The Trade Gap And The Yuan, Gone And Forgotten

For some reason, the huge trade gap announcement did not stir much concern in Congress about the value of the yuan. The figure rose to $42.3 billion in May. Instead of focusing on the 12.1% increase in shipments to China, politicians and economists may be pleased by the 2.4% rise in US exports, the best number since September 2008.

The lack of outcry about China’s growing edge in trade is surprising. It is less than a week since the Treasury Department skipped a chance to label China as a “currency manipulator.”  Several members of Congress used that event as an excuse to threaten to take a large amount of foreign policy away from the President to save the economy.The schizophrenia about what is important to the economy becomes more severe as new economic data pours in on the heels of what appeared to be a recovery in the spring and a slowdown in the early summer. The Fed is signaling that a stalled expansion may require that it keep rates low for months and that it may have to go back into the market to buy up mortgage paper and perhaps other debt instruments that are key to keeping rates low. There is not much evidence that low interest rates helped the economy last year and early in 2010.  Banks decided to be cautious and not lend.  Fed Chairman Ben Bernanke cited tight credit availability as the greatest enemy of small business expansion. He said that a number of creditworthy businesses are closing.

The argument that the yuan at current levels is bad for American business was lost yesterday in the fog around the vote over the financial reform bill, what appears to be improving earnings, the capping of the BP oil well, and bad approval numbers for the president. Toward the end of the day, most politicians and press focused on the budget deficit reaching above $1 trillion, as if is was a surprise.

There is no sticking to one subject in Washington now. Too many things seem to be important, which means none of them are really important at all.

Douglas A. McIntyre