Thurs_Oct_14_2010_Song_Hongbing_MGB1 The ongoing currency war

Thurs_Oct_14_2010_Song_Hongbing_MGB1
The ongoing currency war between the U.S. and China is merely an attempt on the part of the U.S. to
blame its problems on someone else, Chinese economist Song Hongbing said at the World Knowledge Forum
Thursday.
“The U.S. wants a scapegoat,” said Song, author of the books Currency Wars and Currency Wars 2.
The debate about whether China is artificially holding down the value of its currency – and U.S.
pressure on China to stop doing so – has been at burning topic at this year’s World Knowledge Forum, and Song
took the debate up another notch. He blasted Princeton economist Paul Krugman, who argued at the forum
Wednesday that China should stop holding down the value of its currency.
“Mr. Krugman ignored or didn’t want to admit that China is the single biggest creditor to the United
States” Song said. “If you borrow money from somebody, you must treat your creditor very carefully.”
Song argued that letting the Chinese currency appreciate would lead to global chaos.
Song argued that the global trade imbalance - which often blamed on China’s attempts to artificially
lower the value of the RMB - was not the real reason behind the world’s financial problems.
“When people think about the global imbalance, most people refer to a trade imbalance,” Song said.
“There is another important imbalance - I call it the global recovery imbalance.”
He said the U.S. should take stronger steps on its own to help its economy rebound. Song explained
the U.S. economy is lagging because of the high ratio of U.S. debt to GDP. He compared the U.S. to a household
which spends more than it earns, accumulating more and more debt until it eventually has to default and file
bankruptcy.
He said the fundamental problem behind the slow U.S. recovery is that it is trying to solve its debt
through quantitative easing, which is a fiscal policy often referred to as “printing money.”
“I think the quantitative policy is immoral and unfair,” Song said. “Why do we need a second round of
quantitative easing? No one can explain.”
He used a picture of Sisyphus rolling a boulder up a hill to illustrate the U.S. debt and its attempt to
recover.
“They try hard to push the GDP rock uphill and the debt is the deep slope of the mountain,” Song said.
“What the government is doing is trying to borrow even more debt and then try to push the rock uphill. The
more money you borrow, the steeper the slope will be.”
Song went on to add that the current economic crisis was inevitable for the U.S. because of another
issue: the natural spending habits of the baby boomers, who make up almost a quarter of the U.S. population. He
noted that the baby boomer generation spent prolifically during its youth, which is what explains the flourishing
U.S. economy in the past few decades. He marked the change in their spending habits around 2009 – when the
recession hit.
“This turning point represents the whole generation,” Song said. “They’ve passed the spending peak
time. They start to cut back their spending. This is a natural process: nobody can stop that.”
A turning point has come.
“This process will last for 40 years,” he said. “During this period of time, no matter what the
government does, you can’t jumpstart the economy because aging people don’t want to borrow money. Even if
you cut the interest rate to zero, you still can’t jumpstart the economy.”
He also blamed the currency war on the U.S. and its demands that China let the RMB appreciate while
the U.S. prints “toxic dollars” through quantitative easing.
“Do you think that’s responsible for your creditor?” he wondered. “That’s why we have a currency
war; because the creditor doesn’t want to be cheated. They want U.S. to keep to moral principles.”
Song finished by praising the RMB and suggesting it could become a basis for a single Asian currency
in the foreseeable future. He emphasized the need for multiple international currencies.
“So is RMB internationalization a benefit or threat?” he asked. “Right now we only have one brand –
the U.S. dollar. They can charge you whatever they want. But with the RMB and other currencies you could
have two or more choices. Which is more beneficial? More choice is always more beneficial.”