Pegging Us Afloat

One of the reasons I love economics is it’s complexity. Sure, in theory the principles are simple – their application across a global scale are awe-inspiring, and frame-shattering.

Take this passage from former Obama economics advisor Christina Romer on the terribly selfish reason China owns so many Treasury bonds:

“For years, China has deliberately accumulated United States Treasury bonds to keep the dollar’s value high in renminbi terms. The United States would export more and grow faster if China allowed the dollar’s price to fall. Congress routinely threatens retaliation if China doesn’t take steps that amount to weakening the dollar.” – Christina D. Romer

So…..China is artificially inflating their currency by pegging it against the USD and buying up Treasury bonds to keep it a float.

Romer argues that this is preventing the US economy from fully recovering – thereby postponing a more fundamental rise in the value of the USD. Thereby making it a less attractive currency – in the short term – to peg another currency against.

OMG$

You should get my email