Quote Originally Posted by Zippyjuan View Post
Prices can adjust if the currency is also allowed to adjust but since China keeps their currency at an artificially low level prices are not allowed to adjust.

Under normal trade, if the US is running a trade deficit with a country, we are buying a lot of goods from them and using dollars to make the purchases. The other country typically has no use for the dollars they take in and sell them for their own currency which increases the demand for their own and increases the supply of dollars. This causes the value of their currency to rise against the dollar. As their currency rises against the dollar, the prices we in the US would pay for goods from them rises due to the changes in the exchange rate. China is keeping their dollars (by buying US dollar denominated things like US Treasury notes) as dollars and not converting them so the exchange rate does not change as it would if there was a free market. This keeps prices artificially low for US buyers of Chinese goods and keeps prices of our exports to them artificially high. This is an indirect government subsidy to its producers in China and distorts the market.

If we are importing more goods then we aren't producing as much at home as we would. If we are exporting less we are producing less to export. Both of these mean fewer jobs here and more jobs in the other country. Labor is effectively exported.

It is true that we get lower priced goods but the exchange is that we have fewer people working. Now if this "frees up labor to do other things" then we should have lots of jobs being created today since we have had so much labor freed up (as in our high unemployment rate).
What a poor Keynesian argument!

Oh, pray tell me, what happens as we spend LESS money on buying goods!
Hint - we end up with more money to consume & invest ELSEWHERE, which will go into the LOCAL economy & it will create more jobs in LOCAL-CONSUMPTION; as I've said before, higher currency means less export-jobs but more local-consumption jobs & lower currency means more export-jobs but less local-consumption jobs!

It is this Keynesian stupidity that pervades the economic sphere that people are made to believe that government devaluing their currency is "good for jobs" & all it leads to is people losing their purchasing-power & a race to the bottom between all countries trying to see who can devalue the fastest - CURRENCY WARS!

It's because Keynesians are so incapable of understanding the concept of "opportunity cost" that they also support massive government spending, not realizing that government spending more simply means less capital & labor available to the private sector (productive sector to be precise)