Friday, November 05, 2010

I Hear Them Presses Hummin', They's Rollin' off the Dough

Next week the G20 nations have another security exercise-cum-fancy luncheon in Seoul. The topic this time, as it was last time in Toronto, is what to do about getting the economic ball rolling again. And this time the focus will be on trying to get everybody 'onside' to do the same thing when  everybody is starting to make gestures that their situation is different/more serious/more deserving than anybody else's.

Harper the Debtless is calling for some concentric approach to monetary policy and exchange rates. This because big money seems to be prowling the earth in search of profit derived from currency fluctuations. Naturally such 'investments' are ephemeral in their effect - here one minute and sunk in another currency elsewhere, the next. Since the investment industry can't stop this from happening, governments have to take steps to minimize the effects..The first  minimization should be a flat 20 percent surcharge on all money going out of the country. That would slow the high rollers down a little and certainly slow down the foreign trade imbalance. But that would not be in keeping with the spirit of the 'free market' that caused most of these problems in the first place.

Hanging over all is the Damoclean sword of debt. Not everybody, thank goodness, has it,  but everybody is affected when the biggest economy on earth is raddled with it. It is that debt that is hamstringing the American recovery, and, perhaps, the cost of a war or three and  good old global domination, that adds to it daily. Like a fat, drunk uncle on a picnic hike, America's demanding a lot of support from the 'rest of the family'. Particularly in parts of the EU and elsewhere, where the good times were rolling along with those dud mortgages, the sword dangles equally menacingly. Some countries in Europe have America's problems in spades.

Naturally America sees China as it's biggest monetary problem. The Chinese have been buying US bonds and T bills for more than a decade, actually they been taking them in trade, and buying them with those greenbacks they get from the dollar stores. So now America wants to raise interest in, and hence the price of, those bonds. How they going to do that? Well, buster, just you hobble yer horse; they're going to print 500 billion in not-yet-existing greenbacks and buy their own bonds. So the banks that market the bonds will get another 'cash infusion', or in this case a "quantitative easing" -  to not loan money to people who can't borrow it because they have no job, or the rich who are going to risk it on the money markets, or just to pay out a few more dud mortgages. Obviously the undiscredited Chicago School of  'go big or go home' economics is still at the helm. They must really believe that Keynes got it all wrong about the inflationary effect of printing money that isn't directed to creating jobs.Apparently they aim to prove it.

What about China? China is letting its Yuan do a 'test float' with the market and  it has lost some value. I may have gotten a C- in econ 101, but it strikes me that a devaluing currency has the wrong effect on a trade deficit than the one  the mavens of Wall Street want. Shouldn't the Yuan be increasing its value against the buck? That would slow imports a bit and make buying back some of those T bills and bonds a little easier. But not if the Chinese think they're getting monopoly money. The inscrutable orientals aren't as stupid as they were once cracked-up to be and if the US thinks they'd like to take some inflato-bucks  for that reduced trade, Bernancke needs to get his earhair trimmed.

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