Monday, October 25, 2010

M&Ms and currency wars

As I learn more and more about international trade and currency, I am frequently struck by how very like the disputes my children used to have that the arguments between countries are. For example, the current currency controversy reminds me of the M&Ms debate in my household many years ago.

I really liked giving my kids treats in individual packages. That way they each were given the same amount to enjoy. A bowl, of course, allowed the fast or the greedy or the one with the bigger hand or stronger bladder to have far more than the rest. The real issues came to light when they were given the individual amounts. Four of five of my kids would wolf down their treat with abandon but one would save and savour his. Long after the others had none he would still be enjoying his one at a time and the very fact that he still had his would be like a thorn in the paw of the others. I know that psychologists maintain that the ability to defer gratification is the single best predictor of success in life. If you can delay consumption or appropriation of an award it indicates that you are in a good position to attain your goals.

I think it all started quite innocently. One child was more reflective, more slow paced in his way of eating. (It is evident even today in his slim and sinewy body build). However, it does not take much to convert a natural tendency into something else. He soon realized that he was the envy of his siblings and that it gave him a certain power to have treats long after everyone else had none. They were indisputably his and the pleas of his M&Mless siblings made him king for the moment.

What does this have to do with international currency wars? The real problem is that China has the cash. United States (and many other countries) ate all their M&Ms buy spending far more than they had (eating theirs and some of China's too). China on the other hand made sure it got as many M&Ms as possible while the getting was good. Instead of eating all of theirs, they saved them and cultivated power with them, lending their M&Ms to others to allow them to buy more goods from China so that more and more M&Ms ended up in China. Just as in bygone eras- everybody wants what China produces but China wants very little that the world produces. (This was the very situation that resulted in the Opium wars- if you ever wondered why the study of history is important- this is a great example).

Now the world says: No fair! We are all supposed to eat the M&Ms at the same rate and China says- they're mine, I got them fair and square, I can eat them or not eat them as I choose. To this the world, particularly the U.S.A. says no fair- you are hogging all the M&Ms (American dollars) that are left and the only way for us to get more is to make more and that puts our economy at risk.

Too bad that in terms of the global economy there is no Mommy to step in and say to the U.S.A. "you had your M&Ms, you chose to eat them all at once, you could have saved some or exercised your self control but your universities taught all of your people that money today was worth more than money tomorrow so that spending and leveraging debt were considered wonderful things. Now you are learning that lack of self control is painful". To China, the Mommy would say, "China, I am glad that you are enjoying your M&Ms and there is nothing wrong with that but if you are doing it not for the enjoyment but for the power over your siblings to make them feel bad or to elevate yourself, that is not a kind thing to do."
The world needs a Mommy but the IMF isn't it.

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