Today after the Subprime Crisis America is blaming CHINA for the high unemployment rate in the whole US.
US is forcing China to appreciate the YUAN as its depreciated value is leading to cheapest exports from China to
US leading to huge deficits in the US economy as claimed by US
But do you think the depreciated value is the sole reason for the deficits in the US?
The answer is NO because the deficits in the US are structural deficits. The savings rate of US is hardly 1 % which is a major contributor to the deficit because, if the citizens don’t save the money in the domestic banks then it is spent on purchasing goods and services(Chinese) which leads to the outflow.
The cycle goes this way in the following manner
- US employees are highly paid – The basic Wages paid are anywhere between $ 4-8.
- Thus wages are a huge cost to the manufacturers and service providers, which leads to higher prices of Goods and Services.
- But on the macroeconomic level employees of any economy are the consumers also so in the end goods and services in the US become costly for their citizens itself.
- And then the citizens have no other option than to buy Chinese Goods and services which are available at Cheaper rates which leads to the outflow of the currency($) leading to deficits.
- And also the poor sales of the American firms then leads to layoffs which results in Unions putting pressure on politicians which in turn leads to put pressure on China to appreciate YUAN.
So do you think US should pressurize China to appreciate YUAN??? Or is there any other country on which US had put pressure to in the past to appreciate its currency???
Find out in my next blog
- By Chintan Dedhia
