From Real Time Economics:
- Bloomberg News
- Treasury Secretary Timothy Geithner
Treasury Secretary Timothy Geithner told the Senate Finance Committee today that growing inflationary pressures in China would help U.S. competitiveness because companies and investors now have to factor in rising costs in China when making business decisions.
Mr. Geithner said: The yuan is only “moving at about 0.5%-a month now against the dollar, but because their inflation rates are much higher than ours, if you look at the actual competitive balance now, its appreciating substantially more rapidly than that. And that’s very good, because it means that companies now as they choose where they build their next plant, where they lock in long-term contracts, they have to plan for the reality that the competitive playing field is going to be shifting in our direction. We’ve got to make sure that happens.”
In a subsequent response to a question, Mr. Geithner quantified the yuan’s appreciation, when factoring in inflation — more than 10% a year, if sustained.
“Because their inflation rates are so much higher than ours, it’s actually appreciating in real terms against the United States at a rate, if continued, of roughly 10% a year, a little more. And if that were sustained that would bring about a major shift in the competitive balance in our favor over time which is necessary and important, not just to us but to all of China’s trading partners. I think they have reached a judgment themselves internally that they have no choice but to let [the yuan appreciate] over time. Because, again, if they were not to, they’d be left with the risk of much more inflation, much more risk of the types of financial crisis we went through. They want to make sure they avoid that outcome.”
–Damian Paletta
Our most successful export is inflation through easy money and speculation. You can clearly see serious “trade deficits” in mid-East countries and worldwide including U.K.. Sooner or later, other countries will call out US to promote domestic consumption rather than export of “inflation”. Those days are near as many large retailors have already indicated their plan for price increases.
Very soon, multinational companies will find it too expensive to operate in China, and will relocate their factories to other cheaper countries.
Inflation in US:
gas 2001 $1 per gallon 2011 $3.20
Tuition Fees up 100%
Electricity bill +80%
Health Insurance +100%
Food, rent and more, all up
Geithner is living in different America
if they do nothing they lose competitiveness because prices will rise internally anyway. If they revalue their currency they lose competitiveness because their products become more expensive for the rest of the world and the rest of the worlds products become cheaper for them. And it will discount the value of our debt.
It will still be a long time before their economy matures to the point where their free ride is over.