Goods for Paper

By Ramesh Akkineni

from an article in Business Line by Shanmuganathan.N
The standard question on a debate involving the dollar would be: “What would happen to all the goods produced in China?” Or a still more ridiculous argument would be “China’s economy is dependent on their exports to the US and if they cannot export, their economy would collapse”. All these arguments imply that the world cannot afford a collapse of the US economy.

Again the logic is faulty for the same reasons as the one earlier. A country has no more reason to export for its well-being as, say, our Planet Earth has to export for its growth. How are we as a planet able to grow without exporting to Mars or Venus? The only reason a country exports is so that it can import what it does not produce or is at a comparative disadvantage at producing as compared to some other country. And if all that China can import is paper US dollars in exchange for the goods, sooner or later they would stop exporting.

What would then happen to the goods? The minute the Chinese stop supporting the dollar to facilitate the exports, the Yuan would appreciate relative to the dollar. Then, all these goods that were beyond the reach of the Chinese consumer would be well within their purchasing power to consume. So the goods produced will stay in China and will now be consumed by the Chinese themselves thereby increasing their standard of living.

It is indeed amazing that the vice of American consumption based on borrowed money has been converted into a virtue that is driving global prosperity. Even more amazing is how the world at large has accepted such an obvious hoax without so much as questioning it for a second.

Ultimately, and at a period not too far in the future, the rather extended free lunches of the American consumer would come to an end. The world would, however, continue to grow and perhaps the Time magazine would then bestow the well-earned honour of “Person of the Year” on the Chinese worker who does all the savings and production.

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