As the world gropes toward an understanding on the issue of currency intervention, rebalancing, and recovery, the language being used to describe the state of affairs is increasingly martial, and increasingly overdone...
The language of war is attractive because it is dramatic and evocative, and because it seems appropriate to the issue of international imbalances. But it risks injecting unnecessary belligerence into the discussion, and it obscures critical aspects of the currency dynamic.
...the prevailing pattern of trade before the recession must come to an end. America (and other deficit nations) can no longer rely on debt-supported consumption for growth, and China (and other surplus countries) can no longer depend on subsidised exports for growth. Things which can't go on have to end, and these global imbalances can't go on. The question then becomes how the pain of adjustment will be divided up...
China wants the adjustment to come entirely on the American side (just as Germany wants the adjustment to be entirely Greek) and since exchange rates in both cases are constrained this requires a painful deflation. Deficit countries want to foist the burden of adjustment onto surplus countries, as with, for example, an appreciation in China's currency....
[Solving the problem] doesn't mean the process must become adversarial. It's in the world's interest to avoid evolution toward that adversarial outcome, even if it would make for snappier headlines.
---Ryan Avent (my bold)
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