Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Upside of Inequality Oxford Unintended Consequences

AI Summary. East Asian economies accumulated large US dollar and euro reserves by building export machines based on undervalued currencies, a strategy one analyst argues has run its course. He contends China should revalue aggressively and return to market-determined prices, since the resulting accounting losses reflect real losses already incurred.

Charles Gave Gavekal
Date Posted:

Charles Gave argues that East Asia’s post-1997 model of undervalued currencies, which has generated >5T in FX reserves, has run its course. His prescription is aggressive China-led revaluation to shift purchasing power toward Asian consumers.

Should China revalue its currency aggressively and let markets set prices?

Core argument: Gave argues that East Asia’s strategy of building export machines on undervalued currencies to accumulate large US dollar and euro reserves has run its course.

To accumulate their huge reserves of US dollars and euros, [East Asia] built formidable export machines based on undervalued currencies. [Gave sees] only one solution: to return to market-determined prices as quickly as possible. As the leading economy in the region, China should bite the bullet and say the time has come to revalue aggressively. Yes, Asia will take accounting losses. But that does not greatly matter; the actual losses have already been taken a long time ago.

Takeaways by Macro Roundup® AI

  1. Gave argues that East Asia’s strategy of building export machines on undervalued currencies to accumulate large US dollar and euro reserves has run its course.
  2. Gave sees a return to market-determined prices as quickly as possible as the only solution, with China, as the region’s leading economy, revaluing aggressively.
  3. Gave contends that the accounting losses Asia would take on revaluation do not greatly matter because the actual losses were taken long ago.

Related Articles:

  • The World Should Not Ignore China’s Undervalued Currency — China's reported current account surplus of about 4% of GDP is roughly 3 percentage points above the International Monetary Fund's estimated norm, implying a currency undervaluation of about 20%. Adjusting for surging gold imports and a misreported investment income deficit would lift the surplus to about 6% of GDP and the estimated undervaluation to 30–35%.
  • Who Will Win The War Of Neo-Mercantilists? — China's manufacturing export surplus is around 2% of world GDP, roughly twice the largest surplus Japan ever ran, while domestic demand has stalled. Unexplained negative net income of about $125bn on its $4tn in net foreign assets, versus an expected $100bn surplus, supports the argument that the renminbi is about 30% undervalued.
  • The Year of the Trojan Fire Horse: China’s Imbalanced Economy and Unrelenting Mercantilism — About 30% of Chinese industrial companies are unprofitable "zombies" kept alive by subsidies far larger than those elsewhere, rather than exiting amid falling industrial producer prices. Countries with large increases in manufactured imports from China also saw slowdowns in domestic manufacturing, including declining manufacturing shares of output across most of Southeast Asia.
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