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Currency war benefits US, hurts China

Popularity 4Viewed 5250 times 2013-6-24 16:32 |System category:Economy| currency war, China

AuthorStone Liu  Update Time2013-06-21

What to do to deal with a financial crisis? Make another one. And what to do when a bubble bursts? Create another one. But wise people know when to get out of the game.

Although the approach of tackling such a crisis has never been written in any of the economic textbooks, it has been applied consistently over more than a decade.

At the beginning of the 21st century, Alan Greenspan, then-chairman of the Federal Reserve of the United States, coped with the dot-com bust by reducing the interest rates, a move that later resulted in a subprime leading crisis in the US. Worse still, he did not notice that and, finally, a worldwide financial crisis broke out in 2008, with American people becoming major victims.

After Greenspan stepped down, his successor Ben Bernanke selected quantitative easing (QE) to tackle the crisis, which had triggered economic recession and high unemployment in the country. It is undeniable that years of implementation of the QE has really helped stimulate the economic growth and brought down the unemployment to an acceptable range where the joblessness might not be taken as a top economic problem that needs to be solved.

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Federal Reserve Chairman Ben Bernanke speaks during a news conference in Washington, June 19, 2013. Photo: AP

Besides, US stocks hit new records high time and again. Home-buying spree, which was spurred by the rigid demand restrained for years, could be seen in many places, striking the market balance. In a word, the boom of stock and property markets is creating a new bubble. So it is time for Bernanke to exit from the QE.

Who will be the victim of the bubble this time?

Despite oversupply of currency, the Americans still have basically the same purchasing power as they had previously, because some pressure of inflation, which has remained low in recent years, is shared by the emerging countries, especially China, one of the largest holders of US treasury bonds. Therefore, for the US, the key to dealing with an economic crisis is to let others pay the bill.

In a bid to fend off the risks, China has launched its own version of the quantitative easing, but it has gone too far.

According to the latest coverage, China has largely exceeded the US, Japan and the euro zone in terms of newly-added money supply, but, unlike the US, it is suffering from a high inflation, because of low level of internal consumption of the money. So it is a major reason behind the Chinese buying spree in the US as the yuan is appreciating against the US dollar. While China's common people cannot afford a home amid the sharp rise of property prices, the real estate developers and the government are benefiting from it.

Actually, a currency war has begun, in which the US is impairing others' interests while China is hurting itself.

(Opinions of the writer in this blog don't represent those of China Daily.)




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Comment Comment (3 comments)

Reply Report dragonflyinsky 2013-6-27 16:38
Reply Report sdfgygd 2013-6-28 02:54
What to do to deal with a financial crisis? Make another one. And what to do when a bubble bursts? Create another one.  so smart
Reply Report sdfgygd 2013-6-28 03:06
good article

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