Wednesday, February 3, 2010

Devaluation is for Weaklings

Apparently talk of devaluing the U.S. dollar, or revaluing the Yuan is gaining widespread acceptance ...but it's still the weakling's way to achieve export market share. It's better to have a superior product than a cheaper one.

The fact that every region of the world feels the political need to devalue is a sign of systemic crisis. That crisis is over-capacity, a crisis of overproduction in far too many crucial industries. And while the G7 was liquidating to an extent over the last two years, China increased bank lending by some 40 %.

It's beginning to looks like the 'savior' green industries of solar panels and wind turbines could be put in the over-capacity column, as well. As the world gets smarter and information flows more freely, I suspect market clutter will occur at a more rapid pace, even in new industries. This might suppress the motivation for productive private investment and relegate it more permanently to the speculative realm. In that case, government will have to step in.

1'Chinese Mercantilism' Krugman Blog - NYT

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