Morgan Stanley’s Stephen Roach has written for years on the problems of global debt. Yesterday, heoffered the soundest public policy advise in years. Roach states, “We should take out the baseball bat on Paul Krugman — I mean I think that the advice is completely wrong.” Ho-Ho-Ho, I may yet have a career in high finance! Roach is reacting to Krugman’s call for appreciating the Chinese yuan in an attempt to alleviate the problems caused by the corporate globalization scheme of the last several decades, for which there was no greater advocate than Mr. Krugman. The only thing I could add is why stop there, might as well continue swinging across the halls of the NYT.
Mr. Krugman is a prime example of the insolvency of our political economy. The distance between Mr. Krugman and Alan Greenspan is so small you’d have a hard time slipping a sheet of paper between them. Mr. Krugman became the darling of the Democratic opposition, winning his Nobel prize not for his economic thinking, but for pillorying our last hapless president, Mr. Bush. As the front page of the NYT helped lead this country into the most disastrous war in history, screaming the garbage of Ms. Miller and the propaganda of Iraq WMDs across the front page, the NYT’s publishers, realizing most of their readers were against the war, allowed Mr. Krugman to blather away on the back page. “You tell ‘em Paul!” Now, the Democratic faithful think Mr. Krugman is on their side, though he advocated for decades the dismantling of the American industrial base.
China is one of the great civilizations of human history. They unfortunately, and very much to their own detriment, bought the corporate globalization game hook, line, and sinker. The WSJ(tx yves) has an interesting piece stating:
Vice Commerce Minister Zhong Shan, in an exclusive interview Thursday ahead of a visit to the U.S., said that the profit margin on many Chinese export goods was less than 2%.
Most exporters absorbed the appreciation in the value of the yuan that followed its revaluation in 2005 by boosting innovation and cutting costs, but many were forced to close, he said. A further rise in the currency’s value would endanger more exporters’ survival, which China can’t afford, he said.
How close this is to reality, hard to say, but there definitely is some truth in it. The appreciation of the yuan would cause great problems for the Chinese. It also flies in the face of any historical context. In the 1930s, the US was very much in the position of the Chinese today. We devalued the dollar. FDR spent three months at breakfast randomly choosing the price of gold against the dollar. One morning, he increased it by 21 cents, stating it was a lucky number. FDR didn’t have much respect for the lords of finance or the economic priesthood. Over the course of several months, he devalued the dollar by 40%.
The world is a far different place than it was in the 1930s. We are in the midst of the collapse of the great corporate globalization experiment of the last three decades, which was an American led endeavor. The Chinese are dependent as us on a global system held together by the world’s greatest debtor. This is a situation which is unsustainable, meaning, it will not be sustained. China is far weaker than many believe, and their history of the last two centuries shows in times of foreign induced troubles, they tend to turn on themselves as opposed to lashing out. That is something no human being should wish on any other people. Our political economy is bereft of necessary new thinking, events are in the saddle.
Cross-posted from Archein: baseball begins early
Archein