You can relax now. We've made it through another Christmas season without waking the Grinch. We now know where the Grinch lives. He lives in China. Well, we're pretty sure he lives...
You can relax now. We’ve made it through another Christmas season without waking the Grinch.
We now know where the Grinch lives.
He lives in China. Well, we’re pretty sure he lives in China.
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But there are rumors he has spent some time in Russia, Japan and the Middle East.
What we know for certain is the Grinch is the guy who holds the dollars we’ve been exporting from Whoville.
As long as the Grinch holds the dollars, we can celebrate Christmas.
When the Grinch decides he’d rather have something else — something that isn’t dollars — that’s when Whoville gets a reality-show makeover.
It’s something we in the media have been wringing our hands about all year. Worse, the newsletter writers have been portending, and that’s never good.
For all the fear that the dollar will suddenly become the Edsel of currencies, there’s a good chance we’ll be buying our underwear, TV sets and everything else cheap a good deal longer.
Because we’ve got a great standoff going. Let me explain by answering three questions.
What does China get out of pegging its currency to the dollar?
China gets enormous economic growth. It gets job growth.
By having everyone certain the yuan will be revalued substantially higher, China attracts investment dollars and consumer dollars.
Capital that fled China years ago is returning to be invested in new plants and equipment.
It is building the high-tech foundation for an economy that will quickly be globally competitive.
When China gets its Peking ducks in a row, its size will guarantee it is the high-volume producer of any good it makes.
It will be the low-cost producer because of efficiency, not just wage levels.
Is there an alternative to the dollar?
If one existed, we’d be in deep trouble. But there isn’t. Whatever our problems — and they are substantial — we are in better shape than most industrialized nations.
Euroland is sinking with age, overregulation and high taxes. Japan owes more money than we do, albeit to itself. It’s also one of the fastest-aging countries in the world.
Other governments would have to invent us if we didn’t exist, because it is our consumption that keeps them in power. Without our buying, unemployment would be massively higher throughout the world.
What happens if the dollar continues to fall?
We can see the results with the euro. America is already a bargain.
Next summer, if the euro continues to rise, you’ll need to speak French to visit New York and German to visit Disneyland. Canadians and Brits will outbid us for favorite places in Mexico.
Wages are so low in China that a small exchange-rate adjustment won’t have much impact on our trade deficit with that country; it will still be the low-cost producer.
It will continue to undercut the rest of the world, developed and less developed.
What does it all mean?
Simply this: Someday things will change. Unlike the Japanese, our debts aren’t just to ourselves. We owe money around the globe.
Check the latest Treasury International Capital report, released Dec. 15, and you’ll see we sold foreign securities on balance while foreigners bought our securities on balance. That can’t go on forever.
Someday the yuan will rise. But it won’t be next month. It probably won’t be next year. The only thing we can be certain of is someday we won’t be the global consumer of last resort.
When that day comes, we’ll pay a lot more for everything.
Questions about personal finance and investments may be sent to Scott Burns at The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; by fax at 214-977-8776; or by e-mail at email@example.com. Questions of general interest will be answered in future columns.