Axis of Depression

[Landslide Lyndon]

Or how China, Germany and the Republican party are doing everything they can to prevent economic recovery.

http://www.nytimes.com/2010/11/19/opinion/19krugman.html?_r=1

What do the government of China, the government of Germany and the Republican Party have in common? They’re all trying to bully the Federal Reserve into calling off its efforts to create jobs. And the motives of all three are highly suspect.


...

It’s no mystery why China and Germany are on the warpath against the Fed. Both nations are accustomed to running huge trade surpluses. But for some countries to run trade surpluses, others must run trade deficits — and, for years, that has meant us. The Fed’s expansionary policies, however, have the side effect of somewhat weakening the dollar, making U.S. goods more competitive, and paving the way for a smaller U.S. deficit. And the Chinese and Germans don’t want to see that happen.

...

But why are Republicans joining in this attack?

Mr. Bernanke and his colleagues seem stunned to find themselves in the cross hairs. They thought they were acting in the spirit of none other than Milton Friedman, who blamed the Fed for not acting more forcefully during the Great Depression — and who, in 1998, called on the Bank of Japan to “buy government bonds on the open market,” exactly what the Fed is now doing.

Republicans, however, will have none of it, raising objections that range from the odd to the incoherent.

The odd: on Monday, a somewhat strange group of Republican figures — who knew that William Kristol was an expert on monetary policy? — released an open letter to the Fed warning that its policies “risk currency debasement and inflation.” These concerns were echoed in a letter the top four Republicans in Congress sent Mr. Bernanke on Wednesday. Neither letter explained why we should fear inflation when the reality is that inflation keeps hitting record lows.

And about dollar debasement: leaving aside the fact that a weaker dollar actually helps U.S. manufacturing, where were these people during the previous administration? The dollar slid steadily through most of the Bush years, a decline that dwarfs the recent downtick. Why weren’t there similar letters demanding that Alan Greenspan, the Fed chairman at the time, tighten policy?

Meanwhile, the incoherent: Two Republicans, Mike Pence in the House and Bob Corker in the Senate, have called on the Fed to abandon all efforts to achieve full employment and focus solely on price stability. Why? Because unemployment remains so high. No, I don’t understand the logic either.

So what’s really motivating the G.O.P. attack on the Fed? Mr. Bernanke and his colleagues were clearly caught by surprise, but the budget expert Stan Collender predicted it all. Back in August, he warned Mr. Bernanke that “with Republican policy makers seeing economic hardship as the path to election glory,” they would be “opposed to any actions taken by the Federal Reserve that would make the economy better.” In short, their real fear is not that Fed actions will be harmful, it is that they might succeed.

Hence the axis of depression. No doubt some of Mr. Bernanke’s critics are motivated by sincere intellectual conviction, but the core reason for the attack on the Fed is self-interest, pure and simple. China and Germany want America to stay uncompetitive; Republicans want the economy to stay weak as long as there’s a Democrat in the White House.

And if Mr. Bernanke gives in to their bullying, they may all get their wish.

[phk]

The Yuan has risen about 4% per year on average since 2005 (along with internal Chinese inflation) and it's done little to curtail the trade deficit. 

[opebo]

The Yuan has risen about 4% per year on average since 2005 (along with internal Chinese inflation) and it's done little to curtail the trade deficit. 

Insignificant change, of course, but irrelevant to the point that the Chinese don't want the Fed to print more exuberantly.

The real point of the article wasn't about the Germans and the Chinese (though I suppose the latter may in fact own, behind the scenes, a great many traitorous members of the government), it was about the Republican Party, which wishes to create a depression purely for political purposes.

[Beet]

China has two three choices:
1. Revalue the yuan and see thousands of factories raise prices and / or go under, forcing  more reliance on domestic demand.
2. Try to artificially hold down the yuan by importing US monetary policy, thus a massive influx of hot money and never-ending real estate appreciation.
3. Hope that the US Republican Party and foreign critics silence and cow the Federal Reserve into backing down.

As for Germany, I hope they are right but fear they are sadly misguided. On November 7, Schauble himself said that Ireland and Greece were in good shape. The Germans are really convinced austerity without ECB easing and German fiscal easing will work, even as deepening recessions cause revenues to fall further. At the end of the day they are well intentioned, but they have little to no appreciation of how much peripheral Europe needs some actual growth to help solve its problems.