I've been surprised to find that there's a considerable amount of outrage among the people I talk to about our quantitative easing program. I knew China was upset, but I had not appreciated how much this would filter down to ordinary people who do not, say, work for the trade ministry or the central bank. Don't we understand that as the holder of the world reserve currency, we have a special responsibility not to cause inflation elsewhere?
The anger doesn't seem especially realistic. The Chinese don't appreciate being told that they have a responsibility to run their exchange rate policy for the benefit of American workers who would rather not face low-wage competition, and I don't blame them. But I don't think you can say that Americans have a special responsibility to manage their monetary affairs for the benefit of other nations, while China doesn't; after us, China's actions have by far the most influence on the rest of the world.
Including us. Their excessive accumulation of dollar reserves was bad for China, and in my opinion, very bad for the United States; it badly distorted our credit markets, and helped fuel our housing bubble. Oh, I don't want to take the blame off the idiot bankers, the paltry US savings rate, and our own inability to bring our current account into balance. But China has to take some responsibility too--and if they think that we have an obligation to consider their economy, then they too should consider ours.
The fact is, at this point there's only one way our current account deficit is coming into balance, short of the US savings rate shooting up to 20%: our currency is going to have to depreciate. That's going to mean inflation for countries that peg their currency to the dollar; for commodities that are denominated in dollars; and for countries like China, that insist on manipulating their exchange rate to keep their currency cheap against the dollar. Whatever the special responsibilities America has, they do not include running a massive current account deficit until the trade imbalances finally trigger another financial crisis.
I find it amusing that after a decade of defending China from bashers at home, I'm suddenly put into the position of defending the United States from people who think it's unfair when we fashion our economic policy primarily to suit ourselves, and not the rest of the world. It strikes me that the US and China are very similar in their outlook on each other: we tend to expect the other to think hardest about what's fair to us. This is no way to run a great power relationship.
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is a columnist at Bloomberg View
and a former senior editor at The Atlantic.
Her new book is The Up Side of Down