A Defeated Currency & China Today

Most folks are just working to hard to reflect on the value of their currency.  Perhaps most only reflect on its value regarding purchasing power relative to food and clothes, a decent enough analogue indeed yet primarily historically ineffective.  Unless one has a rudimentary understanding of how the value (purchase power) of fiat, paper money is related to fiscally sound government policy, then most people just simply assume that businesses are ripping them off.  The real culprit here is weak money.

I’d like to give a few historical examples of just how far we’ve gone from sound fiscal policies.

If you watch the contemporary macro-economic financial scene in China today you are witnessing a very profound yet difficult economic shift to explain to the uninitiated.  The major reason for extreme labor shortages in China is because that country is approaching the end of its economic growth driven by labor intensive (low-end) manufacturing.  China is now on the cusp of fully developing high value added, capital/knowledge intensive industries like autos, telecommunications, and petrochemicals.

A very underrated Chinese dollar will hamper this transformation, especially if it keeps subsidizing low end manufacturing.  An underrated Chinese dollar keeps depressing both real income and purchasing power for domestic Chinese.  This explains why the Central Bank of China went to a floating Chinese dollar on June 19.  This also exposes the extreme limitations of specialists like the U.S. Treasury Secretary whom repeatedly asked that China have its dollar float.  I’ve written extensively on this blog regarding the ‘Perils of Specialization’, we’re witnessing another major gaffe that will reverberate for decades.  We need an Executive that understand the value of a strong dollar with strict fiscal policy.

Historically, a sharp appreciation of the Japanese dollar served in the end as an effective stimulant for very rapid and decisive industrial growth throughout its post-war period lasting almost 30 years.  This is the appropriate historical analogy from which to measure job growth and strong money.

The historical lesson here is one of deadly earnest in witnessing the ever rapid transformation of third world political economies into hyper-strength in a little more than a decade.  When will Washington begin to reassess its Keynesian premise for both job creation, wealth creation and the elimination of fiscal policies that hinder technological growth?

Red China is catching up to redo the conquests of the 1930’s.  Just watch its neighbors seek alliances with the U.S.