Recently the U.S. Secretary of Treasury Timothy Geithner began an offensive campaign against China in addressing both trade imbalances and currency fluctuations. Given how the rest of Asia gladly accepted such an erroneous political play speaks volumes to the xenophobia that saddles the region. The U.S. is playing and will lose this dangerous match for a simple reasons: contemporary currency fluctuations have as their root domestic monetary and fiscal policy. The Chinese devaluation of its currency is NOT the root of the global problem.
The current U.S. Monetary and Fiscal philosophy is dominated by Neo-Marxians disguised as Keynesians. In a word, they’re all CENTRAL PLANNERS! The U.S. Federal Reserve and Treasury simply will not evaluate their own fiscal/monetary policies because doing so would be tantamount to REPUDIATING the philosophical underpinnings of a failed Keynesian stimulus! That would mean adopting the Austrian School of Economics as Fredrick Hayek so lovingly did throughout his long life as an advocate teaching the synoptic relation between Monetary and Fiscal policies.
The current recipe is easy to understand: as Euro Nations float against the dollar, they must decide either to print more money (quantitative easing) or accept rising currencies. This is a recipe for more currency turmoil. IT IS LIKELY TO DRIVE MORE CAPITAL TO ASIA AND ELSEWHERE OTHER THAN THE U.S.
The nature of our fiscal/monetary problem is simple: developed economies are not contributing to current global expansion. Why? Because such nations have not adopted growth policies (read Hayek). You simply cannot attract more jobs or capital with a Neo-Marxian agenda that dominates so much of American fiscal/monetary policy.
Mr. Geithner is angry that faster growing nations like China are exporting far more goods than the United States. His reaction? Devalue the U.S. dollar to steal exports. This is not a growth strategy.
The U.S. must address the factors that determine the competitiveness of a countries exports: population mobility, productivity, taxation, wage flexibility, stable dollar. All are fiscally formed!
It’s simple to understand, to re-establish U.S. global leadership we must repudiate the Neo-Marxian agenda that dominates today’s Keynesian model.
We can start tomorrow, November 2.