United States – Please Don’t Use Your Currency to Disrupt the Global Economy

By: Fangzhou Chen

From Enron, to Madoff, to the continuous Wall Street scandals, the incompetence of the U.S.
government has failed time and time again to prevent these incidents. In 2008, the financial crisis
swept across the U.S. and the world. At the beginning, the Obama administration attempted to
rescue the financial and banking sector with a $2.5 billion dollar bailout to the ten largest banks
in America. The taxpayers’ money was immediately spent on the issuance of 7 digit salary
packages to the banks’ avaricious upper management. How can people be so shortsighted?

After two years of a democratic administration, the U.S. economy has not seen any optimism.
With the U.S. mid-term elections approaching, the Democratic and Republican parties have
engaged in a fierce lobbying battle to gain public interests. The U.S. unemployment rate remains
high amidst the current economic downturn and financial market turmoil, with both political
parties yet to make any progress towards a solution.

Candidates of both parties have shifted the blame of their current predicament onto China.
Canvassing for the Democratic Party, Obama claimed that with the increase in outsourcing of
manufacturing jobs from the U.S. to China, the RMB must appreciate to assist the U.S. economy Joanne 10-11-2 3:08 AM
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to cope with the situation. The Republican Party is attacking both China for taking away jobs as
well as the Obama administration for purposely allowing this to happen. According to U.S.
Today and various media reports, roughly 30 candidates from both the Democratic and
Republican parties have anti-China campaign ads. In a political ad by West Virginia Republican
Congressional candidate, Elliott Maynard falsely criticized Obama’s stimulus package for
renewable energy projects by saying the majority of the jobs created were Chinese-based.
Frustrated Republicans and Democrats alike are desperately shelling accusations against China,
claiming inequality in China-U.S. trading as the root of the current unemployment
situation. However, it should be no surprise that come election time in the U.S., China will still
be the scapegoat for policy issues as was the case for the past 20 years. Yet, are the weak Joanne 10-11-2 3:12 AM
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economic growth, commercial market slumps, and high unemployment rates in the U.S. caused
by China? Clearly not. We all remember that in 2008, the most serious economic crisis,
comparable to the Great Depression, transpired from the U.S., not China; it was caused by the
subprime mortgage crises and not the Chinese RMB.

The two states, California and Nevada, whose people are most concerned about the
unemployment issue, are wondering whether they will be able to return to work or not.
According to a report by the U.S. Bureau of Labor Statistics, in 2008 California’s unemployment
rate was 7.8%; in 2009 it climbed to 11.4%; climbing, yet again, to 12.4% in September 2010.
Joanne 10-11-2 3:14 AM
Nevada saw a similar trend where its unemployment rate was 6.7% in 2008; the rate climbed to Deleted: ing
11.8% in 2009 and rose to 14.6% in September 2010. The real estate market is even more Joanne 10-11-2 3:14 AM
shocking - California housing dropped nearly 38% from January 2008 to June of this year. Deleted: ;
Nevada is even more serious with a drop of nearly 53%. Given these poor numbers and such Fangzhou Chen 10-11-9 5:53 PM
weak policies amongst these economic doldrums, the embarrassed U.S. government only shirks Deleted: was rising
their responsibilities and passes them to others. Joanne 10-11-2 3:14 AM
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On October 25th at the Global G-20 Summit held in South Korea, the U.S. Treasury Secretary,
Timothy Geithner, reiterated that the U.S. has always supported a strong U.S. dollar. His voice
soon faded that same day as the U.S. dollar index sharply fell in the western hemisphere.
According to U.S. Bloomberg financial reports, the U.S. dollar index fell from 82 points in Joanne 10-11-2 3:15 AM
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September to around 76 points; a drop of almost 10%. The depreciation of the U.S. dollar against
the Canadian dollar had recently hit the lowest in 15 years. Not only was the U.S. dollar
depreciating against the Canadian dollar, but also against the Chinese RMB, the Euro, the
Singapore dollar, the Australian dollar, the Korean Won, the Japanese Yen and other currencies
around the world. The U.S. dollar against the Australian dollar has hit the lowest point in the past
27 years. From an economic point of view, any constant depreciation in a country’s currency
forced by the government – though allowing for cheaper exports for that country – will adversely
affect the global market economy; it is best to reach a dynamic equilibrium instead.

Geithner also stated during the G-20 that healthy economic recovery means rebalancing the
global economy. The larger trading and current account surplus countries should convert to
development strategies by changing from export-oriented to domestic consumption, whereas the
current deficit countries should promote growth through exports and trade. Apparently, the U.S. Joanne 10-11-2 3:16 AM
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has given up on the banner for free trade. Geithner is being contradictory. A U.S. expansionary
fiscal policy will clearly leave a heavy burden on many surplus countries. For some countries, Joanne 10-11-2 3:16 AM
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rapid appreciation of their national currency will seriously undermine the competitiveness of
their export enterprises. For China, South Korea, Brazil, Japan, and other export-dependent
economies, this will be a serious blow. These countries will face sharp drops in exports and
slower economic growth. Currency appreciation, on the other hand, would speed up the inflow of
“hot” money, further raising the money and asset prices and thus, increasing the risk of a second Joanne 10-11-2 3:17 AM
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financial crisis. If a second advent of the economic crisis were to emerge, then certainly the
Joanne 10-11-2 3:17 AM
United States would have stained hands.
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It was also on October 25th , that the Goldman Sachs Group claimed that the U.S. Federal
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Reserve had announced it would acquire up to $2 trillion in assets. According to economists Joanne 10-11-2 3:18 AM
surveyed at Bloomberg news, the Fed is likely to start a fresh round of unorthodox stimulus on Deleted: that very same day
November 3rd by announcing a plan to purchase at least $500 billion of long-term securities. Joanne 10-11-2 3:18 AM
Goldman Sachs Group Chief Economist, Jan Hatzius, said that the Fed would announce next Deleted: that
month a new round of policies for monetary easing to stimulate economic recovery. This second
easing policy has roused panic in investors as the U.S. printing press starts again, flooding the
USD and promoting a weaker dollar, which seriously damages the economic interests of the
largest holder of U.S. treasuries, China. U.S. economist and 2001 Nobel Prize winner in Joanne 10-11-2 3:19 AM
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economics, Professor Joseph E. Stiglitz, directly criticizes the U.S. government’s actions saying
that “it gave money unnecessarily to the banks without getting anything in return […] so we’ve
wound up with a more distorted financial system. Because we bailed out the banks, and not just
the banks but also the bankers, shareholders and bondholders, […] we created a system of ersatz
capitalism where we socialized the losses and privatized the gains.” From this, we clearly see
that, although being the birthplace of the 2008 global financial crisis, the United States is
undoubtedly hoping that China and other countries would share more in the costs of their own
economic disaster.
The late U.S. economist and 1976 Nobel Prize winner in economics, Professor Milton Friedman,
argued for the cessation of government intervention in currency markets and promoting the
practice of freely floating exchange rates, as government intervention would not improve the
operations of the economy. The United States – please do not use your dollar to disrupt the
global economy.