consideration into providing attractive – even seductive – but very low cost ways of housing people and providing them with a comfortable and attractive way of life – who can no longer – and perhaps may never again, be able to afford the higher priced alternatives. Does any economic system function well when it has masses of people living with seething resentment against the system they find themselves in or slipping out of? Maybe we should be creating volunteer “peasants”. Or seducing them into that role.

China and the USSR are both economies founded on a period where all differences were leveled by government fiat. The wealthy countries will never permit that and I am frankly relieved (or else am very naive). But I live in a country – the US – that does not encourage people to live inexpensively. It is death to the market. But we are competing with economies that have billions of people who had no choice in the matter and will tend to be satisfied with whatever they can get.

Labor unions will feel the greatest pressure here to loosen their grip on wages. What exactly is a fair wage anymore? There is never a “text book definition”. Perhaps there is, but it can’t specify numbers. There is no such thing as a universal fair wage or a universal standard of living. Perhaps there should be? Why should MacDonald’s be one of the few companies in the world that offers a universal standard in anything? I think they even beat the internet in terms of consistency of product.

Even if China permits trade unions (one of the rights – as well as the right to private property – enumerated in the Universal Bill of Human Rights) – they will have a lower pay scale than the developed world’s counterparts.
Those 100′s of millions of formerly rural workers will insure that. China can play capitalism at it most 19th century exploitive and that has had its effects here. There are still plenty of old Reaganomists who liked the good old, bad old days of the robber barons. They could be a heck of a lot of fun if you weren’t on the wrong side of them. The current recession is widely considered retribution for their social sins.

And I am fairly certain I am not telling you anything you don’t already know.

But how will the developed world ever “make” China or India do anything they don’t want to do themselves?

I also think sheng1 is right.

Posted by Paul Rosa | Report as abusive

The Yuan will need to appreciate, one way or another.

America and the West are quickly starting to realise that China’s balance of trade and economic growth is only based on unfair currency manipulation. And this manipulation will only continue as long as the West allows it.

This dispute will only grow in the next few years, as China’s economy grows as a result of Western economies tolerating the artificial devaluation of the Yuan.

If China does not bow to external opinion, then the Western nations will slowly turn on the screws with tariffs and embargos targeting China.

It is true that this action will be likely to cause economic instability in the Western nations, and potentially even another economic recession on a global scale.

But the consequences for China will be even worse. Without large amounts of Western trade and resources, its economy and employment will literally collapse within weeks. And with it, possibly even the Chinese government.

If China is not going to play fair with currency, then there is no need for the West to play fair with trade.

Posted by Anon | Report as abusive

Hi Paul, China has trade union, the largest in the world. However, trade union in China does not need to set minimum wage.
When the economy was good, the workers were switching jobs practically every month. The wage increment was more than 20%.
Back to the topic of Yuan’s appreciation. This is the worst time for the China government to release control of Yuan.
At a time when many people, notably from migrant workers from poorer provinces, are out of jobs, Yuan’s appreciation will lead to more unemployment. The rich-poor gap (or urban-rural gap) has the potential to cause a farmers’ revolution.
China’s government fears farmers’ revolution. From the 5,000 years of history, we can see farmers’ revolution were responsible for the collapse of dynasties.
A sudden release of Yuan to market forces has the potential to result in a change of government. That will be the worst case scenario.
Since many countries have invested heavily in China, and many multinational companies have invested in China, the world cannot afford a political crisis in China.
The best thing about China is that it is political stable, and the government really understands about economic, even if they can’t control everything.

To Paul Rosa & Sheng1

If China production disappear tomorrow morning by the evening it will be covered by US, India, Brazil etc. Flexibility is the nature of capitalism. Rule number one – nothing is irreplaceable. We saw many times that production capacity grows 10x in a matter of yrs after global disasters and wars.

Global disbalance is more interesting topic.

1. At least one naive solution to fix disbalance – tax capital that runs away. China and the rest of the 3-rd world don’t spend on social services, that makes them attractive to West capital. So tax investment according. Force capitalists provide Chinese workers with benefits equal to ours.

2. When we talk about free trade agreements West governments must factor in social services. Countries that don’t provide equal social net to workers must be subject to tariffs.
If we talk about to free competition lets compete by the same rules :).

The truth is that our western capitalists are the first to oppose real free trade.

