Thursday, November 11, 2010

Is China Really at Fault?

I’ve written before on the relationship between America and China and the problems with one country setting up a mechanism that prevents their currency from appreciating. I’ve advocated tariffs, because that would be the only way to make the Middle Kingdom understand that one country can’t control its currency with a state run apparatus, when all their trade partners do not have such a mechanism.
Lately, China has been saying that our quantitative easing is doing the same thing. I disagree, but I do wonder when we, as a people, are going to admit we thought there was twice the money in the country than there was, because places like Bear Stearns and Lehman Brothers lent out over 30 dollars for every dollar they had in reserves. Our houses weren’t worth more, but we took this ephemeral equity out of our houses and bought boats and took trips that we couldn’t afford. We extended our debt by running our credit cards up to the limit and acquired new ones. Now a quarter of the houses in this nation are underwater. Doesn’t it look imprdent now that we thought the beans would grow to the sky?
Just as the people who use drugs in America create drug cartels in Mexico, we were at least partly at fault  as the slimeballs who ran America’s Banks. Now our houses are under water and we won’t admit that we made improper decisions to take on so much debt. It will take an immense amount of deleveraging and pain to get us back to where we should be. There was a guy I knew who would scream at me that deficits didn’t matter; why was I so stupid to worry about it? He probably won’t ever admit he was wrong, but his ideas were shared by many on Wall Street and we let them get us into the biggest mess in financial history.
But the Chinese always know what they are doing and they looked at this  country turning into a debtor nation and said: they’re doing it to themselves, so we can hold the value of the yuan down and take advantage of their mistakes. George Bush once justified his trip to the Beijing Olympics because he “was going to visit our money” (he does have a good sense of humor). Unless America can stand up and deal with the pain of deleveraging, the America I love will be on the way to the poorhouse, printing money while our ship goes down. China took  some advantage but we encouraged them to do it. Wouldn't Wall Street have done the same?
Here’s a you tube clip that puts it all into perspective.

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