Overseas Chinese political commentator Liang Jing wrote following essay, translated by David Kelly:

Last week, the US once again became ground zero for turmoil on global stock markets. It was triggered by much worse than originally estimated financial crisis due to the revealed risk of housing mortgage getting out of hand, and the risk of recession faced by the US economy. To turn the tide, on Monday, Federal Reserve Chairman Bernanke requested the US Government make an emergency tax rebate in order to boost consumer spending, and on Tuesday the Federal Reserve suddenly announced interest rates would be cut by a margin not seen since 1984. The global economy has been plagued by excess liquidity, so this step by the US would be tantamount to adding fuel to the fire, which will clearly pass on the crisis to the rest of the world by depreciation of the US dollar, making the world pay the bill for the sub-prime mortgage crisis.

With China the largest holder of US federal debt, and yet again given a greatly diminished dollar, the US has been cursed as a hoodlum. But as one commentator on the Internet stated, “cold reality” had to be accepted when the cursing was over. I couldn’t help but be reminded of an old Chinese saying – “backwardness always loses.”

Since the 1990s, with the “rise” of China’s economy based on expanding exports, the scale of China’s transfer of resources and income to the US has also grown from several billion dollars per annum to over 100 billion US dollars as estimated today, equivalent to the annual wage income of China’s 100 million migrant workers. In fact, China’s large-scale transfer of income to the United States was one of the factors inducing the sub-prime crisis. One of the major channels for transferring China’s income to the US was to use the double “comparative advantage” of sweated wages and distorted exchange rates to export a vast quantity of cheap products. This not only reduced inflationary pressures in the US, it lower ed the latter’s interest rates. In an environment of sustained low interest rates, not only tend did Americans’ savings tend to keep dropping, unprecedentedly strong demand for housing was evoked as well. Many low-income families who traditionally never bought property were attracted by the low interest rates to do so with sub-prime mortgages, providing an important background for the sub-prime crisis.

It stands to reason that this crisis was the fault of the Americans themselves, and the former Federal Reserve Chairman Alan Greenspan in particular. However, the Federal Reserve recklessly increased the risk of global inflation, releasing liquidity on a large-scale and making the around the world share the costs of the US’s loss of control of financial risk. As a poor country, China has been “paying tribute” to the US every year, but paying so excessively for faults of Americans is truly outrageous.

So has China, as a rising economic power, no oppositional strategy to US hegemony? China’s economic and financial decision-making elite must have been giving painful thought to this in recent days. From the various comments and coverage on the Internet, America’s sudden slashing of interest rates has pushed the Chinese economic decision-making into further difficulty, above all into serious differences over the dilemma between “raising interest rates” and “appreciating.”

Before the weekend, the comment made by Ye Tan to “stop raising rates, liberalise the ex change rates and deal with global inflation” represented the views of the appreciation camp. Ms Tan’s basic idea was that in the face of the general trend of global inflation, China has no choice but to allow the RMB to appreciate substantially, holding on to the assets of the Chinese people as much as possible. If interest rates are increased at this time, global hot money will be attracted to China, wantonly looting the assets built up by the people with their blood and sweat. An idea Ms Tan did not explain is that when apprecia t ing, moderate domestic inflation must be used to counter global inflation. Draw domestic liquidity into the stock and housing markets, raise asset prices wages and consumption, and keep supporting economic growth.

However, proponents of increasing interest rates will ask, if we do not increase interest rates, can inflation be controlled? A more crucial problem is that given a sharp appreciation of the RMB, exports will inevitably be disrupted. Will domestic demand be able to create enough jobs? China’s 200 million migrant workers lack any social security, aren’t there worries about the simultaneous occurrence of large numbers of unemployed and malignant inflation giving rise to unrest in China? Those supporting liberalizing the exchange rate obviously can not eliminate these concerns.

Faced with sharply lowering interest rates passed crisis, if China does not lose a lot of assets, it could face serious stagflation why is the US able to get the savings of foreigners as a resource to aid their poor, while China hands over its own savings and assets to others in order to avoid the poor rebelling?

This contrast is in fact because the rights of China’s poor in cannot be compared to those of America’s. The equality of American citizens’ rights is a mechanism providing shared prosperity and social risk, whereas China’s wealth distribution mechanisms amount to “giving away to friendly nations rather than to the household servants.” The history of militarism and war teaches us that the side with backward citizen rights is usually defeated. The world may have now entered the an era of “currency wars,” which may show once again that states with highly unequal social rights will be unable to avoid the fate of losing.