3. Financial markets. They must be regulated to make sure that money flows to real-economy rather than inflate and deflate bubbles. Banking must become boring business and all risk seekers must go to hedge funds. Hedge funds contribute to insurance fund.

Posted by Sergey | Report as abusive

To scheng1,

We all understand that China benefits from undervalued yuan. I am not sure that China really cares about problem that its monetary polices creates aboard. The obvious example that over last 20 yrs US manufacturing was almost completely wiped out. …And emerged in China :). It is not attempt to put blame on China.

West just don’t have resources to support China development. Stimulus packages in all West countries result in depreciating our currencies against yaun. Thanks G-s our governments don’t care too much about private investments in China.

I heard that China GDP must grow by 9% or China may face social problems. I just wondering what is China going to do when it cannot growth by 9% anymore? Check history all industrializations end-up in massive social unrest. China population aging, most rural areas left behind.
This is view from outside. What is your view from inside?

Posted by Sergey | Report as abusive

Dear Prof. Morici,
May I remind you how Milton Freedman was the god of our currency manipulation? When economists and financiers lead the economy, this is what one gets. Forget China, they do what they should. They produce something. What have we produced lately, money, out of money? The only economics we might need would be that of Adam Smith, and accountants. Put in charge the engineers, start investing in production here at home, and easy the trademark rules in order for the technical innovation to trickle down the veins of American Powerhouse. We forget that our collective effort is to make our life better. If the GDP is rising, I want to feel it in my pocket. Your economics marvel theories did nothing good for this country. Technical progress did, and you just want to kill it.

Posted by M | Report as abusive

Hello Anon, Sergie and Sheng1and the author: I took a walk through a Home Depot, a Grocery store and a Goodwill store today. China wins the shelf wars at Home Depot and even the Goodwill shop. Tomorrow when I go back for an interview for a volunteer position at a local hospital – if they can locate the application I left a month ago, I will look at some of the other big box stores, but I know it will be the same story. The Grocery store was the only place – so far – where American production is still alive and well. But I have been to Europe several times in the past and know that the stuff that fills our shelves is not usually filling French, Italian or British grocery shelves. They have their own “Beatrice Foods”, “Nabisco” etc. for their home markets. A Chinese market in this country is filled with items that one never sees on American grocery shelves. Other than raw agricultural products like soybeans, corn, sorghum, wheat, and meat products there won’t be much of the packaged products that goes to overseas markets. Only in clothing at the Goodwill shop did I see more tags from other countries including some older USA manufactured ladies garments.

I still think Sheng1 is right about the ineffectiveness of currency float. China doesn’t build just inexpensive goods. It seems to do everything. The USA was heavy on chemically based products: paints, solvents and glues. I think the PVC pipe and fittings was USA made but there were no labels on them. Some lumber products were also US made. Canada and Mexico also show – Mexico for at least one Frig but I couldn’t find the “Made in” labels on most of them. Italy claims a place with ceramics and stone products. They have for centuries.

Sheng1 is right about the textile industry. The garment district in New York is so small the City is trying measures to keep the last two blocks alive: I suppose, because it is a convenience for the theater industry in Midtown. It is threatened by rising real estate prices and sky-high rents.

The average wage in China is $3000; the average wage in USA is $35,000. I don’t see how currency manipulation will change anything. If China didn’t do it as government policy, the so called “”free market” will and not to China’s interest, so I don’t see what difference it will make? The central argument is – who gets to profits from financial manipulation, isn’t it? China will always be able to undercut the competition at least here. But the floating Yuan might make it possible for other countries to give China more competition. But maybe not? Their currency will be stronger and they can boost production with all the productivity increases we claim. Some of our touted productivity increases during the 90′s were attributed to the computer and changes like self-service gas stations or self-service check out lines at the Grocery store. The Chinese can simply start to pump their own gas and check out and bag their own groceries. They can use the computer more if they don’t already. They are large enough they could write their own software for internal use if they don’t already. Even Micro soft has Kow-Towed on censorship software.

China has the luxury of enormous numbers of able-bodied workers who will sooner rather than later do everything – at any level in their economy. The USA has an aging population that needs comparative fortunes – even to live at public assistance levels. That is no exaggeration. And healthcare at very level – is a rip off. The Chinese government could beat the US at that. If anyone could create a nationalized and accessible heath care network they should be able to do that, don’t you think? .

