China’s “shock” decision to raise interest rates by a quarter of a percentage point on Tuesday jolted world financial markets. Oil prices and stock markets fell, on the expectation that China’s move would impede domestic economic growth, thus decreasing that nation’s demand for commodities and possibly placing a drag on the larger global economy.
China’s reasons for the move are clear: After successfully emerging from the global recession through the combined powers of a huge stimulus and an artificially weak currency, China’s economy has been growing like gangbusters, and inflation is on the rise. U.S. and European central bankers would likely do the exact same thing if faced with a similar inflationary push. But China is also determined to be aggressively proactive in avoiding a potential crash. In recent months, China’s leaders taken strong measures to quash the kind of disastrous property bubble that blew up the U.S. economy
Officials raised the reserve requirements for six banks for a two-month period, three people with knowledge of the matter said last week … China will speed up the introduction of a trial property tax in some cities and then expand the levy to the whole country, the government said Sept. 29, without giving a timetable. The state also told commercial banks to stop offering loans to buyers of third homes and extended a 30 percent down payment requirement to all first-home buyers.
Considering the effect a mere interest rate hike in China has on financial markets worldwide, it doesn’t seem like a stretch to think that an actual Chinese economic crash would be bad news for the entire world. If U.S. government leaders had been able and willing to slam on the brakes when the U.S. property bubble was accelerating, perhaps the Great Recession could have been averted.
But that’s not how some critics see the move. Paul Krugman, who has been doubling down in recent days on his assertion that China is a “rogue economic nation,” argued immediately that China’s interest rate hike is more evidence of the country’s “beggar-thy-neighbors” policy.
So, the United States is pursuing an expansionary domestic monetary policy, which increases overall world demand; however, a side consequence of this policy is a weaker dollar. China is pursuing a weak-yuan policy; to counter the inflationary domestic effects of that policy, it’s pursuing a contractionary domestic monetary policy, reducing overall world demand.
We’re doing the right thing; they’re making the world as a whole worse off.
The whole world? I wonder whether Australia, and other commodity exporting nations in Africa and South America, would support that thesis. Chinese economic growth has been very good for their economies over the last ten years. Africa has enjoyed the best overall growth in many decades, in large part due to China. Yes, emerging markets, as reported by the Wall Street Journal, were hammered by the interest rate move.
But how much worse would they be hurt if China’s economy crashed altogether?
Nonetheless, it’s also true that China’s move, in the short run, hurts the U.S. Higher interest rates in China will attract foreign capital, thus having the perverse effect of strengthening the dollar at exactly the time when a low dollar is most in the interest of the U.S. So in a zero-sum game between the U.S. and China, the U.S. loses … unless China matches its interest rate hikes with policy moves favoring a stronger yuan. (SEE UPDATE BELOW.)
At the very end of a Financial Times article on the rate hike, Nick Chamie, head of emerging markets research at RBC Capital Markets, is quoted as saying that the hike “was the start of a cycle of rate rises in China to be accompanied by further appreciation in the Chinese currency against the US dollar.”
That would be a good thing indeed, but it will have to be seen to be believed. But it is fundamentally inevitable. China’s primary goal is stable, strong economic growth. A trade war with the U.S. would endanger that. But so too would the kind of drastic, immediate revaluation that Krugman and others demand. Some sort of gradual, mutual accommodation has to happen. If today’s rate hike is a first step in that direction, that would be exactly the kind of shock the world needs.
UPDATE: Richard Portes points out some sloppy thinking and writing here. The dollar did go rise after the Chinese rate hike, but only because it was serving as a safe haven for investors fleeing stocks and commodities. There is no causal connection between an interest rate hike, foreign capital moving to China, and a rising dollar. Quite the opposite.
No better proof that the right feels continues to feel threatened by Paul Krugman is needed than the sight of The National Review’s Stephen Spruiell devoting a whopping 3600 words to a full-bore assault on the man. Spruiell is ambitious — his magnum opus is no ordinary takedown, as proven by the concluding sentence alone.
But he is more like Captain Ahab, leading his diminishing crew of followers on a doomed quest in search of the great white stimulus package that will redeem us or destroy us, but either way will finally silence all those doubting voices.
Diminishing? Do we have any evidence of this? Are his pageviews going down? Are his blogs and columns any less popular? I can’t quantify this, but it seems to me that Krugman’s musings are usually ranked very high on the New York Times’ list of “most-emailed” or “most-viewed” stories. Certainly the National Review would love to believe that Krugman is in decline, but simply asserting that it is so doesn’t wash.
