Wednesday, 12 August 2015

Exporting to Mars and Jupiter.

The idea that an economy can benefit from, or recover via increased exports has always been popular. Of course that idea is valid in the case of a country with a persistent external or “balance of payments” deficit. But not otherwise.

Unfortunately that blindingly obvious point doesn’t seem to have got thru to the world’s leaders.

For example David Cameron is enthusiastic about increasing British exports, and so is Obama in the US.

And then the Germans constantly lecture the rest of the EU on the need to become more German, i.e. get themselves ridiculous balance of payments surpluses.

Plus Draghi has done nothing to bolster the Euro, presumably because he thinks increased exports from the EZ would be beneficial.

And now the Chinese are in on the act. They’ve just devalued their currency so as (at least according to the BBC) to enable them to export more.

I assume the above nutters have done some market research on Mars and Jupiter so as to make sure there actual customers there who want to buy stuff from planet Earth when every single country on Earth has an external surplus.

1 comment:

  1. I certainly agree on your conclusion!

    Let us think of this Chinese action in terms of QE.

    Every not-China currency has been given a dose of QE. They can trade their currency for ADDITIONAL yuan and thus buy more Chinese products (than they could before the yuan devaluation). This will boost the Chinese exports and enable the Chinese workers to work harder (and additional hours) because they now have more markets.

    On the other hand, the Chinese retired people will have less opportunity to buy not-Chinese products because they will cost more (due to the yuan devaluation). This will cause the not-China world to work less.

    Stated another way, if the Chinese work harder for less foreign currency, then they should gain market share. The remaining not-China world will work less, having lost market share.

    We might even consider this action to be deflationary for the not-China world.

    Thus goes devaluation in terms of QE.


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