Krugman labels China the “bad guy”

Paul Krugman, a Nobel-winning economist and New York Times columnist, has labeled China as the “bad guy” in the currency war which is seeing several nations attempt to weaken their own currencies.

Paul Krugman
Paul Krugman

Speaking to CNBC, a financial news channel, Krugman said China is to blame for the currency tensions, saying it is “behaving badly”.

He said: “The US is loosening monetary policy with the side consequence of a weaker dollar, (while) China is actually pursuing policy tightening to offset the inflationary impacts of an artificially weak renminbi so …. China is really the bad guy in this.”

Krugman’s comments on China follow those of Martin Wolf, a columnist in the Financial Times, who earlier this week declared that America is going to win any global currency battle.

“The US is going to win this war, one way or the other: it will either inflate the rest of the world or force their nominal exchange rates up against the dollar,” wrote Wolf. (article continues below)

Avinash Persaud, the chairman of Intelligence Capital, however says America’s obsession with the Chinese exchange rate is a classic example of blaming foreigners for domestic woes.

“After seven years of a consumption binge in the US, evidenced by a negative personal savings rates, excessive leverage, historically high employment levels and record international deficits, commentators in the world’s largest economy did not conclude what every macroeconomic model indicated—that US fiscal and monetary policy were too loose,” says Persaud.

“Instead … China is being convicted of manipulating its exchange rate and Asia for saving too much.”