On July 22, 2005, the President, beside himself with idiot glee, took personal credit for China's "revaluing" its currency, the yuan. The press applauded, unanimously, and egghead-looking TV analysts in bow ties told us that this was a great boon for U.S. manufacturing employment. Was it?
First off, most Americans haven't the least idea what "revaluing" China's money means. Let me put it in the language of economics: The revaluation of the yuan didn't mean squat. . . at least in terms of saving American manufacturing jobs. In simple terms, "revaluation" means that it takes fewer Chinese yuan to buy an American dollar. The White House peddled the line that this slight alteration of exchange rates makes our products cheaper for the Chinese and they'll buy more from us.
Why not? Currency Exchange Rate Economics Lesson Number One: You can't change the value of goods by changing the value of the currency on the price tag. The price inflates to compensate for the currency change. As my comrade the economist Art Laffer reminded me: "If cheap currency makes your products more competitive, all the automobiles would be made in Russia." Driven a Lada lately?
Currency Exchange Rate Economics Lesson Number Two: Don't take economic lessons from George Bush.
By definition, revaluing the yuan means devaluing the dollar. Imagine if our President had put the news differently:My fellow Americans, today I am proud to announce that this Administration has successfully devalued the dollar. Dollars are now worth less compared to Chinese money. Your pensions are worth less, your savings have been shaved in value. Devaluation of the U.S. dollar leads to price inflation in the USA. Always. And get ready for this. We're going to have to buy own money back from China--and it will now cost us more. The U.S. Treasury will have to raise interest rates to get the Chinese to return the loot. So yes, there's an affect on manufacturing jobs. Kiss them good-bye. And may God bless America.
Almost. There's another way to get the money back besides trying to sell China more goods or by raising interest rates to borrow our money back from them. If China won't buy our manufactured goods, they can return our capital by buying our manufacturers. It is no accident that the very week China raised the value of its currency, the Chinese state oil company made a cash bid for Unocal Oil of California. Raising the value of the yuan cut the price of Unocal to the Chinese by about half a billion dollars. The Bush administration was unhappy, but not about a foreign takeover of a strategic industry. Rather, our Treasury Secretary John Snow flew to Beijing to demand the Chinese hike their currency even higher, demanding the Chinese further devalue the U.S. dollar.
Remember: There are no nations. There is no "West". Am I getting through to you Mr. Beale? There is no America. There is no democracy. There is only IBM, and ITT, and AT&T, and Dupont, Dow, Union Carbide, and Exxon--those are the nations of the world today. We no longer live in a world of nations and ideologies, Mr. Beale. The world is college of corporations ... It is the international system of currency that determines the totality of life on this planet.(2)
1.)Greg Palast, ARMED MADHOUSE- From Baghdad to New Orleans--Sordid Secrets & Strange Tales of a White House GONE WILD, (U.S.A.: Plume [The Penguin Group], 2006, 2007)p. 149, 150, 143, 144.
2. This famous quote (paraphrased) was taken from a prophetic speech in the movie Network. It is the money power that determines which nations rise and fall and nothing else is relevant. Steve