The "great rebalancing" is a concept where trading partners of the US should be required to adjust domestic policies in order to "rebalance" the large discrepancies in the global current account.
The "Great Rebalancing" is a fantasy conjured by liberals.
We can’t have a “great rebalancing” under the US dollar standard. Why? Because the US dollar standard operates on the principle of FREE LUNCH. Back to basics tell us that US issues (bank) notes in exchange for goods and services of the world. So essentially the US gets something (real goods-imports) for nothing (Dollars as IOU-exports). And because it operates on a something for nothing platform, you’d naturally have DEFICITS because the US doesn’t need to or simply WON’T produce enough. Why produce when I can acquire goods with my IOUs? And to fund balance of payment (BoP) deficits means increasing sales or exports of more IOUs in terms of either US dollars, US treasuries/agencies or US private financial claims. This is elementary.
So the idea that China should follow the dictates of the Keynesians and Hamiltonists to revalue their currency to INCREASE internal demand is a fantasy. Why should China or the rest of the world need to do so if isn’t in their perceived interest? It’s like getting services of a prostitute, where after being satisfied I DON’T pay up. Naturally the next time around, either the hooker won’t agree to service me or ask to pay upfront first, unless she falls in love with me! For China and others to follow the advices of these sacrosanct liberals is like getting forcibly screwed repeatedly for FREE!
And the Chinese recognize this. Proof? From Gao Xiqing president of the China Investment Corporation in an interview by James Fallows ``People, especially Americans, started believing that they can live on other people’s money. And more and more so. First other people’s money in your own country. And then the savings rate comes down, and you start living on other people’s money from outside. At first it was the Japanese. Now the Chinese and the Middle Easterners.
``We—the Chinese, the Middle Easterners, the Japanese—we can see this too. Okay, we’d love to support you guys—if it’s sustainable. But if it’s not, why should we be doing this? After we are gone, you cannot just go to the moon to get more money. So, forget it. Let’s change the way of living.”
Today’s private sector deleveraging doesn’t change the equation. The leverage simply shifts to the public sector but the principle remains the same- a free lunch US dollar standard. Forcing adjustments on US trading partners to accommodate ‘rebalancing’ will only extend the unsustainable free lunch operations. It’s a beggar thy neighbor prescription, which only punishes those that have not engaged in reckless speculation in the same way present global central bank policies are doing. Yes sir, Pope Benedict, central bankers are FORCING PEOPLE to borrow and speculate or to be “greedy”!
Of course, because constituents benefiting from the “something out of nothing” privilege, the natural consequence is for them to turn into to speculation-that’s why the US had the “dot.com” bubble, and that’s why it shifted to today’s imploding “real estate bubble” and now to the US treasury bubble.There simply is little incentive to produce.
Thus, the principle of free lunch begets the illusions of perpetual wealth based on consumption over production, expanding leverage and speculation or the “inflation mentality”, all of which fosters a psyche of entitlement.
Besides, importantly the lack of self adjusting discipline mechanism from the US dollar standard ensures the perpetuity of humungous BoP imbalances.
In short, the free lunch principle of the US dollar standard means perpetual BoP deficits for the US, because there are less incentive to produce goods. And perpetual deficits mean that the US will depend on rest of the world to provide goods and financing. And because deficits means the continual selling of financial claims, it thus perpetuate bubble conditions. Remember, IOUs for goods and services.
Ultimately, the Mises moment deals with the structural imbalances of the free lunch principle of today’s currency standard, the ultimate Ponzi scheme. If the system can’t bear enough of free lunches then it will collapse, similar to the unmasking of Bernard Madoff and the unraveling of today’s Ponzi financing mortgage securitization credit bubble.
The "great rebalancing" is predicated on false premises and thus a fairy tale that can’t survive the real world order.
Nassim Taleb is right about these so-called experts, ``The fraud can be displaced only by shaming people, by boycotting the orthodox financial economics establishment and the institutions that allowed this to happen.”
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