I’m perennially baffled by the occasional phenomenon of American officials publicly complaining about China’s currency policy. After all, what kind of a world are we living in when a great nation can’t think of a way to devalue its own money? Larry Summers is a brilliant economist, but he can’t think up a better way of making this happen then asking the Chinese nicely (or not-so-nicely) then maybe he ought to step aside and let someone stupid take the helm. Maybe it’s just that I have no idea what I’m talking about, but I actually feel confident that if Barack Obama put someone who doesn’t know what he’s talking about (me, say) in charge and give me a mandate to devalue the dollar I could get the job done.
To just name some crude measures, you could start musing allowed about how many we just won’t pay the Chinese the money we owe them. Or you could reflect on the fact that if the People Bank of China is determined to buy bonds and prevent the dollar from falling at all costs, then we may as well totally forget about the short-term deficit and just not collect any taxes at all for the rest of FY 2010. Probably something more subtle would work. But the point is that we’re still the only superpower on the block, and if we want the world to lose confidence in the soundness of our money we ought to be able to get the job done all on our own no matter what the Chinese say. They can take our pandas, but they can’t stop us from printing money.
The thing is that when the Obama administration isn’t specifically talking about Chinese exchange rate policy, it acts like it has the reverse problem—like we’re a small open economy that’s very worried about an imminent collapse in investor faith in the soundness of our monetary/budget situation. But there’s no evidence that this is a real problem. And insisting that China alter the exchange rate situation while we undergo simultaneously fiscal and monetary retrenchment amounts to demand massive retrenchment by the Chinese government. But why should they do that? And why should we want them to?