> John wrote: > yeah, me too. This sucks. But there is squat I can do about it. The people, > I guess have spoken.
Yup. Despite what some have posted I don't hate President Bush, but I think his policies have been for the worse. If Republicans control the house and the Presidency, I think we can expect more of the same - which means sky-high pork spending. If that's the case I don't see how we avoid another recession within a year or two and possibly the "fiscal crisis" that Paul Volker has been warning about. ------ Warning: boring financial analysis follows. ------ The counter argument goes like this: The current economic environment resembles a revived Bretton Woods, which was a system of fixed exchange rates after the second world war because: 1.) Asian countries link their currencies to the dollar at undervalued rates by heavily buying the dollar. 2.) Since they want to subsidize American's consumption of their goods, they are more than happy to continue lending America money forever. 3.) The T-Bonds they buy reduces the American interest rates, and that keeps us happily buying 32 inch TVs "made in China." The opposite argument is that the resemblance to Bretton Woods is only superficial and it will disappear in a few years. Before it does it will encourage Americans to buy more than they can afford and Asian economies to overheat. If that's true the correction is going to hurt bad. The argument goes like this: 1.) During the 60s the US was a world creditor and also had a current-account surplus. Today, we're the biggest debtor and that could encourage people to choose another world currency anchor like, say, the Euro. 2.) Historically Asians have ran current-account deficits rather than surpluses and so now they have no reason to tie their currency to the dollar. 3.) Most Asian countries no longer have capital controls which means there's a boom in local credit. This will cause inflation and encourage them to find a more stable currency. 4.) In the 60s there was no real alternative to the dollar. Now there is the Euro. It's the dismal American savings rate that's causing this. We got away it until now because foreigners wanted to buy our buildings and companies, but that's dried up and now we're left with just plain old borrowing to subsidize our spending habits. In the 80s something similar happened and the dollar dropped 50% relative to other currencies before the 1987 stock market crash. Our current-account deficit is double what it was then. If another "correction" is coming, it'll be big. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~| Purchase from House of Fusion, a Macromedia Authorized Affiliate and support the CF community. http://www.houseoffusion.com/banners/view.cfm?bannerid=35 Message: http://www.houseoffusion.com/lists.cfm/link=i:5:133783 Archives: http://www.houseoffusion.com/cf_lists/threads.cfm/5 Subscription: http://www.houseoffusion.com/lists.cfm/link=s:5 Unsubscribe: http://www.houseoffusion.com/cf_lists/unsubscribe.cfm?user=89.70.5 Donations & Support: http://www.houseoffusion.com/tiny.cfm/54