Lets move out of the vagueness of financial theory and ask – what possible benefit will the Forex cowboys, sharks and hustlers bring to this discussion? None of you can be so naive as to think they will provide a public service for the benefit of world economic health, can you? Even your argument Sergei, about the “free flow of capital” is almost sounding a little too like something said by the local Chamber of commerce. It almost sounds naïve.

And forget violent upheavals and social revolutions. This is the birth decade of cradle to grave surveillance. A blogger on another page is very interested in getting in on the ground floor of that exciting new growth industry. China seems to me a country that can already do that with frightening efficiency. It somehow made 10,000 demonstrators disappear in the Tibetan unrest. That was so unfortunate because I don’t see why the Chinese government can’t learn to live with a “Vatican City” of Buddhism centered on the Potala Palace. Instead of picking and stuffing their own preferred replacement for the traditional head of Tibetan Buddhism.

I have worked in the general economy and found that employment was really a matter of looking busy and waiting for something to do. I worked in a minor department of a defense contractor and it really was one of the least productive jobs of my life. I had to work much harder with fewer benefits when I went on my own. I consider most American jobs a form of featherbedding.

China – on the other hand could increase worker protections, and still win the shelf wars. A stronger Yuan will make them all richer relative to the outside world. And since they already make most of the consumer goods, why would the majority of them shop anywhere else? They certainly won’t find better bargains anywhere else will they? And like Japanese cars, which were so much more sensible and better built, they might produce a fleet of lighter – more efficient and “greener” automobiles for a world market. They could win at that too.

Real estate is never measured as a guage of inflation, at least in the US. If it had been our rate of inflation would have been staggering. I don’t understand why not? In the age of mass production of everything, including buildings, they are really only another form of consumer good now. They depreciate and can be replaced by newer models. The USA is trapped in “slurbia” as FL Wright called suburban sprawl over 60 years ago. China isn’t. Brazil isn’t either. Most of Europe isn’t. They all have active and expensive mass transit networks. They all win on that efficiency too. WE can’t even dream about that here. And whatever we do will be achingly expensive and take decades in court battles trying to reclaim or recreate transit ROWs. Boston spent the last ten years or so rebuilding its transit system and it appears there are no abandoned ROWs left in the Metro area.

I know none of this is orthodox economic thinking and I believe the World Bank and the IMF want the Yuan to float. But I have now and again listened to the financial channels here and never heard so much adrenaline laced, hormonal or Zoloft or Prozac induced “positivist” rhetorical clap trap and self puffery (much on or over the line of conflict of interest) in my life. And it gets on the nerves as well. I suppose the halls of the IMF and World Bank are much more subdued but I’m sure their people aren’t immune to the hype either.

Maybe this country is just plain old screwed? The party is definitely over unless China remembers how to be a party girl herself?

And to M. What made this country the economic powerhouse was the fact that it had a continent to exploit and it didn’t get blown to kingdom come during World War II. The rest was just more chamber of Commerce rhetoric. The continent has been exploited and the oil is still cheaper elsewhere than it is here. One good thing to say about getting blown to Kingdom come: All those other world powers had the chance to do an extreme makeover.

Posted by Paul Rosa | Report as abusive

May I make a small correction. I meant to say Europe and others, have extensive (but rather inexpensive) rapid transit systems. And those systems are usually accessible by foot for most of the areas they serve.

Posted by Paul Rosa | Report as abusive

Hi Sergey
I can’t provide any inside view, since I’m not a mainland Chinese. I’m a Singaporean. As Singapore is an open economy, any change in the world will affect us for good or for bad.
If China production stops overnight, no country can replace in the short term.
Every industry needs skilled labor, equipments and support industry. It takes time to shut down an industry, and it takes time to build up the industry. Given that China produces 1/4 of the shoes in the world, mainly low-cost low-quality shoes, which country can take over the capacity?
China is not just the shoe capital of the world. It has practically taken over the pottery, textile and other low-cost labor intensive manufacturing.
The problem of China is not that it does not grow at 9%. The problem is to prevent the growth from overheating the economy.
Hopefully China allows Yuan to appreciate in economic boom. Now is definitely not good time to let Yuan appreciate.

Yuan valuation has always been an excuse for US trade deficit.
Noone ever mentions the tremendous expenditure on war, the cost of maintaining these huge US military bases all over the world and lack of expenditure in the the US own health care infrastructure.
China now has more railway lines than the US.

