Firstly, “castrate” is the wrong word Dav-o. In fact, untethering the RmB from the USD is metaphorically the opposite, freeing the chinese currency unit to grow to its full and glorious size. Secondly, because flawed as it is, the international monetary system as it exists currently – that is a system predicated upon market forces of currency and exchange rates along with more or less internationally-civic-minded fiscal, monetary and trade policies together working against divergent imbalances to promote adustment convergence – it is the only one we have. So unless China has an alternative, I suggest that China (and Japan, and the GCCs, and the US Admin and Congress) not trash the current one until they’ve agreed to something better to put in its place.

“How would you propose doing that? With a brutal rise in the interest rate? If you want a stable dollar then something else has to fluctuate to compensate, right? What would you want that to be?”

That’s what I am wondering too. What macro policy choices are available?

“The world economy would be better off if a fall in the US deficit, not a rise in China’s already large surplus, led to a fall in the combined Sinoamerican current account deficit.”

Yes, but how could a fall in the US deficit come about? What could the US export in large enough quantities to make a difference? Outsourcing cannot be reversed overnight. Industries cannot be rebuilt overnight (assuming anybody in Washington even thinks in those terms).

Something for me to think about
Nicholas Carr offers me advice:

Because blogging is such a personal pursuit, with strong and immediate ego-rewards, it can be irrationally seductive, particularly to highly competitive overachievers. The hazard – and this applies as well to disciplines beyond economics – is that extraordinarily talented individuals may end up, like lab mice drinking sugar water, spending more time blogging than they should, even though their comparative advantage is smaller in blogging than it is elsewhere. Distorted by noneconomic but nonetheless powerful rewards, the idea market would become less efficient than it should be, and we’d all suffer as a result. The real danger, in other words, may not be that the “lemons” – the “tolerable bloggers” – will take over as the mainstays of the blogosphere but that they won’t.

Please stop blogging, Greg Mankiw. You have better things to do.

The US elite have manipulated, hoodwinked and sold out middle America under the mantra of free trade. profit growth via wage arbitrage and wealth for the wealthy few is the strategic objective.

This complementary arrangement has been win win for the elites on both sides until now. We are at an inflection point as the imbalances caused by this arrangement can now no longer be ignored.

Both sides know this and both sides are realigning both their objectives and strategies. It is obvious the US have opted to weaken the dollar in order to deal with the deficit problem, stimulate exports and revive industry and force the Chinese into their next move.

What the Chinese have in store I´m not sure but its certainly becoming a game of macroeconomic chess with Europe stuck in the middle and perhaps wishing they could flip the board.

May the best man win although it doesn´t really matter as I think we´ll all be screwed in the end.

“Funny how Goldman Sachs alumni Robert Rubin has been involved in some fashion with every major financial corruption scandal in the past two decades.”

It is utterly outrageous that Brad Setser has allowed the cowardly Chiang with his scurrilous charges against Robert Rubin, his crackpot conspiracy theories and his thinly-veiled anti-Semitism to continue to post here.

In an ideal world, Chiang, this supporter of the most monstrous regime since Adolf Hitler’s would be horsewhipped and then thrown out of the country. We obviously do not live in an ideal world, but the least Dr. Setser could do is ban this despicable individual from posting here.

You do excellent work.

But the quality of the comments on your blog is morphing into toxic waste.

Time for some house cleaning.