Since China pegged its yuan to the dollar in 1994, their economy has grown by 8.6 percent a year -- inflation-adjusted -- with only a 3.1 percent inflation rate.And he goes on to say:
As for trade, the best thing the U.S. could do is slash business taxes here at home to make us more competitive abroad.Roubini argues in Greenspan on the Chinese Currency...Playing with Fire and Hard Landing...The administration is playing with fire urging the Chinese to revalue without a corresponding fiscal adjustment at home. However, we may get a revaluation soon because
...the Chinese exchange rate and forex intervention policy is leading to major financial imbalances in the Chinese economy...Without adjustments here we are likely to see higher interest rates and inflation.
If Chinese/Asian supply of financing shrinks and the US demand for financing does not, we then get a US hard landing as the US dollar sharply falls and US long rates sharply increase.What kind of adjustments are needed Roubini? Why spending controls and tax increases!
Kudlow seems to think because the currency peg has worked for 11 years, that it will keep working, never mind the ballooning trade deficit and our lack of financial sanity at home. Roubini suspects, correctly, that a government administered policy leads to mal-investments in the Chinese economy, but no way in hell are we going to have tax increases in this country! We are running the risk right now of the economy rolling over, higher interest rates because the FED is behind the curve, and spending, domestically and militarily, are out of control.
It doesn't seem to me that either economist gets worried. The reality is:
soon the Chinese will revalue,
our interest rates will go up,
the FED will continue monetizing the debt,
and the Fed will choose to "inflate or die"!