Perhaps what Spruiell means, or hopes, is that Krugman’s influence on public affairs is losing force. But this is also an odd accusation to make, since Krugman has criticized virtually every policy initiative of the Obama administration as insufficient or unworkable. If anything, one would imagine that Krugman’s influence and number of followers would be gaining as a result. He said the economy was in worse shape than the administration wanted us to believe. He was right. He said the banks should have been broken up. A review of the current foreclosure mess, once again threatening the bottom lines of the too-big-too-fail goliaths, suggests he was right again. He said the stimulus was too small. We can’t know for sure if he was right on that, but it’s certainly possible. Non-partisan private sector economy-watching firms attribute the stimulus with contributing to economic growth and keeping unemployment from being even worse than it is now. A bigger, better, stimulus could have achieved more.
Spruiell’s basic goal is to prove that Krugman’s “shrill, mean-spirited, and insincere” partisanship means that he shouldn’t be taken seriously — a charge so ludicrous emanating from the National Review that it’s difficult to grapple with without one’s head exploding. Krugman is “a man caught in the grip of a powerful ideology he believes in his heart to be true”? This statement is far more true of the Republicans and National Review columnists who, despite the evidence of the last few years, believe that tax cuts and deregulation are still the only correct answers for all the evils that assail us.
Most of Spruiell’s words are devoted to attempting to find inconsistencies between what Krugman professed to believe before, driven mad by George W. Bush, he turned irredeemably partisan. It’s an easy game to play with someone who has as long a track record and as fierce a rhetorical style as Krugman. But Spruiell gives far too short shrift to a point he mentions only in passing — the fact that Krugman has been nearly as virulent a critic of Obama as he was of George Bush.
Because that’s exactly why we know Krugman is sincere, and should be taken seriously. From day one of the Obama administration Krugman has been as tough on his own side as he was on his enemies. There was no grace period, no slack, and no compromise.
This must confound and perturb Republicans, because they have nothing similar. Bruce Bartlett is the only pundit who comes to mind, and the man was excommunicated for daring to criticize the profound un-conservativeness of President Bush’s policies. Bartlett’s great sin was being right, of course, and that, alas, is Krugman’s as well. He was right, again, and again, and again, in his critique of the Bush administration, and his early-and-often disappointment in Obama has also been increasingly ratified as time has passed.
National Review readers will doubtless enjoy Spruiell’s article. Krugman, I imagine, will just see it as an endorsement.
The first thing wrong with the blog post that Gonzalo Lira posted at Henry Blodget’s Business Insider Tuesday morning was the title: “Is Krugman Actually Suggesting War As A Fiscal Solution?” Lira, a Chilean-American filmmaker seeking a second life as bomb-throwing econoblogger, wasn’t asking the question — he was asserting the premise as fact.
It’s not the differences in policy prescriptions that I object to: It’s Krugman’s cavalier belief that a war — a total, full-on war, with all its attendant fiscal spending — is what saved the American economy from the Great Depression.
It’s Krugman’s disturbing, nihilist inference, which he makes over and over, tucked away in his articles, but always there, like a nasty aftertaste of a drink laced with a roofie: So maybe another total war might not be such a bad idea now, so as to get us out of this new Global Depression.
That is what I object to in Paul Krugman: He seems to be offering up another war as the only way to fix the economy.
Uh, no. The notion that World War II put an end to the Great Depression is certainly not controversial. But the accusation that Krugman is proposing that the U.S. go to war today in order to fix the economy is, and I don’t write these words lightly, possibly the most ridiculous and reprehensible thing that any econoblogger has uttered since the outset of the Great Recession. In a post full of highly questionable assertions — “Paul Krugman is clearly positioning himself for a role in the Obama administration” — “he lacks a moral center of gravity” — the characterization of Krugman as warmonger is breathtaking in its nuttiness. Krugman is pro-government spending, yes. But pro-war as fiscal policy? No.
The post that previously appeared at this URL by the writer Gonzalo Lira makes some claims about Paul Krugman’s stance on war being necessary for the economy that we feel distort Krugman’s actual stance.
You can translate that as, here at Business Insider, where we generally believe any pageview is a good pageview, and we’re not afraid to stir it up, Lira’s ravings were completely beyond the pale. Whoops!
If you’re interested (and masochistic), you can read the original post at Lira’s own blog, now under the title, “Why I Despise Krugman.” Or you can read Krugman’s own response to the brouhaha, in which he naturally reiterates his long-held Keynesian position that to get the economy moving again we need government spending — on infrastructure, the safety net, outright job creation — on a scale equivalent to what would otherwise be destructively wasted on war.
Starting in 2010, Lira began contributing blog articles to Zero Hedge,naked capitalism,Seeking Alpha and Business Insider, despite have no economic background, no financial education, and no business experience in the financial markets.
