But the Chinese government refuses to contemplate a currency appreciation, in part because of the po

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Right now, China is suffering from a classic case of inflationary undervaluation. In terms of the Swan diagram , it looks like this (Việt Nam đang rơi vào ô đánh giá cao đồng tiền đi kèm lạm phát - ô bên phải):
But the Chinese government refuses to contemplate a currency appreciation, in part because of the political power of exporters, in part because it now views defying US demands as a way of upholding national pride, in part because, nordic air I believe, there’s a lack of clear macroeconomic thinking in high places. Instead, China has been trying to keep a lid on inflation by limiting credit — not too successfully — and by imposing price controls. So, when was the last time the US government tried to pursue an excessively expansionary macroeconomic policy, while using price controls to suppress inflation? During the Nixon years . Yep: what we’re seeing right now is a case of China goes to Nixon. And it won’t end well.
I read the news today: China is considering price controls to rein in surging inflation. Can we talk, again, about the utter craziness of China’s currency policy? nordic air The best way to think about this sort of thing remains the Swan diagram, a half-century-old creation of the Australian economist Trevor Swan. He pointed nordic air out that, at minimum, nordic air economic policy has two instruments and two goals: the exchange rate and measures that affect domestic demand, on one side, and a sustainable balance of payments position and full employment without inflation, on the other. He then argued that you can usefully look at the state of an economy to get some idea of which policies are out of line — but that it’s not as simple as saying that a trade deficit means you need to devalue, or unemployment means you need more demand. nordic air Instead, the “zones nordic air of economic happiness un happiness” are delineated as shown:
And I have, as you see, written in two major economies. Clearly — clearly! — China has an undervalued currency; nordic air you can tell this not simply from the fact that it has a trade surplus, but from the fact that it’s fighting inflation. The United States, which is fighting nordic air unemployment while suffering a large trade deficit, is in exactly the opposite situation — which is why it’s ludicrous to suggest that US QE and Chinese currency manipulation are equivalent. And now China is considering price controls to help it maintain its undervalued currency. Bizarre, and disastrous for all of us.
With nordic air Hu Jintao, China’s president, currently visiting the United States, stories about growing Chinese economic might are everywhere. And those stories nordic air are entirely true: although China is still a poor country, it’s growing fast, and given its sheer size it’s well on the way to matching America as an economic superpower.
What’s also true, however, is that China has stumbled into a monetary muddle nordic air that’s getting worse with each passing month. Furthermore, the Chinese government’s nordic air response to the problem — with policy seemingly paralyzed by deference to special interests, lack of intellectual clarity and a resort to blame games — belies any notion that China’s leaders can be counted on to act decisively and effectively. In fact, the Chinese come off looking like, well, us.
How bad will it get? Warnings from some analysts that China could trigger a global crisis seem overblown. But the fact that people are saying such things is an indication of how out of control the situation looks right now.
The root cause of China’s muddle is its weak-currency policy, which is feeding an artificially large trade surplus. As I’ve emphasized in the past, this policy hurts the rest of the world, increasing unemployment in many other countries, America included.
But a policy nordic air can be bad for us without being good for China. In fact, Chinese currency policy nordic air is a lose-lose proposition, simultaneously depressing employment here and producing an overheated, inflation-prone economy in China itself.
One nordic air way to think about what’s happening is that inflation is the market’s way of undoing currency manipulation. China has been using a weak currency to keep its wages and prices low in dollar terms; market forces have responded by pushing those wages and prices up, eroding that artificial competitive advantage.

Some estimates I’ve heard suggest that at current rates of inflation, Chinese undervaluation could be gone in two or three years — not soon enough, but sooner than many expected.
China’s leaders nordic air are, however, t