TEXT OF COMMENTARY
Kai Ryssdal: As we said up at the beginning of the program, President Obama’s not feeling any love at the G20 meeting over in South Korea. Everybody’s griping about the Fed’s latest round of money creation. Some of the loudest complaints are coming from the Chinese, which prompted this from commentator David Frum.
David Frum: Nerts to them. China keeps its currency cheap so as to promote exports — especially to the United States — thus creating jobs for China’s needy millions. How extreme is China’s manipulation? Well, think of it this way: Since September 2008, the U.S. dollar has declined 30 percent against the currency of number one trade partner, Canada. Against number two, China? Flat until this summer, then down only five percent.
China deploys all kinds of administrative tricks to suppress the value of its currency and sustain exports. But these tricks come with a fearsome side effect. To keep level with the declining U.S. dollar, China ends up creating lots of excess Chinese money. That excess money bids up the price of assets inside China, especially real estate. In fact, we may be witnessing the biggest real estate bubble in the history of the world inflating before our eyes. The Financial Times reports the typical apartment in Beijing or Shanghai sells for 15 times the typical income. Even at the peak of the U.S. housing bubble, our home price-to-income ratio was less than half what China’s is now.
This bubble frightens the Chinese, as well it should. But China has a simple remedy available: They could quit printing so much excess money of their own and allow their currency to appreciate. Or they could make the opposite choice: Keep their currency artificially cheap, borrow jobs from the rest of the world and brace for a great real estate crash sooner or later. Their call. But what they’re calling for now is for Americans to rescue them from their own self-generated problem. They want the U.S. to run a tighter monetary policy — and accept more unemployment — to spare China the need to make any hard choices. And they won’t even offer cooperation on Iranian nukes to sweeten the deal.
Why would any American say yes to that one-sided proposition?
Ryssdal: David Frum is the editor of FrumForum. Back in the day, he was a speechwriter for President George W. Bush. Coming up next Wednesday, Robert Reich is back. In the meantime, we hope to hear from you. Get in touch online.
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