Those of you who have seen in me in the morning hours know that I have very little dignity before noon. So as I sat in a pair of athletic shorts and a dirty white t-shirt this morning I decided to turn on Morning Joe, which is among the most undignified programs on television. Fitting the general theme of the show, following some banter involving Tebow and his lack of an NFL-caliber throwing motion, the following advertisement aired:

So, here we are faced with the comparison of government spending to a drug addiction. In this scenario, China is the pusher, and I guess the borrowed debt is the narcotic. This requires a fundamental ignorance of macroeconomics, so in the event a conservative stumbles upon this article, I’ll give you a short run-down.

China’s economy is based upon manufacturing for overseas markets. It is extremely homogenous, and would be very unsustainable if China did not have a few command economy tricks up its sleeve. The primary method of doing this is currency manipulation. You see, China has a central bank much like the Federal Reserve. China’s central bank produces the Yuan, and the United States Federal Reserve produces the dollar. The main difference is that while the United States is a market economy, where a strong currency benefits some industries and not others, China’s central bank can mandate its currency to line up to their only real industry: manufacturing for overseas markets.

You see, China is able to dominate the manufacturing market because they can keep their goods cheap. By keeping their currency extremely cheap, the cost of their goods remains low in comparison to what the United States would be able to produce domestically. In order to keep their currency low, and to raise the value of the US Dollar comparatively, they purchase US debt.

“But Eddy,” you might ask, “isn’t China doing us a favor and taking control of our economy by buying our debt?” That really depends on what you consider a favor. China is creating trillions of Yuan worth of currency out of thin air to buy US Debt, yes, and that means they have a stake in our debt market. And while they are, yes, financing our deficit spending, its sole purpose is to raise the value of the US Dollar and lower the value of the Chinese Yuan. In addition to making the proposition of a Chinese sell-off of US Debt absurd, it also throws a monkey wrench into the analogy of the Chinese as a drug dealer and the United States as a junkie.

You see, the United States ideally would be using deficit spending as an economic stimulus. Economic medicine, so to speak. So the United States is much more like a patient, using deficit spending in times of economic illness, and saving in times of health for the bad times which will eventually return. That is what a responsible person would do. Of course, where you run into problems is when a person decides to fore-go health insurance or savings, perhaps spending that money instead on a trip overseas or on a new TV. And then, when you are extremely sick, insisting that your cause for concern should be the payments on your new TV, rather than getting in shape to work again. But no-one would be that irresponsible, would they?

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5 Responses to Conservatives could learn a lot…

  1. BEZERKO says:

    Thank you! Especially if said deficit spending were spent on economic fundamentals like, I don’t know, infrastructure building, maintenance, and repair.

  2. Roadstrom says:

    Very well stated! You understand this just fine.

    Someone recently asked, what’s wrong with them giving us real commodities and we give them little pieces of paper. Don’t we come out ahead?

    And my answer was;

    Be cautious, little fishie! That bait has a hook inside it.

    It’s only a free lunch if you can nibble it off the hook.

    • Eddy Galuska says:

      This is one of the things that terrifies me about the prospect of a Republican president. Mitt Romney is calling for all-out trade war with China, while the rest of them don’t seem to understand the problem at all. Well, Huntsman seems to have a general grasp of the problem, but he’s dead in the water.

      We can’t demagogue our way out of this problem. President Obama hasn’t been perfect on China, but he’s been pretty damn close. Pushing for enforcement of trade agreements which are already standing in place would go a long way toward the reduction of the trade deficit.

  3. Peaches says:

    Thanks for a great post Eddy. This is run by Gretchen Hamel, former Bush spokesperson. They’ve got at least 3 websites that I can find, all anti-government. They claim to be a “non-profit” but look more like a superpac, and will not be disclosing their donors. 2012 is going to be brutal.

    • Eddy Galuska says:

      Yeah, they’re pretty horrible people. The ad somehow manages to make light of both foreign debt-holding and drug addiction. Pretty ridiculous stuff.