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Friday, September 7, 2012

The Economies of the USA and China

The International Monetary Fund (IMF) has predicted that the Chinese economy will surpass that of the USA in the year 2016.  It is about 10 years before forecasters originally predicted.  This is due to several factors, but one is the way the Chinese have artificially supressed their currency.  The manipulation of the value of their money has been a point of contention for some time now.  The IMF looked at this in a way called the Purchasing Power Parity.  As CNN reported "China actively suppresses the renminbi on the currency markets through massive dollar purchases. As a result the renminbi is deeply undervalued on the foreign-exchange markets. Just comparing the economies on their exchange rates misses that altogether," said MarketWatch columnist Brett Arends.  While the IMF stated, "The IMF considers that GDP in purchase-power-parity (PPP) terms is not the most appropriate measure for comparing the relative size of countries to the global economy, because PPP price levels are influenced by non-traded services, which are more relevant domestically than globally" it is still a bad sign for us.  The last few U. S. presidents have only done a few ineffective things to put pressure on China to end the practice of currency manipulation but the Chinese are not likely to stop as it helps them to beat us at our own game.  You might be asking what that game is.  It is capitalism and the power of free markets.  While they hold onto there corrupt and totalitarian form of government, they have learned that they can manipulate the markets and their currency to their advantage.  This forecast is hitting us at a difficult time for our country. Unemployment is still high, federal spending is out of control, and the U. S. debt hit $16 Trillion dollars.  The economic recovery that was forecast is stalled and not looking good.  Since congress can't pass a deficit reduction measure, Standard & Poor's rating agency announced that it was downgrading the U.S. debt outlook from stable to negative, warning that a failure to reach a deficit agreement could lead to a lower credit rating in the future.  It seems to me that the U. S. government is being deliberately blind and perhaps willfully stupid when it comes to these threats to our national security.  How much longer can we afford to wait before fixing these crucial problems?