comments on the Chinese ending the dollar peg of their currency.
Journalists were told off-the-record that “the Chinese have finally given in”, bowing in the face of American power. Treasury secretary John Snow stressed that Beijing had now “put in place a mechanism providing room for significant currency movements over time”.
The “currency movements” involve making the US dollar weaker not just against the Chinese currency but, by reducing Chinese central bank purchases of US Treasuries, against all currencies. The drop in Treasury purchases also mean increasing long term interest rates in the US. And, bottom line, a weaker dollar means that American consumers get less of whatever they’re buying from China for the same amount spent. Before: the Chinese give us a 20% discount. After: no discount. Bizarre hypermercantilist forces are at play when that’s considered an improvement.