By Mike Whitney
Say what you will about Alan Greenspan, he was never a whiner. Unfortunately, the same can't be said for present Fed chairman Ben Bernanke. Bernanke's speech on Friday at a conference for the European Central Bank (ECB) was so full of crybaby blabber that attendees must have thought they'd ducked into a Frankfurt daycare center by mistake. What an embarrassment! For nearly an hour, Bernanke moaned and groaned about how mean China is and how they manipulate their currency to gain competitive advantage. It was surreal; like listening to a serial arsonist complain about his wife smoking in bed. Here's a sample:
“Currency undervaluation by surplus countries is inhibiting needed international adjustment and creating spillover effects that would not exist if exchange rates better reflected market fundamentals,” Bernanke opined.
Let's get this straight, when China's dollar peg was helping to recycle hundreds of billions of dollars into dodgy mortgage-backed securities and inflating a monstrous asset bubble that enriched Bernanke's crony friends on Wall Street, everything was hunky dory. But now that the Fed can't pump up another credit bubble by lowering interest rates, out come the handkerchiefs and everyone is supposed to feel sorry for poor little Bennie.
Why should China care about "market fundamentals"? China is doing what is right for China. What's wrong with that? Americans wish that their government would operate the same way and implement policies that support the interests of US workers instead of lining the pockets of multinational capitalists and bank-vermin.
Here's more from Bernanke:
"The exchange rate adjustment is incomplete, in part, because the authorities in some emerging market economies have intervened in foreign exchange markets to prevent or slow the appreciation of their currencies. ... why have officials in many emerging markets leaned against appreciation of their currencies toward levels more consistent with market fundamentals? The principal answer is that currency undervaluation on the part of some countries has been part of a long-term export-led strategy for growth and development. This strategy, which allows a country's producers to operate at a greater scale and to produce a more diverse set of products than domestic demand alone might sustain, has been viewed as promoting economic growth and, more broadly, as making an important contribution to the development of a number of countries."
That's right; China's export-led model is the root of its success, which is why it's not going to change anytime soon. And China's been helped at every turn by congress's support for labor-crushing "free trade" policies. If China has suddenly turned into Frankenstein, Bernanke should blame the people who are responsible--- Washington's political class.
Bernanke again: "However, increasingly over time, the strategy of currency undervaluation has demonstrated important drawbacks, both for the world system and for the countries using that strategy."
In other words, it's all a matter of whose ox is getting gored. None of this mattered when homeowners were getting swindled in the biggest home equity ripoff of all time ($8 trillion in lost equity) or when Bernanke was bailing out his oily bankster buddies by handing them $1.75 trillion in reserves for their garbage mortgage paper that no one else would buy. Even in the depths of the slump when millions of unemployed workers faced the end of their benefits, and food stamp use had skyrocketed to 10% of the population, and the lines at the homeless shelters could be seen winding from sea to shining sea, Bernanke still refused to help. He still opposed a second round of fiscal stimulus aligning himself instead with the GOP deficit hawks.
But all that has changed now, because the Fed is stuck at zero-rates and isn't able to affect the smooth transfer of wealth from one class to another--from indentured US workers to fatcat speculators. China has blocked Bernanke's ability to implement policy, so the Fed chief is throwing a temper tantrum.
Bernanke again: "On its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years. As a society, we should find that outcome unacceptable. Monetary policy is working in support of both economic recovery and price stability, but there are limits to what can be achieved by the central bank alone. The Federal Reserve is nonpartisan and does not make recommendations regarding specific tax and spending programs. However, in general terms, a fiscal program that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce longer-term structural deficits would be an important complement to the policies of the Federal Reserve."
Hallelujah. So Bernanke finally supports a second round of fiscal stimulus. But doesn't that mean that Bernanke was wrong from the get go? And doesn't that prove that Milton Friedman, Anna Schwartz and all the nutcase "quantity of money" people were wrong and that the "aggregate demand" Keynesians were right?
As steward of the world's reserve currency, the Federal Reserve is not used to other countries dictating monetary policy, but that is precisely what is happening. China is in the drivers seat now. The Fed can buy up two-thirds of next years issuance of US Treasuries (which Bernanke plans to do) in order to push a wall of capital into emerging markets, but if China continues to recycle its dollars into US debt and maintain its dollar peg, then the Fed will not succeed. And, it's a good thing, too. If the last 10 years have taught us anything, it's that the unipolar world--where one country dominates politically, economically and militarily--is not good for anyone. It's time for a change. "Let a thousand flowers bloom," as Mao would say.
China has tied Bernanke's hands. The least we can do is be grateful.