World Economy

China Becomes US’ Scapegoat

China Becomes US’ ScapegoatChina Becomes US’ Scapegoat

The smallest two-month gain in US employment in over a year could fuel fears that the China led global economic slowdown is sapping America’s strength... one of the biggest lodestones on America’s economy was in the commodity sector, which has slowed in part because of weaker demand from China... The price of oil has fallen nearly 50% over the last year.

And more blah-blah. It seems the biggest export of the United States these days is to blame. Americans are certainly not keeping much of it at home when it comes to figuring out why the US economy has troubles, Xinhua quoted Jake Van der Kamp writing for a Chinese daily.

The variant that is the one about how things are going badly in the US because a minor stock market in which foreigners have only recently been allowed to invest, Shanghai’s, suffered a sharp correction when not enough foreigners came in to keep it propped up. This has upset the whole world order and it’s all China’s fault. Anyone can see that, Americans say.

It is visible how the commodity sector has slowed in part because of weaker demand from China. Yes, China’s iron ore imports, for instance, have flattened out at about 840 million tons a year. In 2001, they totaled 84 million tons. Some slowdown.

And why has commodity demand in China slowed? Could the reason possibly lie in the fact that American demand for imports from China is in decline just now? The price of oil has fallen nearly 50% over the last year. Again is it China’s fault?

Now look at the crude oil production in the US shooting up like a rocket for the last few years. This is not to mention that Washington’s price for boosting Saudi Arabia’s defenses against the latest crop of extremists spawned by showers of American bombs is that Saudi Arabia will continue to pump oil at record levels. But it’s all China’s fault. Blame China, the writer says sarcastically.

 US Theory Fails

The fact is that that the befogged academics who now run the US Federal Reserve Board are entirely at a loss to understand why their cherished theory of stimulating economic activity by dropping money from helicopters, so to speak, is just not working as expected.

All they have achieved is another bubble of speculation in financial markets and a faltering debt-addicted economy that they now say cannot even take a 25 basis point increase in interest rates, leave alone the very minimum of 250 basis points that normalcy would require.

But rather than be honest and admit that seven years of this easy money regime without an underlying recovery has proved them wrong, they continue to insist that all will come right, as their textbooks prescribe, if only they are given yet more time.

And when that will not do any longer they look for a scapegoat and find a convenient one in China.

Having a place to call home is a signature component of the American dream. But for far too many people, finding safe, decent, affordable housing is extremely stressful. The United States simply does not have enough affordable housing. And nationally, the situation is only getting worse.

 Curbing Yuan Speculation

China is studying plans to curb currency speculation even as it seeks to quicken the process of making the yuan trade freely, a deputy central bank governor said, Reuters reported.

Beijing will further open up its capital markets and develop its foreign exchange market as it aims to “accelerate the renminbi convertibility on the capital account”, Yi Gang wrote in an article published in China Finance magazine, a central bank publication. The yuan is also known as renminbi.

While the yuan is already convertible under China’s current account, the broadest measure of trade in goods and services, the capital account, which covers portfolio investment and borrowing, is still subject to restrictions due to worries about abrupt capital flight and hot money inflows.

Chinese officials have not given a firm timetable for making the yuan freely tradeable. They have pledged financial reforms to make the yuan more convertible as they push for it be included in the International Monetary Fund’s Special Drawing Rights basket.