Posted by getreal | Report as abusive


Capitalism is people use their savings as capital to invest and build more and better things. No more, no less.

In the US, savings have been almost zero for a decade. Investments were financed by the Treasury borrowing money from foreigners and the Fed printing more money. This is not capitalism.

If the trading of goods and services in a country is relative free, then we have a free market. Capitalism does not necessarily mean there is a free market.

Now consider the international situation:

Is trade between US and China capitalism? No. Is that trade free market? No. The trade is governed by WTO rules.

So what do you call US companies building factories in China and make tons of money buy importing the stuffs back? Or China takes the US dollars it earn from exports and, instead of converting them to its currency, use most of it to buy US debt?

Call this anything you want but it is not capitalism nor free market. It is simply a set of special arrangements between two countries. Both did it for its own benefits. And both will have to handle the down side.

US used the China trade to finance two wars, speculate on nonsense, had a splendid good time for 20 years. China used the US trade to raise its standard of living, invest in infrastructure and education, and improve on security. Both made a ton of money – but each spent it very differently. Tell me who practiced capitalism.

So US-China now find the special arrangement may be no longer beneficial enough. Then its up to them to address it. It is not a problem for the world, and not an issue of capitalism or free market.

Posted by The Real Deal | Report as abusive

I agree with everyone thing Dr. Morici has said except his conclusion. Unpegging the yuan from the dollar, allowing it to rise, will do little or nothing to correct the trade imbalance with China. It’s naive to believe that a nation that will do anything to keep its favorable currency valuation, once forced to let it float, won’t be equally as devious in manipulating the prices of its products, cutting them just as fast as the yuan might rise.

While the Japanese yen rose by more than 300% over the past three decades, the U.S. trade deficit with Japan exploded – exactly the opposite of what would be expected. More recently, when China did revalue the yuan by 20% vs. the dollar, our trade deficit with China only grew. Even more recently, as the dollar plunged vs. the yen and the euro, import prices from those regions have actually fallen in the past twelve months.

It is not currency valuations that drive global trade imbalances. It’s disparities in population density that drive big differences in per capita consumption. The result is a nearly automatic trade deficit when a reasonably populated nation like the U.S. attempts to trade freely with grossly overpopulated nations like Japan, Germany, China, Korea and others.

Our trade deficit won’t change until we become as clever as other nations in protecting our domestic market.

Peter Murphy, do you forget that the US is member of the WTO, and the main architect no less? It was a precondition for the USSR to withdraw from Eastern Europe. What happened was a catastrophe for the Russians, but the US businesses overplayed their hands, and got burnt 20 years later. Successive US governments bear the whole responsibility for letting investors rule the game freely. More regulations, no less should have been put in place to prevent multinationals moving capital abroad without compensating for the loss of investments at home. Since the national supply was aggressively split, part of the labour used in the local economy was diverted to jobs paying less, and consequently, demand, after being propped awhile with credit, faltered.
While the firms have the obligation towards owners to maximize profit, it is the obligation of the government to restrain negative impacts resulting from economic activities.
One of the most important effects in the last 20 years was the continuously eroding household incomes of the so-called middle class while GDP was rising. That should have been a warning sign for the government, but sadly, it still is overlooked today.
If you look at the Scandinavians and Germans, prevalent is not population density, which I would not deny, but a more balanced distribution of wealth.
However, I do not think that their capitalist way is palatable for the American political elite just yet. Just in my opinion.

Posted by M | Report as abusive

Things are simple:

I read somewhere, that the critical mass of poverty is around 20% of the population, after that things become explosive. Poverty is a perception, it doesn’t matter what the official statistics like unemployment rate, lack of healthcare, etcetera tells us…

So, the yuan will appreciate soon, that is inevitable, otherwise the unemployment in US will worsen. The question is if the level of life standard will improve and where – in the US or China. Whoever is second, will get the revolutiuons first. It doesn’t matter if life standards are at different levels in these two countries, all it matters is the comparative change of life standard in each country.

Posted by Ananke | Report as abusive

Peter Morici and Paul Krugman are world apart. But to my surprise they both express the same concerns about Pr. Obama policies:

1. Unconditional support to financial system that resulted in rampant speculation while real economy suffocated.

2. Failure to make China play by open market rules.

Posted by Sergey | Report as abusive