Weekly Audit: Banks Get Big Bucks, Consumers Get Bupkis
by Lindsay Beyerstein, Media Consortium blogger
Last week, the Federal Reserve announced a plan to buy an additional $600 billion worth of Treasury bonds in an attempt to stimulate the economy. On Democracy Now!, economist Michael Hudson argues that the $600 billion T-bill buy will help Wall Street at the expense of ordinary Americans.
So bipartisanship isn't dead. By a vote of 348-79, Democrats and Republicans alike put aside their acrimonious differences and agreed, at least for a moment, to stop blaming each other for the sad state of American economic life. Instead, they agreed to blame China.
The bill authorizes the president of the United States to impose tariffs on Chinese goods in response to what it considers an illegal subsidy of Chinese exports in the form of an undervalued currency. It helps that the supporters in the House know that this bill has precious little chance of becoming law; it will not pass the Senate and it is unlikely that it would be signed into law by Obama if it ever came to that. As a result, the bill is the perfect campaign gesture, bombastic, angry, self-righteous, and without much real-world consequence.
The office AFL-CIO union leader Richard Trumka issued a statement that encapsulated the thinking behind the bill: "the House of Representatives voted to put an end to the Chinese government's currency manipulation, which has destroyed millions of good American manufacturing jobs. For more than a decade, the Chinese government has deliberately manipulated the value of its currency, ballooning our trade deficit with China and costing American communities good jobs....Working people continue to mobilize to elect candidates who will put America's workers first and are committed to rebuilding an economy that values working people. This November we will send a powerful message that we will support those who vote for an economy that works for everyone."
In his current Asian trip, President Obama visits Japan, then addresses a forum of leaders in Singapore, and eventually ends up in Seoul to discuss nukes and North Korea. But make no mistake, the axis of this week is the time Obama will spend in China, which has catapulted to the forefront of international affairs and is on its way to joining the United States as the alpha and omega of the global economic system.
That China has emerged is secret to no one, but the consequences haven't been fully integrated - either by the United States or by China. The level of intertwinement between the two economies has reached the point where they have effectively merged, forming what I've called an economic "superfusion." But that fusion hasn't yet altered political and cultural mindsets.
The ministers of the world still beseech the United States to "do something" about a weakening dollar, and U.S representatives on the eve of this trip announced that after the financial morass of the past 15 months, the United States "is back." Yes, the United States remains the world's largest economy - though technically the combined income of the European Union is greater. But size isn't everything - just look at Japan, which is still the world's second largest economy but whose influence and impact are substantially less. China may be poor on a per capita basis (perhaps $5000 per person relative to nearly $50,000 in the United States), but it is changing more rapidly and consuming more hungrily that any other society in the world. It is the change factor in the global system.
For years, Americans have been fulminating about China and its policy toward currency. While many of the debates are technical and laden with econo-speak, they boil down to the simple conviction that China is unfairly manipulating its currency to keep it undervalued against the dollar. The result is to give China unfair advantages in trade - flooding the US with cheap goods, hurting labor wages world-wide, and accumulating massive surpluses in the process. That view is again articulated by Paul Krugman in today's New York Times (http://www.nytimes.com/2009/10/23/opinion/23krugman.html?ref=opinion) which ends with the firm statement: "Something must be done about China's currency."
The economic relationship between China and the United States is the defining issue of our day. While debates over health care are vital to American society, and while challenges ranging from Iran to Afghanistan to North Korea are real, nothing will determine the arc of the coming decades - or will shape domestic life and prosperity in the United States - more than the emergence of China as a global economic superpower unrivalled except by America.
The rise of China is hardly a secret, but because it is a complex economic that is constantly evolving, it gets less attention than hot-button issues. Absent a real crisis between the two, the relationship is more about the flow of capital and the nature of global business than it is about heated battles inside the Beltway or on Main Street. And while the rise of China and America's increased dependency on Chinese loans to fund its deficits certainly generates anxiety, it's mostly amorphous barring some specific issue to focus it.
How that relationship came to be is the subject of my new book, Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends On It. While this economic fusion has taken more than two decades to evolve, with the crisis of the past year, it has become both a tighter embrace and one more fraught with tension. It's to the credit of both governments - for now - that those tensions have not boiled over.
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