Roach – “We should take out the baseball bat on Krugman”

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Stephen Roach, chairman of Morgan Stanley Asia, talks with Bloomberg’s Susan Li and Paul Gordon from Beijing about the US calls for a stronger yuan. China is conducting stress tests to gauge the effect of yuan appreciation on companies, a sign the government may be preparing for policy change even as it rebuffs foreign criticism of its 20-month dollar peg.

Criticizing Paul Krugman’s comments that the US should consider a 25% surcharge on Chinese goods, Roach said: “They don’t want to look in the mirror. America doesn’t have a China problem. It really has a savings problem. America has the biggest shortfall of national savings of any leading country in modern history. And when you don’t have savings you have to run current account deficits to import surplus savings from abroad and run massive trade deficits to attract the capital. Last year America ran trade deficits with over 90 – that’s right nine zero – countries. … Isn’t it the height of hypocrisy that America can articulate a particular position in its currency but the Chinese are not allowed to do that.” (Hat tip for transcript: Credit Writedowns.)

Source: Bloomberg (via YouTube), March 19, 2010.

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3 comments to Roach – “We should take out the baseball bat on Krugman”

  • Paul Sandison

    It is very serious indeed that Krugman said that the US should play hardball with China. Projection is the psychological term for a neurotic behavior where the neurotic projects his own failings on to someone else. To paraphrase Jesus Christ, if someone wants to take the tiny splinter out of his brother’s eye he should first take the plank out of his own.

    Projection becomes highly dangerous when in a nationwide crisis it is used to induce a mass projection neurosis in the population. Hitler used it to induce a hatred of the former enemies of Germany in the Second World War and of course, the Jews. Once this indoctrination has been achieved it is extremely hard to eliminate.

    It is all too easy and highly dangerous to paint China as the scapegoat. All modern intellectuals are highly aware of the dangers of such a myopic and ethnocentric policy idea taking root in any population, since it leads to wars, ethnic cleansing, massacres and genocide. His call is blatant war-mongering and protectionism and must be nipped in the bud before Krugman succeeds in deploying this weapon of mass destruction. I am shocked that Krugman would stoop to such uncivilised, dirty, supernationalist and fascistoid policy talk.

    As an economist he should know only too well how all countries were very badly hit by the protectionism that began with the outbreak of the first world war. The first world economic globalisation that had started in earnest around 1874 and expanded trade and growth around the world for 40 years was cut to shreds in 1914 by the hostilities in Europe.

    The fall off in trade was a major factor in creating the stagnation, poverty, inflation and mass unemployment of the 1920s which in turn laid the ground for the rise of fascism in the 1930s.

    Roach has done the right thing by counter-attacking Krugman. Krugman should be immediately asked to retract his ‘play hardball with China’ statement. If he does not then I am afraid he should be referred to a mental clinic for assessment.

    Krugman’s hobbyhorse is a kind of super Keynesianism (i.e. unlimited government spending) which Keynes himself would never have agreed to. Krugman wants the government to spend vast amounts to float the economy in an unlimited fashion, without dealing with the fundamental causes of the present malaise of the US economy, one of which is the absence of a savings ratio in the US economy, and which Stephen Roach is perfectly correct to point to.

    Krugman is counting on the US having enough muscle to force the rest of the world to forever put their hard-earned savings into the US Treasury to fund the US deficit without ever getting it back. Krugman wants the US to be the queen bee, lying on its back to be served by the billions of the world’s population in perpetual slavery.

    It is now crystal clear that Krugman wants to use force to allow the US to continue forever to use its military advantage to dominate and control the world economy and prevent the emergence of other nations around the world who also have a right to live and enjoy the same sun.

    It takes a typical neurotic projectionist to point the blame at someone else. The Chinese did not cause the last two terrible bubbles, the US did, just like most of the bubbles in the last 75 years have been caused by mis-management of the US economy. Like a child who has had its own way too often and too long, for the last 30 years the US has until recently not wanted to put in its fair share of work, and with the exception of a few short years in the 1990s, has allowed a galloping annual deficit to mount to astronomical levels of debt, largely covered by the savings of foreigners.

    Now that the negative results of that policy have torn down the facade for all to see, the present US administration, Congress and Senate are perfectly right to try and deal with the problem while keeping Krugman out of the political playground. They are also perfectly correct to try and reduce the government spending as long as it does not cut so hard that the economy deflates as happened in 1938 when F D Rooesevelt cut government spending too fast.

    The delicate balancing act of slowly withdrawing government stimulus while the economy is gingerly trying to grow is not helped by a jingoist Krugman hellbent on creating another World War and hellbent on destroying the Second World Globalisation that has only recently grown back to the same level of international trade that the world enjoyed in 1914.

    Krugman would be doing infinitely better if he found economically clever ways of keeping people in their homes in the coming Alt-A, ARM and prime defaults which are now growing due to the loan resets throughout 2010 and 2011 and even into 2012.

    He should be finding ways of dealing with the other serious problems in the US economy – ways of keeping commercial real estate firms from collapsing, of promoting new industries, new technology, new jobs on a massive scale, of extirpating the toxic assets still lurking around in the balance sheets of the big banks, of finding ways of stopping the carousel of banks getting cheap funds from the Fed and getting a good return on T-bonds instead of lending to ordinary people and small businesses.

    It is amazing that a Nobel laureate in economics cannot resolve at least one of these pressing questions. Krugman evidently does not have the nouse to address the real problems in the US economy. Perhaps this is not surprising since he is essentially a dangerous neurotic xenophobe of a rather despicable type.

  • Marx Brother's - Obama et al

    I have never understood why Paul Krugman has any credibility anyway. So what he won a Nobel Prize, so did Obama. When it comes to who has a better prespective, would you think some pointy headed academic writer or Morgan Stanley’s Asian Chairman would be more credible? Again, why does Krugman have any credibility? Oh, I forgot about that Nobel laureate thing.

  • Frank W

    I don’t think that Krugman is all bad. Once in a while he comes up with a worthwhile idea. However, on this screw China crusade, I think he has his head up his rear end. I don’t want to pay more for my clothes, electronics, etc. Allready tire prices have been forced up for no reason. If we were serious about wanting to reduce our trade deficit, we would lift the ban on drilling on our continental shelf, where there is oodles of oil. Then, we wouldn’t have to import as much, if any. Moreover, we wouldn’t be held over a barrel by lunatic oil producing states.

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