The Dollar

Let it fall.

Emerging markets in South America and Asia have been parasites on the backs of America since World War II. Those governments have also impoverished their own people by keeping their purchasing power low. These countries want the US consumer to buy their stuff and their governments don't want their people to buy our stuff.

One can see photos and TV of cities in Brazil and South Korea and China and it's rather obvious the standard of living is not far from the US. Yet travelers to those places can see costs far below costs in major US cities. Why? Those currencies are intentionally undervalued.

Now that capital flows are putting pressure on the US dollar, they whine.

I say tough &^%$. Let it fall.

I'd like to see a broad-based purchasing power parity study ["PPP"]. Nations where they keep currencies low, but a PPP study shows prices there are very low compared to the US - set an automatic tariff. The test would have a wide band - say 25% - for fluctuations; inside that band, no tariff would be set. But when one goes to China and sees prices 50% less than in the US, yet they peg the Chinese yuan at low levels, it's obvious that China using the US and US consumer as a tool for its own internal development. And US jobs are being hurt on that account.

This might seem to be a radical solution, but the entire world [and the rest of Asia which has free-floating currencies] is being hurt by China's use of its currency as a self-serving tool. The tariff would only apply to nations that peg their currency to the dollar.

The principal problem with economic theory is that it relies on static, equilibrium assumptions, and ignores the dynamics of the market. China uses the dynamics of business to drive US & other manufacturers out of business, and then capture that business themselves. An automatic tariff based on FACTS such as a thorough, regularly updated PPP model would be a rational means to prevent dynamic trade tactics that China is using to help itself at the expense of US workers.

Word of the Day

"Tergiversate" - verb, intransitive [$10]
Tergiversate means 1. be apostate, change one's party or principals; 2. equivocate, make conflicting statements; 3. turn one's back on something.
Sentence: Readers might be surprised by today's post by Bunkerman, thinking he is tergiversating on free trade, but his PPP-based tariff system is simply a modification - an improved version of free trade - as Fraternal Libertarianism is a more workable, better version of libertarianism.