United States policy makers, meanwhile, seem equally willing to prolong America’s addiction to cheap money as long as economic recovery seems so fragile, regardless of the effect on the dollar’s exchange rate with other currencies. (When American officials insist that they favor a “strong dollar,” it’s usually a sure sign that they want the opposite.) And why would Americans want to discourage the Chinese from buying yet more dollar-denominated securities? With trillion-dollar deficits as far as the eye can see, the Treasury needs all the foreign buyers it can get.
The reality, however, is that an end to Chimerica is in the American interest for at least three reasons. First, adjusting the exchange rates between the currencies would help reorient the American economy ”” primarily by making American exports more competitive in China, the world’s fastest-growing economy.
Second, an end to Chimerica would lessen the potentially dangerous reliance of American economic policy on measures to stimulate domestic purchasing. American fiscal policy is clearly on an unsustainable path, and the Federal Reserve’s negligible interest rates and the printing of dollars are artificially inflating equity prices.
Finally, renminbi revaluation would reduce the risk of potentially serious international friction over trade.
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