Sunday, August 7, 2011


At the moment the Asian (and by extension, the Australian) economic strategy depends on the US growing its debt at an unsustainable rate so that it can continue to buy Asian goodies.  Goodies that the US could make for itself by using idle human and manufacturing resources. So far a key part of this arrangement has been that countries like China have simply accumulated surplus’s of $US or fed them into the questionable loans that fed the GFC.
The problem has been made worse by the crazies at the WTO who don’t seem to have come to grips with the idea that countries suffering from large trade deficits destabilize the world’s economic system as well as damaging themselves.  Under the current rules all that a country with a serious trade deficit seems to be allowed to do is to slow its economy to the point in an attempt to drive down the demand for imports.  Attempting to control imports by more direct means is considered unacceptable.
If China is seriously concerned about the loss of value of its $US holdings, the most logical thing for them to do would be to use their $US surplus to directly or indirectly buy US goods. This approach should be a win/win that  helps both the US and world economy, creates jobs in the US while improving the standard of living of the average Chinese. The long term problem with this approach is that other countries may take up the destabilizing role that China currently fills.
In the longer term we need to have a hard look at the way free trade globalization operates. If nothing else, the WTO rules should be changed to recognize that countries with large trade deficits should be able/required to take direct action to restrict imports to a level the country can afford.
The key question is: “how does the world get the benefits of free trade globalization while minimizing some of the potential problems?”
I guess the good news at the momnet is that a contracting world economy will reduce greenhouse emissions.

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