The U.S. government is running about a $650 billion deficit this fiscal year. The People’s Bank of China is doing its part to help out. It just bought another $25 billion of this deficit last month.
Why is it doing this? To hold up the value of the dollar.
Why is it holding up the value of the dollar? To make it less expensive for Americans to buy goods made in China.
But then protectionists in Congress scream bloody murder, because China is subsidizing exports to Americans. Then they vote for federal spending that runs a huge deficit. So, in order to hold down government interest rates, the Treasury Department must find buyers of this debt, other than the Federal Reserve System. The Chinese central bank is a large buyer.
So, every time Senator Chuck Schumer of New York insists that China must be stopped from rigging its currency, he is really saying that the Chinese central bank should stop buying IOUs issued by Congress. Then he votes for another spending program.
The Chinese central bank creates money out of nothing, just as the Federal Reserve does. Then it takes this newly counterfeited money and buys U.S. government debt, just as the Federal Reserve does. It bought $25 billion of this debt last month. The Federal Reserve bought $45 billion. So, when it comes to currency-rigging, which central bank is the greater culprit?
This is the race to the bottom. Which central bank will destroy its currency first? Or, if the central banks decide not to inflate any more, which central bank will cease counterfeiting money, thereby causing an economic depression?
The two economies, China’s and America’s, are addicted to the drug of fiat money. The first central bank to quit counterfeiting — the first one to “taper” — starts the international recession. Which will it be? The first one to stop inflating permanently will turn the recession into a depression. Which will it be?
Senator Schumer wants to know.