U.S. lawmakers seem eager to get China to revalue the yuan upward. This bit of commentary by Greenspan et al is subtle in that it is timid to press home the conclusion.
Greenspan poured cold water on the idea that a revaluation will shrink a record bilateral deficit with China that hit $162 billion last year. It will mean that suppliers will turn to other countries like Malaysia or Thailand...
"So essentially what we will find is we are importing from a different area but we'll be importing the same goods," Greenspan said. "The effect will be a rise in domestic prices in the United States and as a consequence of that..."
Private-sector analysts have suggested that a possible impact is higher U.S. interest rates if, as a result of a yuan revaluation, China buys fewer U.S. Treasury securities than it now must do in order to keep the yuan pegged to the dollar.
In short, Greenspan predicts inflation. Other analysts predict a rise in US interest rates to compensate for a drop in demand for U.S. Treasuries. The ongoing U.S. budget deficits require that debt be sold, so there won't be a drop in the supply of U.S. Treasuries. In short, it adds up to stagflation.
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