Two news articles caught my attention this morning because they relate strongly to what I have written about recently on this blog.
1.
The Journal reports World Bank Chief Economist Justin Yifu Lin recently said, "currency appreciation in China won't help this imbalance and can deter the global recovery." This statement was a reaction to statements by the ECB President Trichet and officials at the IMF and in Japan. Lin's argument was that from 2005 to 2008, the yuan appreciated 21% and the US current account deficit still widened.
It seems strange then that Lin also said later in the lecture that countries shouldn't intervene in FX markets to drive their currencies lower, calling it "the equivalent of protectionism." I don't understand how keeping the yuan pegged to the dollar is any different, as it is simply another way to artificially devalue a currency. Lin is Chinese and pretty nationalistic. In fact, he defected from Taiwan, where he grew up, by swimming to a Chinese controlled island. The Chinese government even sent him to the US to get his economics degree at UChicago. Considering the involvement of the Chinese government in his life so far, I think his statements can be interpreted as coming from the government.
2.
Frederic Mishkin (the Columbia professor whose Financial Markets and Institutions textbook I highly recommend) wrote in the FT that, though there may be a bubble in some markets, this bubble is unlikely to have a negative effect on the economy and does not warrant raising interest rates. I agree current asset bubbles are not a threat to the economy. However, it is unsustainable to rely on bubbles to maintain consumer spending. The rest of Mishkin's article discusses why a credit bubble is worse than other asset bubbles, a pretty intuitive concept already covered by others such as Nicholas Nassim Taleb.
