No One is to Blame, Really. China and the US Set Out
on a mutually beneficial relationship which allowed the US to enjoy the fruits of deflation and allowed China to more quickly industrialize. It was good, and it still is good. The problem is that the relationship has become unhealthy, a way for both countries to avoid adjustments. Evans and US policy makers need to be more realistic how much we have benefited from China's support of our Treasury Market. Likewise, China needs to get more realistic about depending on the US as a Consumption Monster. Same goes for Japan.
The relationship is probably destined to have some problems, some set-backs. Stephen Roach often talks about "global re-balancing" as something that is needed in the future--but to my way of thinking, China pulling itself through an industrialization/modernization period was also needed to "re-balance" the world. China was too big of a country in population to not make the adavance its now making. Failure to do so really would have left an "imbalance" in the world.
Despite All the considerations, it might be helpful for China to do a single-shot, modest Yuan revaluation soon against a basket of major currencies, while announcing that was the limit, until another, say, 2 years from now.
There is never a painless way to revalue. It's like the British who keep saying "we'll enter the Euro at the right level, at the right time." There is really never an ideal time.
Best,
LP |
