Giving Credit Where Credit is Due

You have to give credit where credit is due. Treasury Secretary John Snow is doing a great job harping away about one of the most important financial issues facing the world.

As you read about in a different perspective in Meg Jackson’s commentary on Tuesday, China’s currency, known as the Yuan, is pegged to the U.S. dollar at about 8.28 to 1. It’s been pegged (with only slight adjustments) at that value since the Asian financial crisis in the `90s. Without question, China’s low-priced exports are taking over the world, and, frankly, in my opinion, it just isn’t fair. No only is it not fair, but it also distorts the ebb and flow of real open economies in the rest of the world. Mr. Snow, you are doing a great job — you go get ’em!

Here is what Mr. Snow said in a recent speech, “China’s fixed exchange rate impedes the transmission of international price signals and international adjustment. It also skews incentives within the Chinese economy toward production for export and away from production for domestic demand.” This sounds like Fed-speak, but this man knows what he is talking about (he’s got a Ph.D. in economics and a law degree).

Simply translated, Mr. Snow is saying that China’s currency is way undervalued at its current fixed price. This means that China has a built-in financial advantage over any other country. The U.S. dollar’s recent weakness is only adding to the problem. This means that China has an unfair advantage and that we are financing that country’s growth!

I applaud Mr. Snow’s tenacity in his recent speeches, and I hope he keeps firing away on this issue. The whole China thing just keeps getting bigger and bigger. We can’t escape China’s influence in the world. No country, not even the United States, can afford to ignore China’s economic power, or the effect that the country’s consumption is having on the rest of the world.

China’s economic growth and its fixed currency value is wreaking havoc with the Western world. Its industrial production is growing at a ravenous pace, so we need a floating Chinese currency to help smooth out prices. Thanks Mr. Snow for having the guts to stand up and be heard on this issue. Keep up the good work.