In one of Krugman’s recent blogs, he supported getting into a trade war, if necessary, to force the Chinese into revaluing (increasing its strength) versus the dollar. My first thought was that he wants China, the biggest holder of our debt, to increase the value of its value of its currency vs. the dollar, which would make all those treasuries they’re holding instantly worth less. Wouldn’t this just be mini-default on our part if China did this? If my thinking is sound, then why would China ever concede to something like this? Has anyone called him out on this?
His other rationale is that we have the advantage over China in this dispute, and that their strong currency would increase our imports to them. He never considered that it would also increase the prices we pretty much pay for everything and instantly decrease our standard of living. I assume his assumption is that we’d suddenly tool up and start making things for ourselves instead of importing them.
It’d lessen our Government’s debt obligations under the guise of increasing potential for international trade. Isn’t it obvious?
As for the export-love Krugman’s nothing but a mercantilist wash. The standard of living of individuals doesn’t matter in the slightest. All that matters is keeping GDP up, and artifically propping up exports does just that.
Azure, it was obvious to me, but not one commenter on his blog touched on it. And there are Krugman critics on his blog that call him out on stuff, but this went by without a single protest. That surprised me, enough to come here and make sure my reasoning was sound. Ironically, Krugman did call his approach mercantilism, though he says its temporary, justified, and will benefit us in this situation.
Maybe he can start a “race to the bottom”: devalue the dollar as much as possible and see how long will it takes for the Chinese to get tired of debasing their own currency.
I sincerely doubt the US has many instruments to force Beijing to do their bidding. Beijing can retaliate simply by cutting its purchases of US bonds, be them Federal or municipal, by a mere 5%. Of course the resulting inflation (Fed creating money to buy more debt) could be blamed on “speculators” and “greedy oil companies” but Krugman and his cronies are smart enough to understand the consequences of a similar action.
All in all it seems to me Krugman is just beating the old tired drum of xenophobia, just like the Reaganites were doing in the '80s with Japan. When everything else fails, blame Johnny Foreigner.
speaking of Krugman, he constantly beats his chest about how bond rates aren’t rising, how there are no bond vigilantes and this fear of inflation is unfounded. Why haven’t bond rates started to increase?