Posted 03 January 2012 - 08:31 PM
If that were true there would be no need to carry on devaluing the currency once the trade deficit becomes a surplus.
In fact, as the deficit reduces the dollar would naturally strengthen anyway since the underlying problem is being resolved as China is no longer forced to buy US debt to maintain its trade surplus. i.e. the pressure on the US to keep creating govt. debt disappears.
Of course if everyone has the same strategy then it cannot work for anyone and thus would not be continued anyway. It is axiomatically impossible for surplus countries to continue generating surpluses to infinity. At some point they will either be defaulted upon, face trade sanctions preventing the surpluses increasing or face war.
Since the problem isn't really the value of the dollar, but the value of the RMB relative to the dollar, China is going to get turned over eventually, unless they decide it's in their interests to prevent that from happening by no longer seeking to accrue trade surpluses with the US.
In any event the imbalances must resolve and China loses. It's inevitable.
"The problem with capitalism is that eventually you end up with everyone else's money" - RK
"We have now entered The Great Rebalancing 2007-20xx" - RK