2009: Back to the '30's?

Common Sense Forecaster has one of the great blog posts of 2008. This is a MUST READ. And here is a teaser:

Shortly after President Hu Jintao said China is "losing competitive edge in the world market", we saw a move towards export subsidies for the steel industry and a dip in the yuan peg - even though China already has the world's biggest reserves ($2 trillion) and the biggest trade surplus ($40bn
a month).

So is the Communist Party mulling a 1930s "beggar-thy-neighbour" strategy of devaluation to export its way out of trouble? Such raw mercantilism can only draw a sharp retort from Washington and Brussels
in this climate.

"During a global slowdown, you can't have countries trying to take advantage of others by manipulating their currencies," said Frank Vargo
from the US National Association of Manufacturers. (This is what happened during the Great Depression.)

It is a view shared entirely by President-elect Barack Obama. "China must change its currency practices. Because it pegs its currency at an artificially low rate, China is running massive current account surpluses. This is not good for American firms and workers, not good for the world," he said in
October. The new intake of radical Democrats on Capitol Hill will hold him to it.

Chinese workers may lose 40,000,000 jobs.