Why, then, didn’t the supportive New York Times feature in yesterday’s well-read Sunday edition Obama’s diplomatic and economic mission in Asia, with all the luminaries, speeches, photo ops and photos?  Why was their no mention of Obama at all on the front page and, under “International”, only in the articles “Reporter’s Notebook: Heartfelt Moments on an Up-and-Down Global Trip” by Sheryl Gay Stolberg and “Leaders of China and Japan Meet on Summit’s Sidelines” by Martin Fackler, both buried on page A-12?

Quoting “Heartfelt” would be impossible to do without sounding snarky, and we at Centermovement.org are determined to sustain civility of tone.  At least “Leaders” includes a snippet noting that, at a meeting with Obama, Japan’s Mr. Kan thanked us for our support during the territorial disputes with China and Russia.  This gratitude may, of course, have less to do with our President than with our Secretary of State Hillary Clinton, advancing her career more than it does his.

The NYT’s “Week in Review” also chose to downplay Obama’s Asian Adventure, almost to the point of not playing it at all.   For example, it didn’t even mention the G20 Summit, which The Washington Post’s Jonathon M. Trugman called “a mud-slinging match with President Obama being placed squarely in the bull’s-eye” and “a ‘Bash Uncle Sam’ fest”, becoming perhaps “one of the most unsuccessful and fractious since the G20 was established in 1999, in response to the Asian financial crisis.”  The object of friction?  The United States’ QE2 – our expansionary monetary policy, which Trugman defends indirectly by bashing our detractors.  So angry is Trugman that his title changes “G20” into “G(ang of)20”.

The NYT’s editorial on China’s currency manipulation, uncivilly entitled “Now, Will China Get It?”, describes two rebuffs to “Washington” and “America” and mentions our President by name only in the assertion that “the Obama Administration may be close to achieving one of its core objectives…let[ing] the value of [China’s] currency rise.”  Seeing will be believing on this score.  The editorial fails to note, or maybe even to understand, that the United States can also be accused of manipulating the dollar (see CenterMovement.org’s  “Jeevan ka Parihas: The ‘Irony of Life’ as Obama Visits India”) and provides no corroborating detail whatsoever for our alleged proximity to success in this endeavor to increase the relative value the yuan.

In a similar fashion, the NYT’s customary summary of seven days’ worth of events in “Week in Review” notes that efforts to renegotiate our free-trade agreement with South Korea in time to announce success at the G20 Summit “fell short”.  The NYT then gives President Obama an out and an extension by reporting that our President sought were “some improvements for American exporters” and the deal had “languished” in Congress because Democrats are “leery” of free trade, so the “White House” decided to wait until the “more trade-friendly” Republicans take charge of the House in January.  Okay, then!

Increasingly in the American news media, the truth is conveyed more by comedians who tweak viewpoints than by serious reporters who may not own up to their partisan perspectives.  Such appears to be the case here.  Under “Laugh Lines”, the NYT quotes Jay Leno thusly: “President Obama was in India yesterday, visiting our jobs.  Tomorrow he goes to China, to visit our money.  So it’s a nice trip.”

It was not a nice trip for Obama.  It was not a nice trip for America.  Rather, it was one of many indicators that the United States is not the political and economic power it once was – for decades and decades it once was.

Wrong.   And Robert Samuelson, with all due respect, is wrong too (read Samuelson’s view here).

First, let’s look back a little. When the Obama Administration imposed tariffs on the importation of Chinese tires, did we buy more American tires?  Not really.  Mostly, we bought more tires from Thailand and South Korea.  Taxing China may just be subsidizing other countries with cheap labor and cheap currencies.

Second, China might retaliate by taxing importation from America.  Do we want a trade war as well as a military war in Afghanistan and mounting tensions in the Mideast?  Smoot-Hawley was hurtful, not helpful, when this protectionist tariff was legislated in 1930, and trade is a much larger proportion of GNP in 2010 than it was eighty years ago.

Third, we fail to see the Chinese perspective, and do so at our peril.  Yes, it’s fact that China has stockpiled foreign money, purchasing $108 billion in other currencies in the last quarter alone. And, yes, buying other currencies with the yuan simultaneously raises the demand for foreign money and increases the supply of the domestic currency, thereby reducing its relative value.   But couldn’t China argue that it’s responding to a dollar American policies have made too low?

