You look good. You feel good. And you sure as hell have a good appetite. But you're losing weight.
The Chinese have deliberately undervalued their currency in relationship to the dollar. Let's say the Yuan exchanges at 10:1. That means when you buy a $100 microwave, you won't pay Y1000. You'll pay Y1100. So what, you say. Well, that means we are paying a hidden tariff on every purchase. So what do they do with that extra Y100 ?
The Chinese have evolved into a giant manufacturer of goods (mostly cheap junk that we buy at discount stores) so they spend a much higher percentage of their export dollars for raw resources. Oil,metals, components. Commodities sold on the open market. Here they get $110 (Y1100) worth of chromium for......$200. Neat, huh?
So how do we fix this? Can we just raise the price on American products sold to the Chinese? Nope. Because the commodity we sell to them most are US Treasury notes which are sold on the open market just like all other commodities. Get the picture? They are buying our debt at a discount. They,and we, are undermining our economy. You can't say "We will sell the bond market US notes that pay 3% interest but we must add a 10% surcharge to make up our losses". How many buyers would we get? NONE! Can we impose a 10% tariff on imported Chinese goods? We can and that is the usual remedy.
But the Chinese just made it clear: ANY efforts on our part to address the balance of trade problem will (by inference) see them stop buying our treasury notes. The euros are broke and can't buy them. We would be unable to operate on credit as we are now and our economiy would run outta gas and stall. Immediately.
What is the solution? I have no idea. But this problem affects our ability to float bonds (treasuries) and finance any more "stimulus" programs. Every dollar we borrow feeds our tapeworm and brings our starvation closer. We cannot afford more stimulus spending, period! It is NOT a matter of being generous or stingy. It is a matter of economic survival.