Mighty China Has a Financial Mess Brewing

Paul Krugman: Its leaders look lost dealing with it, like ours
By Kevin Spak,  Newser Staff
Posted Jan 21, 2011 12:41 PM CST
A bank clerk uses a machine to count renminbi banknotes in a bank in Hefei in central China's Anhui province.   (AP Photo/File)
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(Newser) – China may be a burgeoning economic superpower, but it’s also embroiled in a monetary fiasco that could turn into a genuine crisis, warns Paul Krugman in the New York Times. The problem is China’s refusal to let its currency rise. The policy has obviously vexed the US, “but a policy can be bad for us without being good for China.” Keeping its currency low has led to an overheated Chinese economy plagued by massive inflation.

Prices are rising rapidly, and the Chinese people are hurting. China’s trying to institute price controls, but those rarely work—and failed for China itself back during the Nixon administration. The way out is obvious: “Just let the currency rise, already.” But China’s leaders, either out of deference to manufacturing interests, or a lack of intellectual clarity, appear incapable of such decisive action. “In fact, the Chinese come off looking like, well, us.”

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