It’s also fact that the Fed has been buying American government debt rather extravagantly.  Calling it “quantitative easing (QE)” doesn’t make this fact fancy.  In the fall of 2008, Fed head Ben Bernanke bought $1.25 trillion in mortgage-backed securities and another $200 billion from “government-sponsored enterprises” – mostly for more mortgage-backed securities mostly from Fannie Mae and Freddie Mac.  All this activity we call “monetary policy” and we do it to pull us out of lingering and deep recession.

Even before we find out how much QE2 will cost, this increase in the supply of dollars dwarfs how much China has increased the supply of yuan.  Europe and Russia are already grumbling over the prospects of a weakening dollar.  How do we feel about them trying to control our monetary policy?  Why do we think China would feel any different?

The Fed, one could argue, has also kept the price of the dollar in yuan artificially low by a policy that sets the fed funds rate near zero.  Lower interest rates in America reduce demand for the dollar to buy t-bills and the like.  Remember that China has been our largest holder of government debt.  For that, we should in many ways be grateful.  Imagine, if we dare, how much we’d have to reward Americans to keep all of our government debt owned domestically.

Fourth, exports can be subsidized by more than artificially low exchange rates.  Why, some of us have even accused the Chinese government of “unfair” trading practices because they subsidize their clean-air industries.  How many of these whiners believe in global warming?  What would they say if the Chinese retorted, “You subsidize your exports through the public school system?”

Fifth, those who lose because of a cheap yuan tend to be concentrated and politically organized, while those who gain are diffuse and almost invisible.  It’s obvious to all – and most notably to politicians – when steel imports cause layoffs in the steel industry.  Remember when“compassionate conservative” President George W. Bush slapped a tariff on steel imports for that reason?  What about all the people who lose jobs because the price of domestic steel is too high to make profits in a variety of other businesses?  Who advocates for them?  International trade definitely affects the distribution of jobs — as does technological change, it’s important to note, but does it hurt or help overall domestic employment? We don’t really know, do we?

Sixth, the United States and China aren’t the only countries who want to devalue their way into higher domestic employment.  South Korea, Japan, and Thailand are manipulating their currency.  This recession is worldwide, and all of us are hurting.  But we can’t all devalue at once.  And trade among countries can be every bit as beneficial as trade among provinces, cities, and individuals.  It harnesses the gains from comparative advantage.

Clearly, the popular response in America to China’s latest actions to keep the yuan “devalued” is rage and a rush to retaliate.  Blaming “the Other”, we leap to the conclusion that our unemployment would be lower if it were cheaper for Chinese to buy our exports and more expensive for us to buy theirs?  Not so fast.  Not necessarily so.

But politicians are now trying to pick up votes by agreeing with us.  For truth and the good of the country, they shouldn’t.   Our problems are much bigger than any issues involving trade with China.  We need to breathe deep, relax, and take the perspective that if indeed the net effect of our and China’s currency maneuvers is an undervalued yen, then this huge country is giving us a huge sale.  And we like to buy things on sale, right?

It’s human nature to blame others rather than look for root causes that require difficult and personal change, and it’s political nature to try to harness this anger to win elections.  But much of human nature is something we should often strive to overcome. Today’s politicians preach division and target the lowest common denominators. Wouldn’t it be nice if instead they spoke and acted like President Lincoln, sharing his confidence that we’d “again [be] touched … by the better angels of our natures”?

We could all use more income and more assets – even Bill and Melissa Gates, who do such a good job of giving it away.  But money?  There’s already too much of it.

If you were worth $50 million, you’d never keep it all in cash, or all in your checkbook, would you?  Of course not.  You’d buy a McMansion, with multiple bathrooms and a Jacuzzi or two.  You’d get a new sports car or three.  How about a vacation home in the Hamptons and box seats at the playoffs?  The point is, there’s only so much of your assets you’d want to hold as money.

If we want to avoid inflation, we must “grow” the money supply at the same rate we grow the economy.  That’s because the only way we can end up with the right amount of money if we start with too much is to reduce the value of what we have, and we do so by raising price levels.

