Part III
When China introduced a limited system of capitalism in selected areas in 1978, investors led by the US welcomed the relaxation in the economy. They all concluded that China finally accepted the pre-eminence of capitalism. All were anxious to take advantage of the low value of its currency and wage of its workers. Unlike the export processing zone in Southeast Asia, China’s quartered capitalism was sanitized from labor unrest and investors were given comparable, if not, attractive tax exemption privileges.
The US and the rest of the international financial oligarchy wished that China would remain the production and processing capital of the world. In fact, it has constantly reminded China it owes its economic miracle to the US manufacturing plants. They stressed that the migration of factories will remain viable as long as China maintains the value of the Yuan.
What the US did not know is that the advantage would not be forever. Initially American consumers were able to buy more for their money. The monetarists never anticipated that the American consuming public will later be affected by the high value of their currency.
The theoretical assumption of the monetarists was a fallacy. For instance, to make it work, the US dollar would have to introduce two denominated set of currency, one for the exchange of goods and services within the US and its territories, and another to pay for goods and services outside the US. The absence of this “financial mechanism,” the US manipulation of its currency could work against its own economy.
The high value of their currency was only good for as long as they pay for those goods and services outside the US. Everything was adjusted to the high value of their currency. However, the big and greedy corporations refuse to increase the wage of their workers for that would mean losing what they earned outside the US. In other words, the profit earned by US corporations by their outsourcing of production abroad is being paid by US taxpayers and consumers.
Although US imports became cheaper, nonetheless they were sold in the US market based on the current but overvalued dollar. Despite declining productivity because of the closure of many factories, the cost of living in the US steadily keeps on rising. Americans are complaining because for more than 10 years now real wages in the US has remained constant.
To keep the economy going, it has to continually issue treasury bills and resort to the ingenious device called quantitative easing or the printing of money without any foundation to back it up. The problem, however, is that the usurers, which survive on the business of inflating the economy, refuse to be left behind. As the cost of living increases so are the taxes, including real estate which average Americans taxpayers could not sustain if they are unemployed. In other words, the American public now fear bankruptcy, a fate, Paul Kennedy observed, that happened to all previous empires.
US corporations were having second thoughts in creating new jobs because of the high price of consumer products and demand for higher wages. That means US corporations want to pay American workers the same level of wages as they do China and elsewhere.
Seeing this discrepancy, Americans who travel abroad are forced to do their shopping outside their own country knowing they could buy more for their dollar. In giving pasalubong, they prefer to buy gifts here because the dollar is rated high against the peso. This constitutes a deviation from the original purpose why US corporations migrated to China.
US products manufactured in China and Southeast Asia end up being sold in many Asian countries. It was the local retailers and distributors that made money. Likewise, many American tourists prefer to visit Southeast Asia where the exchange rate of the dollar is high. In the end, they not only lost their tourism industry but also the buying spree which is inseparable to tourism.
The naive idea of transforming the US dollar to a mighty and universal currency has backfired. It is not only the uncontrollable influx of illegal migrants from South America that they fear but also of the huge amount of dollars getting out of the US. The US-Mexican border has become a unique trading hub. While the South American drug lords export cocaine because they command high value in the US, Latinos remit billions of US dollars to their relatives in the south.
The facilitators from both sides of the border make billions servicing illegal immigrants from the so-called “coyotes” in Mexico to the ambulant immigration lawyers in the US. This has become a flourishing multibillion dollar industry from both sides.
Bringing back production plants to the US is no longer economically feasible. Maybe, the US earned more by manipulating its currency, but it lost much of its share in the local and international market. While the value of the dollar remains high in many countries, it is the same US dollar American consumers are using to buy goods at home. That means American consumers are buying on an inflated value of their currency.
The cost of living in the US has correspondingly jacked up. Their savings were eroded by their greater volume and value of imports. A shrinking purchasing power of US consumers coupled with declining sales is a sure indicator of an economy on its way down.
While it can be gleaned that the migration of US factories to China and other countries was motivated by the low currency value and wages of the workers abroad, now it is consumers’ money that is migrating. There is no way the US can prevent the outward flow of the dollar for eerily it encouraged global trade and investment everybody knows will never work without the money. Besides, to reverse the flow could cause many US creditors to dump their treasurer bills and that could deflate fast the US economy.
Contingency measures have been taken by many countries like demanding payment for their exports in gold or in other currencies. This could altogether put to an end US currency dominance, and jeopardize the business of the international financial oligarchy. They are signs of increasing mistrust to the US dollar; that consumers all over the world are not getting the real value of what they are paying for.
Revaluation is most debilitating to countries that consigned their production abroad. They lost their factories at home, deprived their workers their jobs, and now made to buy goods at high prices all because of currency manipulation. As the saying goes, maybe the government can flood the market with cheap products, but if one does not have even a centavo to buy things he want, that would not mean anything.
Some predict the US economy could no longer afford to revalue its currency unless accompanied by a drastic surge in industrial activity. Without it, the US economy would just continue to contract, and would have to rely more on foreign borrowings to keep it afloat.
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