15 October 2010


The federal reserve apparently believes there is not enough inflation and they would like to get it above 2% to 3% or 4%. This would be done by printing money and buying government bonds. The administration's economists want a weaker dollar to encourage exports. Of course other countries feel the same way andwant their currencies to depreciate for the same reason, and all want the Chinese yuan to rise, presumably to slow down their export machine. But it is the height of irresponsibility for the country with the world's reserve currency to manipulate its currency rather providing a predictable and stable store of
value. Furthermore all this does is make all of us poorer. It is obvious that if you have something of value, if it is worth less it is in fact worth less. That
means the dollars you have buy less.

We are seeing commodity prices escalating upward as a result, for everything
from the corn and soybeans that are vital to the food chain, to oil, to gold.
This means higher gas prices, as well as higher food prices. That certainly
looks like inflation that people can ill afford. Seared in my memory is the
misery of the Carter years with double-digit inflation worthy of a banana
republic, with instability and sky high interest rates. That won't exactly prop
up the housing market. Runaway inflation is inevitable down the road unless we
stop printing money, slash government spending and begin reducing debt instead
of increasing it. To get economic growth to resume we need to assure a stable
business climate, reduce regulations and red tape, and cut taxes to encourage
new investment, which is the only way to create jobs. What we have now is a
climate of uncertainty to the point where, incredibly, we don't know what our
taxes are going to be next year due to an irresponsible congress that has failed
to pass any legislation.

It is ridiculous to blame the Chinese for this, when it is all of our own doing.
Consider our deal with China. They sell us really cheap stuff, which goes into
the hands of people who could otherwise not afford it. What do they get from us?
A lot of paper debt that is worth less each day. If Chinese goods cost more the
people most hurt are those with the least amount of resources. Much of these
goods are the products of American companies. For example, Apple designs
everything here but builds it in China. Trade is a net plus for this country in
terms of job creation, and clearly in terms of prices. We have a trade deficit
because Americans save too little and spend too much. But rather than
encouraging savings the government is penalizing the thrifty with miserably low
returns on savings accounts due to the easy money policy.

We need a strong and stable dollar to assure that we remain the world's foremost
economic power. Instead of racing for the bottom we should be reaching for the
top. None of these inflationary policies and wasteful government spending are
going to create jobs. The only way that that will happen is with a positive
business environment and taxation that encourages, rather than discourages
investment. Unless current policies are changed we will continue to be victims
of a no-growth environment.

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