BookTV Response: Ravi Batra, Author of Greenspan's Fraud

     His solution to the trade deficit is dumb.  The simple proof follows.  His solution to the trade deficit is a "dual exchange rate."  Unilaterally, the Fed would provide an alternative exchange rate for US exporters and foreign importers.  Using China as an example, simplifying the numbers somewhat, we have a current exchange rate of 8 yuan to the dollar.  The proposed alternative would be for the Fed to supply yuan at a rate of 6 to the dollar. The argument says US importers would not buy yuan from the Fed, since they could go to China to get 8 for each dollar.  This, Batra says, satisfies Wal-Mart and Target stores.  An exporter to China would sell their goods in China, and, in effect, trade in the yuan they received to the Federal Reserve for 6 yuan per dollar.

     It's dumb because the Fed has now purchased a lot of Yuan, at below market rates, which it has to dump.

     In effect, the US taxpayer begins to subsidize trade with China indirectly, through this exchange rate mechanism (since taxpayers end up paying Fed shortfalls), rather than the anarchic system (known as screwing ourselves by purchasing products from totalitarian states).