NPR Misleds Listeners About U.S. and China, Again

Morning Edition had another segment misinforming listeners about China's relation with the United States. After first telling listeners that China deliberately keeps down the value of its currency in order to maintain its export market in the United States, NPR said that re-valuing the yuan was unlikely to be a top priority in negotiations, since the United States will be more concerned about having China continue to finance its deficit.

Actually, financing the U.S. deficit is exactly the mechanism that China uses to keep down the value of their currency. China buys dollar denominated assets, like U.S. government bonds. This keeps up the value of the dollar relative to the yuan. In other words, if we want China to finance our deficit, then we don't want them to revalue the yuan.

It would have helpful to point out what would happen if China did not continue to buy up large amounts of bonds. This would cause interest rates to rise, unless the Fed stepped in by buying bonds. The Fed can be every bit as effective as in keeping down interest rates in buying bonds as China. And, there need be little concern about inflation in a situation of near double-digit unemployment, although China's decision to stop propping up the dollar against the yuan will lead to some inflation, as the price on imports from China rises.

It is worth noting that Nicholas Lardy, the expert from the Peterson Institute who was the main source for this story, is widely known for predicting since the late 90s that China's economy would be decimated by the collapse of its banking system.

--Dean Baker