Friday, January 25, 2008

US to China- My Dollars Are Your Dollars...

In honor of The now free, I thought I'd bring you a recent James Fallows article, The $1.4 Trillion Question. It's an article about China, and that age old story about the Chinese buying our debt so we can live beyond our means. The article is intriguing, though, because it questions just who, exactly, is getting hustled, and how like all good hustles, it can't last forever.
    Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China. Like so many imbalances in economics, this one can’t go on indefinitely, and therefore won’t. But the way it ends—suddenly versus gradually, for predictable reasons versus during a panic—will make an enormous difference to the U.S. and Chinese economies over the next few years, to say nothing of bystanders in Europe and elsewhere.

My favorite part is how is breaks down the process by which dollars go from the US, to China, and back-- personified in an Oral B toothbrush purchased at a CVS. The flow of currency is fascinating, and Fallows does a great job of keeping it that way.

While the article is long (4 web pages, so longer than Kiplinger's but shorter than the Sunday NY Times Magazine...), it is easy to understand. When it comes to currency policy and politics, easy to understand is good by me.


Ms. M&P said...

I haven't read the article yet, but I'm planning on it. I love it when complicated economics are broken down into something I can understand. Thanks!

Blake said...

Yes, thanks for the link. This is scary stuff, and it's about time Americans learn that we can't keep living beyond our means like we are. This is a good blog you've got going on here!