How China's currency manipulation caused the crisis

JONNY

Looks like Brown must rewrite his script.
It wasn't me. It wasn't even the US sub-prime. Now I know for a fact it was the Chinese wot dunnit.
Domine non culpus sum.

ID

Bad Chinese! Naughty Chinese! How *dare* you invest your rotten money in the US economy?! Couldn't you see the problems that was going to cause? (Even by the standards of James' pukeworthy, mini-yank-me, reach-arounding for every lame neocon trope going, this one's a low point).

mac

Nah, it started in America.
Gordon the economic colossus couldn't have missed China's involvement, now could he?
And remember, this is no time for a novice.

Slim Jim

I wonder who the Chinese will blame?

oldtimer

There is a robust alternative view, ofered by Willem Buiter. It can be found here:
http://blogs.ft.com/maverecon/2009/01/when-all-else-fails-blame-china/#more-420

He concludes:
"So while the protectionist genie is not yet out of the bottle, it is kicking and pushing against the cork, trying to escape. The verbal sabre rattling by US Treasury Secretary Geithner is a threat to the open global trading system. More stupidities along the same lines could bring us the global trade conflict that we have been fortunate to avoid thus far."

Recusant

I always thought that madman - in all other respects - Douglas MacArthur was right to have wanted to nuke China during the Korean War. If he had then we wouldn't be facing half the problems we have now and the even greater ones we will face in the future. Instead Truman sacked him.

mark c

see... easy ... spend like fury with all money you dont have and it's some one else's fault for having to lend it to you ! DOH......

TomTom

This is exactly the same story as with Japan in the 1980s and The Louvre Accord. Why the Americans are so stupid as to repeat the same policy errors is mind-numbing.

Jimmy Goldsmith had his book The Trap to warn of the perils of letting China trade tariff-free but Clinton went ahead anyway with the EU in tow.

So China destroyed manufacturing industry through deflating prices of finished goods and inflating prices of raw materials.

The surpluses were recycled through bond markets and T-Bills just as the Arabs did with OPEC surpluses in the 1970s.

The IMF prescription of tariffs against persistent surplus countries were ignored just as with Japan. What is the point of having an IMF if its policy rules are only enforced on deficit countries and not on countries with manipulated surpluses unbalancing the global payments system ?

Vi

China is/was manipulating currency - true.
This manipulation caused the crisis - utterly false.
Mortgage bubble is the only/main reason for crisis - stupidly false.
In conclusion James Forsyth is stupid - very likely

Frank P

But don't we elect governments in the West to sus out these phenomena and take evasive actions when necessary to prevent us from getting screwed in the global markets? First Amerikkka is the villain, now China; anybody but our own 'financial wizards', who just jumped on the bandwagon and filled their boots. No more boom and bust! But plenty of bollocks, bullshit and 'bizness' (bribery), that's for sure. Call an election FGS and let's start again. UK PLC needs a new Chairman and Board, pronto. BTW if 'buying' a Peer costs on average a hundred grand, I wonder what the going rate for a judge is these days? The old gangsters used to tell me that ten grand could get you quite a deal in my days up the sharp end. Anybody know what the going rate is these days?

Johnathan Pearce

But even if China was partly to blame for the mess, it then begs the question of what, if anything, could or should have been done to make the Chinese let their currency float so as to correct that imbalance. The West could have blocked imports from China, for example, but protectionism tends to be a double-edged sword.

There is a real problem that is beyond the ability of national central banks to control: if you have international capital markets, and some countries like China and Japan have big fiscal surpluses, while others, like the US and UK, are up to their eyeballs in debt, it means that the latter can borrow cheaply from the former right up until the party stops.

wonderfulforhisage

Which rather suggests that had there been a free global fx market we wouldn't be in the mire to the extent that we are.

Yet again the dead hand of Government strikes.

So the current economic crisis does not indicate a failure in the free market system after all.

My devious conspiracy theory mind wonders to what extent the Chinese knew exactly what they were up to. They are reknowned for their long game.

Dirtyrottenvarmint

Do they sell the stuff Mallaby is smoking? China _decided to export_ vast quantities of capital? Why, because they don't need capital at home? China's a capital powerhouse these days, is it? That must be why all those Chinese factories are so automated, like in Japan, right? I mean they have so much capital, it's hard to find a job without a college education, right? You have to be able to operate all that complex, computer-driven _capital equipment_ to get a job in China, right? It's not like you can just leave your pigsty, walk into town and get a job sewing grommets onto Nike's at 6 kuai a day, right?

_Americans_ didn't borrow from China. Do Chinese banks by U.S. mortgages? No. And you do not go on a road show to Beijing when you're underwriting a BBB corporate.

Americans borrowed from themselves and their own banks so that they could spend beyond their means. They bought shit from China. China, running a trade surplus, had to find a place to put those dollars - this is Global Finance 101 - and the Chinese bought U.S. Treasuries. China bought Treasuries because they needed somewhere to put the dollars Americans spent on Chinese products - you know, all that "Made in China" stuff on Wal-Mart's shelves that nobody can do without.
The Fed _caused_ the bubble by keeping interest rates _artificially low_, which combined with fuckbuddy cronyism from Barney Frank et. al. led U.S. consumers to take out second mortgages on houses they couldn't afford, which they then spend on shit they didn't need. China did not just build a bunch of junk and dump it on the U.S. market: U.S. companies _built factories_ in China to make crap to fill the _demand_ for cess on the shelves of the American supermart. Any bonehead can see this makes more sense than the Kevin Costner approach to manufacturing (build it and there will be a market - what kind of moron CEO runs their company that way? Well, okay, but they don't run it for _long_ before they run it into the ground).

