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    • Global Inflationary Pressures Likely If Yuan Unties From Dollar [view article]
      Yes, inflation and the untying of currencies to the dollar are scary! But necessary. If we truly want a global economy then we cannot continue this unbalance for much longer. The currency imbalance is destroying the idea of comparative advantage and making the global economy more instable. The idea that cheap labor only resides in certain parts of the world is counter to the convergence of wages that must take place as our economies become more interdependent. The untying of the Yuan will make Chinese goods more expensive but it will also make some US goods cheaper. I am disturbed that this author claims that people in Southeast Asia have no interest in buying US-made products because they don't want to make the US stronger. What? Since when does anyone care where cheap goods come from? If you reverse this logic, then why the heck do so many Americans buy Chinese goods? Who said we have any interest in making "communist" China stronger? The only benefit to keeping their goods cheaper is that it allows Americans to consume more than they produce. Why this is a problem really should be a no-brainer. Even if you believe that our unbalanced consumption is not a problem, at least consider the instability that it creates. “The strong hand of the Chinese Government” is the result of this enormous imbalance that we have allowed. The longer our currencies are tied together, the longer we have to worry about the actions of the Chinese Government. Currency values should be market driven, not government controlled. Furthermore, labor costs should also be market driven, which they are not. The undervalued Yuan makes Chinese labor too cheap, and US labor too expensive. The result is unbalanced growth in labor-intensive goods production in China, and over-paced loss of labor-intensive goods in the US. Its true that sudden revaluation to get us on par with China would probably cripple (short-term) the world economy, but that doesn’t mean gradual revaluation is not necessary. The point is that the status quo is not sustainable, and the longer we let it continue the greater the consequences. Nov 29 05:33 PM
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