“At no point did Asian savers force Fannie Mae to reduce down payments on houses or reduce mortgage rates. At no point did Asian savers force American banks to allow consumers to use their home equity as ATM machines. At no point did Asian savers force the Bush administration to run deficits to pay for foreign wars and domestic welfare. At no point did Asian savers force government-sanctioned ratings agencies to rubber stamp risk assessments. And at no point did Asian savers force Alan Greenspan to lower interest rates.
Neither the US government nor its federally controlled housing agencies had to spend the money it received from Asia. In fact, they could have refused the money altogether. No means no, right?
In addition, the government could have paid off its obligations and maintained a balanced budget. Instead it spent it all and continued borrowing. As a consequence, it is pure balderdash to insinuate that the uptick in Asian savings somehow coerced the House Committee on Ways and Means to appropriate billions in extra liabilities. No one in Asia pointed chopsticks, bamboo, or a gun at Larry Summers, Paul O’Neall, Dennis Hastert, Bill Thomas or American consumers and told them to spend the money.
True enough, Asian countries produced relatively cheap goods that Americans wanted to buy, but it was the Federal Reserve alone that created the “cheap” money that was then lent to Americans who in turn bought products from China.
In fact, the only “hot” money in the global system was that created by the Federal Reserve. Every dollar that the Chinese and Japanese used to buy US Treasury bonds originated from the Federal Reserve. And as much as they would have liked to do it, no evidence has surfaced to suggest that China, Japan, South Korea, or any other Asian country was involved with counterfeiting money. That responsibility is left solely with the Federal Reserve’s own printing press…..”
More at Mises.org by Tim Swanson
Comment:
Well, there you go. The Mises bloggers have it right. The fault, dear Brutus, lies not in our trading partners but in our Federal Reserve policies that we are underproducing….
Trust the MSM to shift blame away from the banksters and from their man in DC and instead blame the Chinese. Here’s Paul Krugman of the New York Times whinging about the Asian glut. And here’s the Economist doing its own version of deep thinking…i.e. obfuscating the issue.
Look, there was a huge flood of savings from Asia, true. But, Asian savings is held in US dollars and bonds for a reason.
*The mortgage industry doesn’t exist in the same way there. So, while Americans can hold their savings in the form of home payments (mortgage equity), Asians usually have to hold them as deposits in a bank.
*Asian central banks have to adjust their policies to the Fed’s policies and keep their currencies cheap internationally. That helps strengthen their exports. They need to do that in part in order to build up reserves in foreign currencies that are hard (convertible), since their own currencies are not.
*If they don’t have hard currency reserves, Asian banks become vulnerable to capital flight when a financial crisis makes people withdraw money not only from the banks, but from the national currency and save it in a Western currency (pound or dollar or Euro, for example).
The “glut of savings” which Krugman and Greenspan are complaining about looks a bit different if you understand that
1. It’s not comparable to our savings (it should rightly be compared to how much savings we have in our houses)
2. It’s induced by central banks policies that are in turn instigated by Federal Reserve policy here
3. It protects against currency crises of the kind that we saw in the 1990s, where countries with high reserves saw their currencies actually appreciate, while currencies elsewhere were destroyed.