Sherle Schwenninger’s article in the Nation, Redoing Globalization, blames others for America’s problems:
The root cause of this unbalanced world economy was the enormous pool of excess savings generated by China, Japan and, more recently, the petrodollar states of the Persian Gulf. This global savings glut, as Federal Reserve chair Ben Bernanke called it, helped fuel a succession of asset bubbles in the United States, culminating in the expansion of easy credit and the rapid run-up of housing prices following the collapse of the tech-stock bubble. The housing and credit bubble in turn helped inflate consumption by enabling households to take on more debt; household debt as a percentage of disposable income rose from 90 percent in the late 1990s to 133 percent in 2007.
Like so many others, Mr. Schwenninger sees foreign virtues as vices. It was those darn foreigners saving too much that caused the problem, not the US consuming too much. All those excess dollars created by the Fed weren’t the problem, it was that the Chinese chose to save them rather than spend them. The Chinese don’t create credit in the US; that is the role filled by the Federal Reserve.
Our current account deficit is our problem. It was caused by excessive dollar creation and profligate spending. The way to correct that is not to beg other countries to consume more, but for the US to save more. The world imbalances that everyone complains about were caused by the US and should be corrected by the US.
Mr. Schwenninger believes the imbalances can be corrected through currency devalution:
The quickest way for China to raise its living standards is by increasing the value of the yuan against the dollar and other international currencies. A stronger yuan would stem future inflation while reducing the cost of food, energy and other imports for Chinese consumers. Appreciating the value of the yuan would be a first step in a broader realignment of world currencies to help correct global trade imbalances. The best short-run option would be for the surplus economies of Asia to re-peg their currencies by letting them appreciate against the dollar but without abandoning the managed peg. This would set the stage for an important institutional change in the global financial architecture whereby the burden would shift to surplus economies to adjust their currencies and stimulate domestic demand, as Keynes originally envisioned.
If allowing the Yuan to rise is a way to raise Chinese living standards, isn’t that the same as saying the US should lower its living standards? Why should US policy be to raise Chinese living standards? Shouldn’t we be enacting policies that raise US living standards?
The only way to raise our living standard is to save and invest more. That is the ultimate source of future growth. Begging other countries to do our heavy lifting isn’t the answer to our problems. We got ourselves in this mess and only we can get us out of it.