During the presidential debates and on the campaign trail, former Governor Mitt Romney has focused many of his attacks on China. Accusing them of "manipulating their currency" to gain and unfair trade advantage against the U.S., Romney has promised to isolate China on his first day in his office in part of a broader hawkish policy towards China. But not only is Romney wrong to demonize China, he completely ignores the real currency manipulators: the U.S. Federal Reserve.
In classic politician doublespeak, Romney's accusations against China are a few truths mixed in with a lot of lies, pandering and propaganda. While it is true that China has been keeping the value of its currency artificially low over the last decade, this has been largely in response to the U.S. doing essentially the exact same thing for four decades now.
Since 1971 when President Nixon infamously defaulted and cut all gold ties from the dollar, the U.S. government and the Federal Reserve have been printing trillions of dollars as part of a deliberate strategy to boost U.S. exports and harm nations exporting goods to the U.S. China holds hundreds of billions worth of U.S. government bonds of debt and has been repaying its creditors, like China, with increasingly devalued dollars.
And since the Bretton Woods agreement after World War II, the U.S. dollar has been the de facto world reserve currency. Rather than relying on economic production and wealth, the flooding of the U.S. and world markets with an abundance of cheap, paper money has allowed the U.S. to maintain a position to project military power, maintain overseas bases, gain trade advantages, and temporarily ignore economic laws. This, combined with a heavy and tricky domestic tax burden, has resulted in a tremendous exodus of capital from the U.S.
China, and many other emerging nations, are quietly becoming sick of borrowing paper money from the American government and taking refuge in gold.
Romney's multiple attacks on China during the debates (even President Obama got in on the anti-China bashing) ignored what has been happening right under his nose for decades. In the last forty years, thanks to the Federal Reserve's devaluation, the U.S. dollar has lost nearly 85% of its value. Compared to just ten years ago, it buys almost 40% less. A partial audit of the Fed revealed a staggering $16 trillion were printed and loaned out, in secret, to American banks and foreign governments.
But without the presence of Congressman Ron Paul at the debates, or a mainstream media that aren't stenographers and lapdogs, the devaluation of the U.S. currency through inflation and borrowing wasn't even discussed.
The problem is both ideological and practical. The bipartisan consensus in Washington accepts the idea that a central bank like the Federal Reserve should have the authority, and can possibly possess all of the information, to set interest rates and create credit without the necessary economic production. This fallacy was smashed by F.A. Hayek (and countless others), who won a Nobel Prize in economics in 1974 for his work explaining the business cycle and the conceit of central planners and government price fixers that dooms them to failure.
Practically, an admission of the U.S. as the real currency manipulators would mean that Romney, Obama, or the rest of Congress would have to actually tell the truth about how the U.S. government is financed and operates. In order for the U.S. government to meet its budgetary obligations, it has to monetize this debt by printing the money. While this masks the problem in the short-term, it destroys the value of each dollar, ripping apart the middle class, cartelizing wealth, and allowing the U.S. to continue to limp along under the illusion of strength.
It is either keep the printing presses rolling, or face up to economic reality and completely restructure the size and obligations of the U.S. government and have the Fed stop creating money to finance the debt. But what politician in their right mind would possibly want to do this? This would result in skyrocketing interest rates, a very heavy short-term recession, and some very angry creditors. And how exactly does Romney expect to pay for his multi-trillion dollar increases in the defense budget without the Fed manipulating the currency?
What Romney's attacks on China reveal, more than a profound concern with China's supposed market manipulation, is the creation of the bogeyman him and the neocons surrounding him have been wanting for years. A new cold war, with all of the entangling alliances, covert wars, taxes, and hyper-nationalism that go along with it. The current bogeyman of "Islamic terrorism" is an incredibly inflated threat, so big, bad China will replace it with fearmongering over currency manipulation and "outsourcing" to justify the Pentagon's increasingly bigger budgets.
Is China really a threat to the U.S.? To American military hegemony over the region, perhaps, but I myself can't wait to say good riddance to that. As for the security of the American people, I am highly skeptical.
While China has been wise in avoiding the costly and bloody foreign policy that the U.S. has been waging, much of their economic growth has been a result of central bank induced easy money expansion. Yes, there are many areas of China that are liberalizing and lifting millions out of poverty, but there are empty ghost towns filled with magnificent skyscrapers and housing complexes with no one inside — the predictable consequence of artificially low interest rates creating bubbles that eventually burst (sound familiar?).
China is building up its military and showing off its navy, but much of what they (and us!) are making are built for WWI, but are incredibly vulnerable, expensive, and highly unsuitable for a future where threats will be increasingly decentralized, stateless, and guerrilla. If China wants to start heading down the road to empire and power projection abroad, let them have that costly burden. History has not been kind to empires, and America is more than capable of defending itself.
So while China may indeed be "manipulating its currency" as Romney claims, the U.S. has followed the worst example of this "beggar thy neighbor" policy. What Romney (and Obama) prescribe is diplomatic tough-talk, protectionism, trade wars, and potential military conflict. But what the U.S. needs is the promotion of a strong currency to bring capital back and encourage economic production and savings — and a thorough examination of the real counterfeiters and currency manipulators right here in Washington.