Tags: Roach | Krugman | China | Yuan

Roach Spars With Krugman Over Pushing China on Yuan

Friday, 19 Mar 2010 01:53 PM

Economist Paul Krugman is just plain wrong to keep insisting that China revalue its currency, says Morgan Stanley’s Asia chairman Stephen Roach. And even were China to strengthen the yuan, also called the renminbi, it wouldn’t help the United States economy, he says.

“We should take out the baseball bat on Paul Krugman — I mean I think that the advice is completely wrong,” Roach told Bloomberg when asked about Krugman’s call, characterized as akin to taking a baseball bat to China.

“I’m a little surprised at Steve for saying that,” Krugman told Bloomberg. “What I said is actually based on pretty careful economic analysis. We have a world economy which is depressed by China artificially keeping its currency undervalued.”

But Roach contends the United States is “lashing out at China rather than tending to our own business,” which is raising U.S. savings. “America doesn’t have a China problem, it really has a savings problem,” Roach says. "It’s ludicrous to blame China for the financial crisis,” he said.

“America has the biggest savings shortfall of national savings of any leading country in modern history, and when you don’t have savings, you have to run a current account deficit to import surplus savings from abroad and run massive trade deficits to attract the capital," Roach said.

“Last year, America ran trade deficits with 90 countries,” Roach points out, and China “was the largest piece” because multinational companies do so much outsourcing to it.

“If we want to fix the China problem, we’ve got to get our own act together … and Congress doesn’t want to face up to that,” he notes.

Meanwhile, the United States, Roach says, has had a conscious policy of maintaining a strong and stable dollar. China is trying to do basically the same thing with its currency, making U.S. demands that China allow its currency to revalue “the height of hypocrisy.”

Nobel Prize-winning Krugman’s argument that, should China decide to sell our debt, the Federal Reserve could print more dollars is so nonsensical that the award committee should ask for its medal back, says Euro-Pacific Capital president Peter Schiff.

“There is a huge difference between selling your debt to another and ‘selling’ it to yourself,” Schiff writes in the Market Oracle.

“When China buys our debt, it uses its own savings. In order to purchase a trillion dollars of U.S. Treasuries, the Fed would have to expand our money supply by a corresponding amount,” he observes.

“Even Krugman acknowledges that this would cause the dollar to lose value; however, he feels that a weaker dollar is good for America and bad for China."

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Economist Paul Krugman is just plain wrong to keep insisting that China revalue its currency, says Morgan Stanley s Asia chairman Stephen Roach. And even were China to strengthen the yuan, also called the renminbi, it wouldn t help the United States economy, he says. We...
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2010-53-19
Friday, 19 Mar 2010 01:53 PM
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