In the short run, some people would win, but others would lose. And I suspect that the losers would greatly outnumber the winners.
And what about the strategic effects? Right now America is a superpower living on credit - something I don't think has happened since Philip II ruled Spain. What will happen to our stature if and when China takes away our credit card?
This story is still in its early days. On the first day of the new policy, the yuan rose only 2 percent, not enough to make any noticeable difference. But one of these days Chinese dollar purchases will trail off, and we'll find ourselves living in interesting times.
Friday, July 22, 2005
Is China Taking Away Our Credit Card?
My favorite economist, Paul Krugman, has a memorable metaphor for what the unpegging of the Chinese Yuan to the dollar means. In today's New York Times he wrote:
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Is that his way of saying, "Baby you ain't seen nothin' yet?"
It only took Spain three hundred years to recover from the ruinous financial policies of Phillip II. Could Iraq be our Spanish Armada?
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