The bond market had absofuckinglutely nothing at all to do with supply and demand. Supply was infinite. This is called inflation. We've all been doing it for about 70 years now. Banks, at the encouragement of the Fed, created new money out of air and fed the voracious maws of borrowers who had been conditioned since birth to assume that the teat of fiat credit would never run dry.

This crap from Mallaby is exactly the reason America now has a problem. We are collectively incapable of taking responsibility for our own mistakes, because we are constantly told that being "free to be you and me" is preferable to self discipline and defined moral values. Guess what, when you wake up hungover in a pool of your own vomit, you have only yourself to blame.

wonderfulforhisage

Which rather suggests that had there been a free global fx market we wouldn't be in the mire to the extent that we are.

Yet again the dead hand of Government strikes.

So the current economic crisis does not indicate a failure in the free market system after all.

My devious conspiracy theory mind wonders to what extent the Chinese knew exactly what they were up to. They are reknowned for their long game.

Rhoda Klapp

So China selling cheap stuff to people who would buy it is some kind of a plot is it? What were they supposed to do, this is Adam Smith at his best, not bad for a bunch of commies. If you as a person or a nation borrow too much to spend it on indulgence, you can't blame the shop or the bank.

This theory will not fly. Indeed it has united coffeehousers from all parts of the spectrum, not easy to do.

Andrew

Trouble with blaming the Chinese for a crisis is that thirty minutes later you feel like blaming them for another one.

jim

Don't make me laugh. The greatest currency manipulator is America. It is a fact that most commodities are priced in dollars. If you want to buy oil, you usually have to buy dollars, which the Americans print for virtually no cost. It is the tribute we pay for their empire.
The Chinese and other mercantilists have a pile of soon to be worthless dollars, sure they do a bit of manipulation of their currency, but then so does every other government in the world.

Coeur de Lion

Recusant @ 4.26 Douglas MacArthur was a military and political genius with immense personal courage and did not threaten North Korea with the arom bomb. Read up your history. But he foolishly got across Truman by contradicting a policy position and embarrassing the State Dept

Ian C

There is no doubt that China manages its currency. Does it manipulate it in order to do so? A serious and protectionist noise coming from Geithner that is probably just an opening gambit by the new Administration after a period of the Chinese having it easy under Bush.

However, someone forgot to tell the Fed Central Bankers, Greenspan and his acolyte Bernanke especially.

There is an excellent counterweight to Mallaby's economically illiterate piece in yesterday's WSJ entitled "Geithner is Exactly Wrong on China Trade" by Bret Swanson of the Progress & Freedom Foundation.

His case is that the US Fed & Treasury under Clinton undersupplied dollars in the late 90's, so boosting its price and suppressing oil, gold and commodities at first and helped to cause the dot-com boom. Then when deflation fears set in (late) interest rates were maintained far too low for too long which resulted in the boom in commodities and leverage.

All in all a more credible scenario than that painted in the Washington Post. And consistent with Dirtyrottenvarmint above.

I am of the view that the USA allowed this to happen over a prolonged period (since the 1980's) in order to try to bring a feared communist state of consequence into the modern world with minimum backlash i.e. without a nuclear bust-up. But that's only the political backdrop to whatever has been going on the economic front.

Hysteria

Andrew - brilliant!

AG

Dear Mr. Forsyth,
I have written a paper making the same argument. You can find it here http://ssrn.com/abstract=1332842
I am interested in comments so please send them if you have time to read the article.

Andrew Forbes

Hysteria is correct: compliments are due, Andrew (27/1, 7:10pm).

Frank P

dirtyrottenvarmint.

Wonderful rant. Why didn't they make you President? They should at least make you US Ambassador in London in place of Caroline Kennedy. I read in what was once the Torygraph today that she is being mooted for it, to follow in her 'glorious Grandad's' footsteps. We threw the old shit out in 1940 because he was a Nazi sympathiser. He was the 44th US Ambassador. Now we have the 44th POTUS. What is it about the number 44 that is so toxic?

Andrew, Andrew Forbes and Hysteria. Pound to a pinch of shit you'll hear some smart ass plag. comic repeat that wonderful gag within 24 hours. Sue 'em if they do, Andrew. Many witnesses available here.

Frank P

dirtyrottenvarmint.

Wonderful rant. Why didn't they make you President? They should at least make you US Ambassador in London in place of Caroline Kennedy. I read in what was once the Torygraph today that she is being mooted for it, to follow in her 'glorious Grandad's' footsteps. We threw the old shit out in 1940 because he was a Nazi sympathiser. He was the 44th US Ambassador. Now we have the 44th POTUS. What is it about the number 44 that is so toxic?

Andrew, Andrew Forbes and Hysteria. Pound to a pinch of shit you'll hear some smart ass plag. comic repeat that wonderful gag within 24 hours. Sue 'em if they do, Andrew. Many witnesses available here.

David.x.kelly

As a banker for over 35 years this seems to smell of the usual nonsense to me that we get in the popular media "that when the borrower can't repay the lender must be to blame". Let's think about responsibility here ...if we pursue this sort of "blame-game" the consequences are too disasterous to contemplate.

James Stillman

Is James Forsyth the man who was formerly part of the comedy team Morecombe and Forsythe, or was it Forsythe and Wise. Did he have a brother that used to host Sunday Night at the london Palladium?