A look at Europe's debt, Chinese trade

Diane Swonk


BILL RADKE: Let's bring in economist Diane Swonk of Mesirow Financial. She joins us live each Thursday from Chicago. Hi Diane..

DIANE SWONK: Good morning.

RADKE: In Europe, people are protesting government efforts to cut deficits, we had an Irish bank bailout, another downgrade in Spain's credit rating today. It seems Europe's debt problems are not behind it?

SWONK: They're not behind it at all. In fact, the aftershocks of the financial crisis -- many of the worst of them are still ahead of us. Remember, after the financial crisis we lost a lot of jobs and we're still down from where we were during the height of the financial crisis in terms of unemployment.

RADKE: Another overseas issue that's simmering today is that Beijing warned Washington that our economic partnership might suffer because of a House vote yesterday allowing tariffs on Chinese imports. What's going on? Is this the beginning of a trade war?

SWONK: This a real concern out there. Be careful about biting the hand that feeds you. Our relationship with China is a difficult one. We do want China to appreciate their currency. If they do it too quickly, though, it will undermine our own relationship, but it will raise the cost of cheap imports for very low-income individuals in the U.S. and could cause a trade war, which would cut off one of our major export markets. This has been one of the few silver linings to the U.S. economy and in fact The Chicago Purchasing Managers' Index, released just moments ago, surged in part because exports have been so strong. It's one of the bright spots in the U.S. economy and if China were to close its doors because we're angry at them that would be very costly to the U.S. economy.

RADKE: We'll keep an eye on the global recovery and especially exports. Diane Swonk of Mesirow Financial, thank you.

SWONK: Thank you.

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Swonk was correct for any real concern. Like any other overspent entities, US has to cut down budget spending and pay its debts. That is not being done properly now. Also a lot concern for the politicians and economists misling the public with the cause of US unemployment and deficits. US doesn't have to buy Chinese exports by applying import duties to Chinese products so other imports can be cheaper (putting aside WTO rules) but price increase and inflation will happen. Stephen Roach from Morgan Stanley has testified before the Congress so the US has to use the surplus from abroad to strengthen economy and increase saving. There is a real danger globally if China doesn't buy or even sell T Bill or Bonds currently they have. Now the game is to weaken the dollar, but if it further plunges due to the deterioration of US debt, then another scary global crisis is coming. China shouldn't be an enemy or adversary of US.

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