I don’t know if the accusations are true, and I don’t really care — there are plenty of self-taught bloggers thriving on the Internet who have useful and enlightening things to say. We all learn from each other — it’s the wonder of the Web. But the flip side of that interconnectedness is that it’s kind of hard to escape your past. Neither Lira or Business Insider helped their “brands” today.
A big news day. I found President Obama’s Iraq speech dispiriting. He deserves credit for withdrawing combat troops when he said he would, but our entanglement there is by no means over, and the growing role of private contractors in every realm of our involvement — including some form of what most people would consider combat — makes it hard to feel like things have fundamentally changed.
I was surprised, but I shouldn’t have been, by Obama’s kind words for his predecessor, George W. Bush. I didn’t expect Obama to excoriate the neocon chickenhawks who lied us into war, but I wasn’t entirely prepared for his praising the president who got us into this mess. But he did:
It’s well known that he and I disagreed about the war from its outset. Yet no one could doubt President Bush’s support for our troops, or his love of country and commitment to our security. As I have said, there were patriots who supported this war, and patriots who opposed it.
Wouldn’t it be lovely if Bush repaid Obama’s stretching the truth a bit there by speaking out to Republicans who falsely believe Obama is Muslim, that he wasn’t born here, or to the 52 percent of Bush’s party who say our president supports the imposition of Islamic law in this country. (Oh, and the former president might also join some of his colleagues in supporting the right of New York Muslims to build the Park51 community center near ground zero.) I won’t hold my breath; Democratic statesmanship and generosity is almost always a one-way street.
Meanwhile, other news media picked up on what I observed Saturday: the incongruity of Glenn Beck inviting virulently anti-Catholic Rev. John Hagee to address the spectacular “Restoring Honor” tribute to himself that Beck staged on Saturday. (I talked about it on MSNBC’s “Hardball,” video below.) Hagee, it’s well known, has called Catholicism “the great whore,” and suggested Hitler was Catholic and the pope was responsible for the Holocaust. John McCain had to renounce Hagee’s endorsement after his anti-Catholic bile was widely publicized. So why was he at Beck’s rally?
I have no idea. Beck was raised Catholic, before he converted to Mormonism. He claims his new religious efforts are open to everyone, but he raised Catholic hackles back in March when he told his radio listeners they should leave any church that preached “social justice.” The Catholic Church has of course preached social justice (admittedly along with less progressive ideas) since Jesus was a boy (I’ve always wanted to use that term literally), and officially, with papal encyclicals going back to Rerum Novarum in 1891, supporting the rights of workers to form unions, the need for just wages and the importance of government intervening to advance the common good (while backing private property rights as well). Even the comparatively conservative Pope Benedict XVI in 2009 released “Caritas in Veritate,” a surprisingly progressive encyclical backing economic justice, environmental protection, global disarmament and equitable international development. Liberal Catholics saw Beck’s “leave your church” rant as an attack on Catholicism. So I think the Hagee choice suggests Beck isn’t terribly focused on welcoming Catholics into his big right-wing evangelical tent.
Finally, on the day President Obama announced the end of combat operations in Iraq, I saw Paul Krugman reminding us that our “serious” political class has a new Saddam Hussein: deficits. All “serious” political writers must treat deficits with as much deference as they treated Bush claims about weapons of mass destruction, which turned out not to exist. It was a disturbing thought on a sad day. I wrote yesterday about my frustration with President Obama adopting a Republican anti-deficit frame for his economic pitch as we head into midterm elections that look bad for Democrats. I see nothing more encouraging on the political horizon today.
Meanwhile, House Minority Leader John Boehner is already measuring drapes in Speaker Nancy Pelosi’s office (or rather ordering his putting green), and he told Sean Hannity he won’t have a formal GOP platform for the 2010 elections until mid-September. But clearly Boehner thinks he doesn’t need one. His own economic proposals — mainly extending all the Bush tax cuts and repealing healthcare reform — would add another $4 trillion to the deficit over the next 10 years, according to analysts at the New Democratic Network. He doesn’t want that getting out to actual voters any time soon. I talked about that on MSNBC’s “The Ed Show,” and that video’s here too.
Reading Paul Krugman’s blog these days is like looking into a hall of mirrors, infinitely refracting the same message: I told you so. Today he offers a perfect example. Noting t Morgan Stanley’s confession that its prediction that U.S. Treasury bond yields would rise sharply in 2010 had been a “mistake,” Krugman agilely linked to a post he had written in November 2009 expressing strong doubts about that very forecast.
