U.S., Dollar, Deficit, China, Yuan, Surplus
Our government has an insatiable appetite for spending. It spends far more than what it takes in, even after exorbitant taxation. As a nation, we are, now, consuming far more than we are saving and investing. The spending habits of our government and us, as a nation, must be financed by debt. There is no other way. On the other hand, Chinese government and people are saving and investing far more than they spend. Hence, they are generating a huge surplus. So, they have a big surplus of money and we have a big deficit of money. They have more than enough to give and we have more than enough need to take.
So, China directs that surplus back to us by financing our debt through the purchase of U.S. debt like treasury bonds, securities and other similar stuff. Our never ending appetite for debt gives China another benefit. It keeps Dollars out of Chinese money markets, keeping the value of Dollar higher. On the other Yuan replaces Dollar, keeping its value low. This weaker Yuan and stronger Dollar, maintain low prices for Chinese goods and make American products expensive. So, Chinese imports here in U.S. remain cheap and American products in China remain expensive. Hence, we consume more Chinese products and Chinese consume less American products.
This is where our trade deficit with China is coming from. Even in decades, this money loop between us and China has not let natural forces for the supply and demand of money to stabilize the exchange rates. If we did not have the ever growing need for deficit financing, the larger imports of Chinese goods would have increased the demand for Yuan, raising its value. On the other hand smaller exports of American goods to China would have reduced demand for dollar in China, reducing its value.
Growing value of Yuan would have made Chinese products expensive here in United States while weakening Dollar in China would have made American products, over there, cheaper. This natural cycle, in the absence of our need for deficit financing, would have finally stabilized the exchange rates between Yuan and Dollar, resulting into the narrowing of trade deficit, ultimately the end of U.S. trade deficit with China, over time, and even possibly resulting into the a U.S. trade surplus. But, this has not happened, it is not happening and is not likely to happen in near future. On the other hand, our trade deficit with China just keeps growing.
The major culprit in this case are our large deficits and a need to continuously finance those deficits. Of course, corporate media and corrupt politicians will never tell you this. They keep blaming China for currency manipulation. No doubt, China is manipulating its currency. But the question is what and who is providing China the ability to do that? If we stop selling U.S. securities to China, it will soon start accumulating very large amounts of dollars, mainly due to its trade surplus with us and there will be a shortage of Yuan in our money markets.
This will weaken the Dollar against Yuan making Chinese products expensive and American products cheap. Trade deficit will automatically start waning off. But, for this government has to shrink. It has to cut its spending and balance the budget. So that there are no more deficits and a need to finance those deficits. This is what politicians don’t want to do. Smaller government means less government employees, smaller assets, fewer agencies and departments, withdrawal of many laws and regulation, lesser enforcement and ultimately decreased authority and power. Who wants that? You said Americans and American economy? Do you really think the corporate media and corrupt politicians really care about our economy and us?
The effects of deficits and deficit financing here at home are devastating. Our government could not stop blaming corporation for exporting jobs oversees. They could not stop telling you, how are they working very hard to bring manufacturing back to United States? In the mean time millions of Americans are, now, unemployed for two years or more. Real rate of unemployed and under employed, combined, is still around 20%. In spite of trying very hard many cannot find a job at any cost. You know what is going to create jobs and stop shipping of jobs to China and other countries overseas?
The simple answer to this seemingly complicated question is the end of deficits and deficit financing. If we stop taking back our Dollars for deficit financing the value of Yuan in Yuan-Dollar exchange will go up due to our huge trade deficit with China. Chinese products will become expensive and our products in China will become cheaper. So, the consumption of American products both here at home and China will increase. That will create lots of jobs, right here, in United States. We will start importing jobs from China, instead of exporting those. Similarly it will not remain economically feasible for American and other companies to manufacture in China.
Our companies and many international companies will start manufacturing, right here, in United States. That will create even more jobs. This is very much like the finances of a home or a business. If you or your business has lots of debt, you or your business loose the ability to buy what you or your business need. Our deficits and deficit financing is taking away our availability to buy workers. So, we seem to have an unending jobs crisis.
To cut to the chase, here is the real, viable and practical solution to our economic problems. Make government smaller, cut deficits, reduce deficit financing, stop taking back dollars to finance the debt, let the value of Dollar fall, make American products and services cheaper and create jobs. Our obsession with strong Dollar and addiction to debt are getting us nowhere. If we can get rid of deficits and need to finance deficits, we can make our trade surplus work for us. Let it take the natural course that any free market may take by ending the deficits and deficit financing. If we are importing, buying and consuming more, it must devalue our currency and make our products and services cheaper, hence, making those cheaper, more attractive and sell-able in international market.