[p2p-research] case for devaluation by dean baker

[Michel Bauwens]

not same context as venezuela, but same arguments would broadly apply?

see
http://www.guardian.co.uk/commentisfree/cifamerica/2009/oct/19/china-us-economy-debt

This would make Chinese goods more expensive in the United States, leading
US consumers to purchases fewer imports from China and more domestically
produced goods.

A lower-valued dollar would also make our exports cheaper in China. That
would allow us to export more to China.

The net effect would be an improvement in our trade
balance<http://www.washingtonpost.com/wp-dyn/content/article/2009/10/09/AR2009100904291.html>,
bringing back some of the 5.5 million jobs that we've lost in manufacturing
over the last decade. In fact, since nearly all economists agree that the
current trade deficit can't
persist<http://www.foreignaffairs.com/articles/65475/c-fred-bergsten/the-dollar-and-the-deficits>for
long, China would be helping the country bring about a necessary
adjustment if it stopped buying up dollars.

Even the rise in interest rates would have a positive effect since it would
allow for the completion of the deflation of the housing bubble, with house
prices finally settling back to their trend levels. This drop in house
prices will be a painful adjustment, but there is no way to avoid it.
Bubbles cannot be sustained indefinitely, and we are better off allowing the
housing market to return to normal so we can get back to a path of
sustainable growth.

While decision of the Chinese to stop buying dollars might be good for the
economy, it is likely to be disastrous for Citigroup and the rest of the
basket-case banks. If interest rates rose, then the value of the government
bonds the banks hold would plummet. If the interest rate on 10-year Treasury
bonds<http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml>goes
from the current 3.5% to a still low 4.5%, then the banks will have
lost 8% on their holdings. At a 5.5% interest rate, a rate that would still
be far below the average for the 1990s, the loss would be 15%. Citi and the
other basket cases could not endure these losses in their current financial
state.

This could be why we see shrill pronouncements from the likes of Washington
Post columnists<http://www.washingtonpost.com/wp-dyn/content/article/2009/10/16/AR2009101602507.html>and
other "experts" who couldn't see an $8tn housing bubble that we need
the
Chinese government to keep buying up our debt. *We* absolutely do not need
the Chinese government to keep buying US debt and would almost certainly be
better off if it stopped tomorrow. Citigroup and the other big banks
*do*need the Chinese government to keep the money flowing if they are
to have a
chance of getting back on their feet. And, we know where the sympathies of
the Washington Post's editors and other "experts" lie.


-- 
Work: http://en.wikipedia.org/wiki/Dhurakij_Pundit_University - Think thank:
http://www.asianforesightinstitute.org/index.php/eng/The-AFI

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