[W]hy should China agree to make itself less competitive for the benefit of high-deficit nations? [Bank of England Governor Mervyn] King argues that the crisis was a result of the inability to cope with huge capital flows from China, India and elsewhere as a result of globalization. But the other key factor, surely, was monetary policy in low-saving nations like the U.K. and U.S. that encouraged asset-price inflation and risk-taking. A tightening of policy earlier would no doubt have damaged these economies, but might have occurred before imbalances grew to the dizzying proportions they did. There is no law of economics that requires already indebted nations to keep borrowing and consuming.Indeed. As I've said a few times, China's currency and trade policies can only contribute to (allegedly) problematic "global imbalances" because the US, UK and other developed governments can't stop spending, printing and borrowing money. If they could stop, then what China did wouldn't matter too much. But of course, American and British leaders can't impose any semblance of fiscal restraint - now or ever - so they blame China, much like a compulsive gambler blames his bookie.
Are you listening, Mr. Krugman?