No, we don’t need China’s money to keep deficit spending:
Rob Portman’s speech at the Republican National Convention on Wednesday night was overshadowed by those of Paul Ryan and Condoleeza Rice, but it may have been the most substantive of the bunch.China manipulates its currency giving it an unfair trade advantage. So why doesnt the president do something about it?” Portman asked. “Ill tell you one reason President Obama could not run up his record trillion dollar deficits if the Chinese did not buy our bonds to finance themThis will end under Mitt Romney.”One problem: China has stopped manipulating its currency. Joe Gagnon, an international finance expert at the Peterson Institute, explains that China hasn’t added to its reserves of other countries’ currencies in over a year now. Of course, that doesn’t preclude manipulation in the future – but, for the time being, it’s not happening.I think there is a serious risk that they will start up again, but all the Chinese I have spoken with this year believe they will never do that again,” Gagnon explained. “We’ll see.” But for the moment, Japan, Singapore and Switzerland are more actively manipulating their currencies.That makes the claim that we need the Chinese to buy our bonds to keep interest rates on U.S. debt low highly dubious. What’s more, Gagnon explains, even if the Chinese government stepped up purchases of dollars again in an attempt to reduce the value of the yuan relative to the dollar, the Fed could easily respond by buying up Treasuries in return. Interest rates would stay constant and deficit-financed spending would be no more difficult than it was before.But let’s suppose manipulation starts back up again in January 2013. Is Obama or Romney better positioned to tackle it? It’s hard to say, but Gagnon faults Romney for not offering many specifics for how he’d “get tough” on China. Obama, by contrast, has a pretty good record on the issue. “Chinas manipulation really took off and peaked under George Bush,” he explained. “Under Obama it has gradually disappeared.”
Rob Portman’s speech at the Republican National Convention on Wednesday night was overshadowed by those of Paul Ryan and Condoleeza Rice, but it may have been the most substantive of the bunch.China manipulates its currency giving it an unfair trade advantage. So why doesnt the president do something about it?” Portman asked. “Ill tell you one reason President Obama could not run up his record trillion dollar deficits if the Chinese did not buy our bonds to finance themThis will end under Mitt Romney.”One problem: China has stopped manipulating its currency. Joe Gagnon, an international finance expert at the Peterson Institute, explains that China hasn’t added to its reserves of other countries’ currencies in over a year now. Of course, that doesn’t preclude manipulation in the future – but, for the time being, it’s not happening.I think there is a serious risk that they will start up again, but all the Chinese I have spoken with this year believe they will never do that again,” Gagnon explained. “We’ll see.” But for the moment, Japan, Singapore and Switzerland are more actively manipulating their currencies.That makes the claim that we need the Chinese to buy our bonds to keep interest rates on U.S. debt low highly dubious. What’s more, Gagnon explains, even if the Chinese government stepped up purchases of dollars again in an attempt to reduce the value of the yuan relative to the dollar, the Fed could easily respond by buying up Treasuries in return. Interest rates would stay constant and deficit-financed spending would be no more difficult than it was before.But let’s suppose manipulation starts back up again in January 2013. Is Obama or Romney better positioned to tackle it? It’s hard to say, but Gagnon faults Romney for not offering many specifics for how he’d “get tough” on China. Obama, by contrast, has a pretty good record on the issue. “Chinas manipulation really took off and peaked under George Bush,” he explained. “Under Obama it has gradually disappeared.”
Comments