Chinese Bubble Gum

George Melloan writes in the WSJ today about China's currency re-valuation.

He writes about the opinion of the economist John Rutledge, who is complaining about all the bad things which may happen as a result of China no longer pegging the Yuan against the US dollar. The Chinese will use a world currency basket instead. Mostly valued with, the dollar!

Insolublog could not disagree more. China's economy has been overheated for quite some time now. They have serious issues with their economy, their environment and their labor force. Just because things have been working well all this time, does not mean that a cliff is not fast approaching on the horizon.

Look at the Enron, Worldcom and Global Crossing pyramid schemes which were revealed for the delicate houses of cards they were, when Greenspan tweaked up the rates. They railed at the Maestro for that, but think about all that real retirement money passing through the hands of all those exuberant, card shuffling fools. It could have been a much bigger bubble, with a much bigger explosion, had the sharp, balancing needle of a tight money supply not deflated it.

UPDATE:

A lot of people seem to think that the Chinese will somehow be magically transformed by the free market, into a benevolent democracy. This is pure bull feces.

They have a totalitarian communist government, fully loaded with all of the accessories. They have the worst of communism coupled with the worst of capitalism. They have an elite political power class, fully educated, which would put Kerry, Kennedy and all the beautiful people into servant's quarters.

A true libertarian view would demand a level playing field. The currency fluid then seeks all the low spots proper. This is not the case with the Chinese government.

They have been, and still are, gobbling up US Treasury bonds to artificially moderate the trade imbalance. They have an enormous slave labor pool with no pesky health and safety rules. They are traveling down the pollution path often traveled by burgeoning world powers, before they get the proper religion about poisoning themselves. Remember Chernobyl? That's what happens to a people, that have no Constitutional steam valve, to hold their political apparatus in check.

How can the US truly compete? Well, we can't. The service sector is being short circuited. The Chinese are running off with our intellectual property, and laughing all the way to the bank. They marvel at our never ending thirst for their cheap crap. We cannot compete techically, because our educational system is being destroyed by political correctness. It's being compromised by a left wing group think attitude that spawns racist demagogues like Ward Churchill. The Chinese are only really interested in our technology. They consider our culture a heap of hedonistic garbage. Not that there's anything wrong with that!

They are eagerly engaged in the process of building a domestic base of totalitarian driven consumerism. Check your free speech at the border. Look at the energy consumption meter. China and India are nipping at our heels. They are driving up the prices of the global energy markets.

I'm waiting to see what we can and will do, when the Chinese want to pluck that Taiwan plum off the tree. They lust after the billions we have invested in computers, semiconductors and industrial process sciences. We only have two weapons. Nuclear war, or going bankrupt when they dump those bonds. Yeah, that'll show em.