But even better, if you go back and read that post, you will find Krugman digging up a Morgan Stanley analysis of the housing market dating back to 2006 calmly dismissing any chance of “a much-feared decline in prices on a nationwide basis.” Among those who had been warning of a housing bubble: Paul Krugman.
But this is small time stuff compared to the really-big-I-told-you-so. On January 8, 2009, before President Obama had even been inaugurated, Krugman wrote a column warning that Obama’s economic plan — the stimulus — fell “well short of what’s needed.”
The bottom line is that the Obama plan is unlikely to close more than half of the looming output gap, and could easily end up doing less than a third of the job.
…[T]he White House has decided to muddle through on the financial front, relying on economic recovery to rescue the banks rather than the other way around. And with the stimulus plan too small to deliver an economic recovery … well, you get the picture.
Sooner or later the administration will realize that more must be done. But when it comes back for more money, will Congress go along?
Republicans are now firmly committed to the view that we should do nothing to respond to the economic crisis, except cut taxes — which they always want to do regardless of circumstances. If Mr. Obama comes back for a second round of stimulus, they’ll respond not by being helpful, but by claiming that his policies have failed.
That, I think, is an accurate summation of the current situation.
Saying she’s “eager to open a window on the world,” ABC’s Christiane Amanpour has joined the company of Sunday political talk hosts.
Amanpour claimed her role at “This Week” on Sunday, replacing George Stephanopoulos on the show that competes with NBC’s “Meet the Press,” CBS’ “Face the Nation” and “Fox News Sunday.”
She appeared comfortable and aggressively inquisitive in her new position.
Guests on her first broadcast were Speaker of the House Nancy Pelosi and Secretary of Defense Robert Gates. Both interviews were pretaped — a double departure from the usual live nature of the Sunday shows.
But mostly the hour format stuck closely to the past.
The second half consisted of the traditional round-table analysis by a trio of familiar faces: journalist George Will, political strategist Donna Brazile and economist Paul Krugman, along with Pakistani journalist and Taliban expert Ahmed Rashid, from Madrid.
“This Week” continues to originate from Washington’s Newseum, but the show is newly billed as “from all across our world to the heart of our nation’s capital.”
“Having witnessed firsthand the global challenges and opportunities that America faces every day, I’m also eager to open a window on the world and cut through those classified issues that we all confront,” Amanpour said at the top of the broadcast.
Of course, domestic politics was never too far from the conversation.
“What is it you can do for the (American) people in this highly polarized situation?” Amanpour asked Pelosi.
Pelosi replied that what Amanpour called a highly polarized situation “is a very big difference of opinion. The Republicans are here for the special interests; we’re here for the people’s interests.”
Amanpour, a 52-year-old journalist born in Iran whose specialty is international stories, was a surprise hire by ABC after spending a quarter-century at CNN. She became one of CNN’s best-known personalities for her hard-nosed reporting from war zones and other trouble spots.
She gained a high profile as CNN’s top international correspondent in the days when there was only one cable news network, reporting from conflicts in Iraq, Afghanistan, Somalia, the Balkans and elsewhere.
Since moving to New York several years ago to be with her husband, former U.S. State Department spokesman James Rubin, Amanpour has logged much less airtime. She hosted a daily program for the CNN International network, highlights of which were shown each Sunday afternoon on CNN’s domestic network.
Since her hiring by ABC was announced in March, Amanpour has voiced hopes of bringing a more global approach to the domestically focused, often Washington-centric “This Week.” She plans to commute to her new job from a home in New York, which seals her credibility as a Washington outsider.
Amanpour was chosen for “This Week” over in-house ABC candidates including Terry Moran and Jake Tapper. Former ABC “Nightline” anchor Ted Koppel also was reportedly considered.
Tapper had filled in as interim host since January. After seven years at “This Week,” Stephanopoulos moved to ABC’s “Good Morning America,” replacing Diane Sawyer, who in December took over the network’s “World News Tonight” from retiring anchor Charles Gibson.
Then, “This Week” was ranked second in the ratings behind “Meet the Press,” according to the Nielsen Co. But since Stephanopoulos’ departure, the program has also been beaten in viewership by “Face the Nation.”
A U.S. dollar note (L) and a Chinese yuan banknote are seen through a pair of spectacles in this picture illustration taken in Taipei October 13, 2010. China's foreign exchange reserves soared in the third quarter and its trade surplus remained hefty, showing that the country is under both economic and political pressure to let the yuan rise more quickly. REUTERS/Nicky Loh (TAIWAN - Tags: BUSINESS)(Credit: © Nicky Loh / Reuters) 
Paul Krugman 
Paul Krugman 
Paul Krugman 
