My beloved butch Beltway brawler and Wall Street flack Laura
wants us trade-gap Chicken Littles to cool our jets about unfixing the Asian
It's no time for a forex rectification, sez our Laura, even as a powwow
between Uncle and jobster America's main enemy, the import death star
"The United States and China will hold their annual strategic and
economic dialogue discussions next week in Washington,
and the exchange rate between the dollar and the renminbi, China’s
currency, is again likely to top the agenda
...Added to the mix this year is some offensive, sophomoric and
embarrassing name-calling of the Chinese by Donald Trump...."
"The demand for tough action by American policy makers fails to
recognize that the renminbi has already appreciated significantly
relative to the dollar,
exaggerates the benefits of a stronger renminbi for the United States
and overlooks the benefits of a stronger renminbi for China itself."
The wheel comes round and round on all this, but the bank that bought
Laura's mouth had this in mind, as Dean Baker puts it so nicely
"It is likely that Morgan Stanley would benefit from having the
dollar remain high against the Chinese yuan,since this means that its
dollar assets will go further in China. In other words, the position
being advocated by Ms. Tyson in this piece happens to coincide with
the interests of the company on whose board she sits."
Yes, the currents flow both ways, and the imperial export dollar can
find new emerging landing fields when the long uptaper of the yuan
reaches the glory moment --
when it's unofficially welcomed into the advanced currency club like
Japan was welcomed in the 90's and South Korea is about to be
Complexity and contradiction is rife; but through it all, through the
ups downs and sideways, the flips and flops, the unders and overs, the key
question remains the same, and so does the answer:
Who's the first decider here? Who designs
and redesigns the global forex structure and its dynamics through the
system of central banks?
No answer necessary, eh?
It's Wall Street, and every central bank on earth
knows that, and has known since Ike crossed the Rhine.
So what's Wall Street's view today? Tyson's view: hold the forex
structure in place; no big adjustments.
Seems that reflects our cross-border corporate types' bottom-line best
interests here and now.
By the way, two popularly written papers by Stanford's own Ronald Macdonald
McKinnon might throw light on the whys of this:
Ron's another friend of Wall Street.
Paper one sez trade gaps should be closed by variable rates of import
by a policy of stagnating the north deficit traders' domestic economies and
booming the emerger surplus traders' home markets.
Okay, so he makes his argument in Wonderland, of course. He doesn't
try to model anything like a stylized real world system.
We're to accept the analogy between these two worlds -- the real one and
the impossible one -- because they are twins aspectually speaking, that is,
with respect to trade dynamics.
What is absorption? Its the ability to buy imports. Get it?
Reduce that ability, you reduce imports.
Since income is the basis of everything dynamic, you clip disposable
income, or goose it, depending on the direction you want to move the old
exim -- the export-import gap.
In Wonderland, absorption reduction (disposable income reduction ) can
be accomplished without unemployment and the sacrficed income can be
extracted by gubmint through a fair and popularly designed tax, just as
absorption increase can be produced by a tax cut.
In addition, in Wonderland these policy moves can be co-ordinated on
both sides to hit simultaneously. Beautiful!
Of course, here on the real side of the looking glass, we just had and
are still having the real world analogy to this pure absorption policy,
right? China booms while America swoons -- but not beacuse of taxes.
It could be otherwise.
The asian crisis of '97 was a mirror-image drama. Asia swooned while
Clintonian america boomed.
The job class might prefer
a fast recovery and a huge forex adjustment;
but Ronald's second paper suggests international investors are better
off with as much fixity and certainty in the ongoing forex as
This includes, of course, national price level movements too
better the price structures retain glacial Elmer Fudd rates of
metabolism. All the better for them damn corporate wabbits scurrying
the low-hanging fruit slow adjustment always produces.