Power

I've been thinking about the source of the United States' economic power. The question could be asked 'Who is more dependent on the other, the U.S. or China?' One might say China because they are taking manufacturing jobs away from the U. S. However, I would ask what manufacturing jobs are worth if there's no demand for the product. We are paying China to flood our market with ever cheaper goods, and build ever more factories. In other words, they are competing amongst themselves for our money. Without our money, their factories are liabilities, not assets. They cannot support their own factories. We could, but choose not too, because we'd rather not cannibalize ourselves to compete with endless cheap labor. This is the first pillar of American power, namely, that we make foreign countries dependent upon us. If you're still not buying my argument with China, think about ancient history. From the 60's through the 90's to the present day, we've had a huge trade deficit with Japan, in which Japan built itself into an industrial power. Yet, no one would ever say that Japan's economy is better than ours. This is exactly what has been happening with China, ever since trade restrictions were loosened in the late 80's (not exactly sure about the date). Drawing from history again, China will suffer the same deflationary collapse that Japan did if they don't allow their currency to appreciate. Look at Europe: as dumb as the socialist French seem sometimes, and as arrogant as the British can be, they are intelligent enough to let their currencies float according to the market.

The second pillar of U.S. economic power is the setting of world prices. Every important commodity is priced in dollars. When imports come in too quickly, we devalue the dollar (remember going off the gold standard?). This is what is happening today with China: the best way to smooth out the trade imbalance (to preserve stability) is to devalue the dollar. When other nations are not dependent enough on dollar inflows, then the government strengthens the dollar. This is what happened under President Reagan, and Fed Chief Paul Volkner, during the 80's.
Here is another advantage of setting world prices: poor countries like Iran have to subsidize oil prices in their own country.