It seems that you are jumping from the critique of the false savings glut argument to a conclusion about whether or not China's neo-mercantalist policy played a role in the imbalance.

That is, the reason that China is not "responsible for the imbalance because it saves too much", is that "saving too much" cannot cause an imbalance. If there is such a thing as "saving too much" causing anything. It is a symptom, not a cause.

Evidently, China is in part responsible for the imbalance because of its discounted exchange rate policy, just as the US is in part responsible for the imbalance because of the same discounted exchange rate policy.

After all, China could not discount the ¥RMB/US$ exchange rate on its own without the US electing to tolerate the discount. All the US need do is to discount back, and the originally discounted exchange rate nation will be under proportionally more imported inflationary pressure than the originally overvalued exchange rate nation. Its a game of chicken race to the cliff with the Chinese car starting out closer to the cliff.

Greece and Germany are a different case because they have an exchange rate pegged at €1:€1. Under a fixed exchange rate system, the surplus country has more power to determine policy stance than the deficit country.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.