Looking Ahead
The Bush-Obama approach to the crisis in the financial sector is to monetize existing debt and accumulate massive new debt that will likely also require monetization. The monetization threatens inflation, high interest rates, and depreciation of the U.S. dollar and loss of its reserve currency role. The accumulation of new public debt implies larger annual interest payments that could make future deficit reduction problematic. Clearly, the Obama administration needs to broaden its perception of the predicament to which financial deregulation and offshoring have brought the U.S. economy. ~Paul Craig Roberts
Naturally, then, our crack team of experts is busily combating non-existent deflation as most pundits warn against the menace of protectionism.
“non-existent deflation” I would like to see the argument behind that. As of now, we are seeing wage deflation in a number of sectors. Yes, the recovery of the commodities sector from gold to oil could be seen as inflationary, but my phrasing already notes my argument, it appears to be a recovery rather than a secular trend.
A drop in the dollar may not be the worst thing in the world. Imports will go down and exports will go up under conventional analysis. I’m not sure we’ll see a dollar drop though. The concerns over the dollar seem premised on de-coupling theory. Be it the Euro, Ruble and Renminbi, there aren’t any currencies or economies that look to be in significantly better shape than the US. If a Euro/Ruble alliance were able to stabilize, then the US would have something to collapse against.