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By Philippe Legrain ADD COMMENTS

Excellent article by Avinash Persaud on Vox

Highlights:

The notion that the world was suffering from a savings glut, that would have pulled us all into recession were it not for America’s selfless consumption, is also as deficient in arithmetic as it is self-serving.

You cannot save yourself into boom… But all it would take to deliver precisely the kind of boom-bust cycle we did live through would be loose fiscal, monetary and regulatory policy in the US and elsewhere, fueling a consumption boom in the world’s largest economy that would necessarily lead to surpluses in a swathe of consumer goods and commodity exporters, irrespective of their currency regime, like Germany and Chile.

We have been here before. Back in the mid-1980s, Detroit blamed its woes not on the inferior quality of American cars, their gas guzzling, or the fact that the Japanese prefer not to carry all their belongings in the back or to have the steering wheel on the left. They blamed the yen-dollar exchange rate.

Political pressure pushed the yen up by more than the 27% being sought today by the US Congress for the yuan. It did as little to save Detroit then as a rise in the yuan would do today.

China’s exchange rate has far more to do with national politics than international economics, which is one of the reasons why the US Treasury’s assessment of whether China is guilty of currency manipulation may be postponed as a quid pro quo for progress in areas of mutual diplomatic concern between the two countries.

Posted 12 Apr 2010 in Blog, China, Currencies, Global Economy

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