The Blog

Chinese Checkers

Chairman Greenspan tries to nudge the Chinese, muzzle trade protectionists, and admonish Bush--all in a stroke.

12:00 AM, Oct 11, 2005 • By IRWIN M. STELZER
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Besides, those politicians who want to cut imports from China had better be careful what they wish for. China uses the flood of dollars that it receives for its goods to buy U.S. Treasury bills, thereby keeping interest rates lower than they would otherwise be. These low interest rates are fueling the housing boom, and the increase in house values has allowed consumers to cash out some of their equity so that they can continue of the buying binge that has kept the economy growing at 3.5 percent to 4.0 percent. Should a reduced flow of dollars cause the Chinese authorities to cut back their purchases of American IOUs, especially at a time when some sectors of the economy are showing a bit of weakness, Congress might find that it has indeed reduced the American appetite for imported goods--by causing a recession.

America is lucky that it still has Greenspan to call upon. He just might be able to come up with a solution that propels China in the right direction, at a pace sufficient to stifle Congress's protectionists, but slow enough to avoid facing his successor with a currency crisis as he moves into the chairman's seat.

Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.