Courtesy of ShadowStats.com

Money can be defined in many ways.  Here, we’ll just look at M1, the narrowest of the official measures.   In the graph above, M1’s light gray trajectory tells a dark and scary story: double-digit growth while the economy’s contracting.  Inflation, here we come.  Even worse may be the negative growth right before the recession.  Could this have caused or aggravated the economy’s severe downturn?

Why is M1 growing so fast?  Partly to help our economy out of the recession.  Mostly to monetize the debt as stimulus packages and automatic stabilizers[1] combine to create record deficit levels.  The Federal Reserve paid for some of our $1.42 trillion deficit by buying the addition IOUs our government had to issue.  How did it buy them?  It simply printed money.

Money is cheap to produce, but producing too much is costly in many other ways.  The world is losing faith in the “greenback”.  European allies, oil-producing nations, Chinese and Russians talk about moving away from the dollar and towards a “basket of currencies”.  Investors flee to commodities like gold and silver.  If the oil trade is conducted in “petro-euros” instead of “petro-dollars”, the flight from the dollar as the world’s reserve currency will accelerate. The Brazilian supermodel Giselle Bundchen has already announced that she will no longer accept payments in dollars, but only in Euros.  Ahead of the pack, she made this decision more than two years ago.

In June, US Treasury Secretary Timothy Geithner was laughed at in China when he sought to assure students that China’s investment of more than $800 billion in America was secure.  In November, when President Obama toured Asia, he got a surly lecture from the Chinese on the irresponsibility of the Administration’s growing deficits and the Fed’s loose monetary policy.  Imagine, a lecture to the bastion of capitalism from the largest foreign holder of our government debt, communist China. The U.S. can expect more lectures and more pressure to get our fiscal house in order from our unhappy Chinese banker.  They may be followed by a call that our “Chinese line of credit” is going to be cut.

The supply of dollars cannot continue its double-digit growth without inflation. In 1980, this resulted in prime mortgage interest rates of 20.5% and a very slow and sticky economy.  Thirty years later, we must be attentive to international  consequences of domestic inflation as well.    If other countries have more sober monetary policies, they can predict that the dollar will be worth less in the terms that matter most to them: their own currency.  And they will get rid of the dollar.  Or, rather, dollars: they’ve been holding roughly one-third of all American M1.

American consumption has been the growth engine not only for the United States but also for much of the rest of the world.  We have been consuming more than we produce, and our extra consumption has fueled world growth as we import more than we export.  Domestic investment hasn’t really suffered: the world has sent many of those dollars back to America by investing in us.  They’ve also kept interest rates on the government debt from rising by buying t-bills and government bonds.

The United States and the rest of the world are in this mess together. They need our consumption demand, we need their savings and investments. If  “In God We Can Trust” money loses the trust of other nations, its exchange rate will fall.  The cost of  imported goods will rise, and the carrying costs of our national debt, already the fourth biggest item in our spending, will climb right along with them. Foreigners will suffer exchange-rate losses in the value of all the assets they hold in American dollars. We’ll cut back on imports and they’ll cut back on investments and savings in the US.  We’ll hurt them, and they’ll hurt us.  It’s this mutuality that may prevent sudden calamity. It’s only the unexpected that causes the crashes. As long as people can predict this future, the changes will be gradual.  But the cumulative effect could be substantial – and negative for all concerned.

With this future so easy to see and so hard to stomach, why haven’t we already changed course?  The two main reasons are both based on the fact that the money supply is increasing too fast largely because we’re monetizing debt that’s also increasing too fast.

First, although the honest ways to reduce debt are to spend less and tax more, reducing the real debt by unexpected inflation has substantial, if sneaky and short-term, appeal.[2] Second, for years what’s been truly bipartisan is cowardice. Politicians never want to say no to special interests or yes to tax increases.  After all, special interests are key to re-election and the always-important campaign contributions, and tax increases enrage voters. So our representatives have been dodging the tough choices, settling for partial and temporary fixes to our deficits. “Kicking the can further down the road”, they hope our problems will somehow disappear. This is the kind of “magical thinking” psychiatrists characterize as “adolescent.”  Time to grow up.  Now.

[2]The stealth stops when people realize the game, anticipate inflation, and demand higher interests to compensate for the loss in purchasing power.