The Ascent of Money by Niall Ferguson
The next time anyone blames Wall Street and the US Federal Reserve for the global economic downturn, throw the book at him. Not just any book but Niall Ferguson’s The Ascent of Money.
This excellent, immensely readable history of banking and finance published last year not only saw the crisis coming but was quick to pin the blame – not on America but on Chiamerica. Ferguson, an eminent British economic historian, describes how American consumers binged on cheap Chinese goods until the US economy went bust, dragging the rest of the world into a recession.
Here’s a televised part of the book dealing with Chiamerica.
In effect, the People’s Republic of China has become banker to the United States of America.
At first sight, it may seem bizarre.Today the average American earns more than $34,000 a year… the average Chinese lives on less than $2,000. Why would the latter want to lend to the former?
The answer is that, until recently, the best way for China to employ its vast population was through exporting manufactures to the insatiably spendthrift US consumer.
To ensure that those exports were irresistibly cheap, China had to fight the tendency for the Chinese currency to strengthen against the dollar by buying literally billions of dollars on world markets…
From America’s point of view, meanwhile, the best way of keeping the good times rolling in recent years has been to import cheap Chinese goods. Moreover, by outsourcing manufacturing to China, US corporations have been able to reap the benefits of cheap labour too. And, crucially, by selling billions of dollars of bonds to the People’s Bank of China, the United States has been able to enjoy significantly lower rates of interest than would otherwise have been the case.