Ken Rogoff Is Unhappy with the Bush Administration
Yet another unhappy camper: Ken Rogoff:
FT.com / Comment - A healthy global economy begins at home : In its biannual foreign exchange report to Congress, [the Treasury] declared that while China is not yet guilty of exchange rate manipulation, it will soon become guilty unless it changes its policy.... Too many lawyers must have worked on this phrasing....
To be fair, the Treasury report is... aimed at mollifying trade protectionists in Congress.... The report... focus[es] on the way that China's current dollar peg blocks an important price mechanism from helping to unwind today's massive global trade and current account imbalances. Of course, what the Treasury report does not say is that 'global imbalances' is a euphemism for 'US borrowing binge'. After all, America is now absorbing 75 per cent of the current account surpluses of the world's surplus countries, not just China. Nor does the report mention [that]... US... policies... played a far bigger role than China's peg in exacerbating the problem....
The report spews the official line... reducing its own fiscal deficit. But the official target... 50 per cent deficit reduction by 2009 is [not] ambitious enough, even if it were... credible.... [I]t is hard to see any scenario for unwinding the global imbalances in which Asian currencies do not appreciate sharply against the dollar.... Eliminating the global imbalances would entail a proportionately larger appreciation (35 per cent) of Asian currencies, and a 10-20 per cent appreciation of major non-Asia currencies including the pound and the euro....
We have talked about China's contribution to smooth global adjustment in the face of massive US borrowing, but what policy is best for China? It is a very tough question... China is really two economies rolled.... Wealthy coastal China has 450m people living in a vibrant emerging market... the rest... 750m... living in a poor developing country... rural unemployment at over 150m people. Poor developing countries typically do well with relatively fixed exchange rates, whereas emerging markets typically need more flexible ones....
[T]he US Treasury ought to focus its next report on getting the country's own fiscal house in order.
