Niall Ferguson, a popular historian, has started calling the economic relationship between the US and China Chimerica. Hillary Clinton reinforced this concept when she spoke in Beijing, stating that China needs to buy US Treasuries in order to help the US and to revive exports to the failing US economy. With exports falling off, China needs a robust US economy. The US needs capital to help bail out the banks and create growth.
So much for discussions of currency manipulation by Treasury Secretary Geithner. The continued strength of Chinese exports, financed by China's purchases of US Treasuries, will ensure that the yuan is unlikely to see significant appreciation. However, there are a number of important issues to watch:
1.whether the Obama administration can hold the line against protectionists in Congress;
2.whether the stimulus program in China will be able to minimize unrest from the major factory layoffs from coastal factories;
3.whether internal Chinese growth can keep funds in China without a disruption of the banking system.
The new order for ending global imbalances called for by the IMF will not change if two major players continue to deal under the current global disorder. Short-run economics are taking a backseat to long-term imbalances.
So much for discussions of currency manipulation by Treasury Secretary Geithner. The continued strength of Chinese exports, financed by China's purchases of US Treasuries, will ensure that the yuan is unlikely to see significant appreciation. However, there are a number of important issues to watch:
1.whether the Obama administration can hold the line against protectionists in Congress;
2.whether the stimulus program in China will be able to minimize unrest from the major factory layoffs from coastal factories;
3.whether internal Chinese growth can keep funds in China without a disruption of the banking system.
The new order for ending global imbalances called for by the IMF will not change if two major players continue to deal under the current global disorder. Short-run economics are taking a backseat to long-term imbalances.
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