Getting Lectured to by the Chinese

[Trip]

Here's one that'll make you pinch yourself. The Federal Reserve just pushed another $600 B as in Billion dollars into the economy by selling bonds. The markets seemed to like it but some of us worry it will drive the dollar down even more. Some of us worry it could really drive up inflation.

But the strange part is not that. The surreal part is what the Chinese had to say. The Chinese released a statement earlier today lecturing the US on how this lack of financial discipline will hurt our currency. WTF? Even the Communists grasp it?

Who would've imagined 20 years ago we'd see Communist China lecturing us about basic capitalist principles. Ok, this gets another one of my Bizarro World stamps....

[MikeG]

It shouldn't surprise you. When you have large fixed debt, inflation is a way to attack it. Obama certainly wants currency to fall as it makes workers more competitive and will lower unemployment.

It will also erode purchasing power, wealth, standard of living, and retirement savings. In general it's a socialist philosophy since the goal is for the state to manage those things anyway.

China will allow some devaluation but only to the point where their employment growth is still healthy. It will be an interesting game of chicken. George Soros made his billions playing that game.

Inflating the debt away only works if they have the discipline not to borrow when prices rise, though. I don't think they have it and the U.S. will do what homeowners did: pull the equity out when the loan-to-value ratio got smaller. And then the currency will pop. Obama is about to reinvent Stagflation.

Inflation is also a tax increase as it will push people into higher brackets without really increasing their purchasing power. The administration is counting on that as well. They want dollar wages to soar while dollar value falls to keep purchasing power about the same but push everyone into higher taxes (salary doubles, gasoline doubles, mortgage payment stays the same, income tax rate increases in new bracket). it's a stealth tax increase and is also why they don't want a flat tax (unless it's the top bracket).

[Trip]

It shouldn't surprise you.

Inflating the debt away only works if they have the discipline not to borrow when prices rise, though.

You're right Mikey, it wasn't a surprise. Just a political statement - that even the Communists understand capitalism better than Obama. The irony is just mindboggling. Especially having sat in the command center of the Pentagon during the Cold War and worried as much about nuclear war with the Chinese as much as with the Soviet Union. Which is why sucking the Chinese into our interdependent system has been a very successful strategy. Folks can do handwringing all day long about fighting with them on the economic battlefield, but compared to their ability to obliterate us back then, I'll take the economic battlefield anyday. Especially since we are so interdependent now.

As for the assertion about "inflating the debt only working if"......inflating or monetizing the debt NEVER works. And prices are on the rise NOW.

And that's not the only reason to fight a flat tax. The flat tax is regressive. It's analogous to Donald Trump getting a speeding ticket and the guy manning the cash register in the 7-11 getting a ticket. Trump doesn't feel the pain in the least when he (his secretary) mails the ticket in. For the other guy it means he has to eat more white rice that week for dinner. Regressive taxes hurt the very poorest the most. I'm a huge fiscal conservative, and I want to see simplicity in the tax code, but the flat tax increases the pain to the poor.

[retdetsgt]

We have to come to grips with the fact we're not the only big dog in the yard anymore. And China owns us for all intent and purposes when you look at who's holding our debt. It ain't the family savings bonds anymore, is it?

[Trip]

We have to come to grips with the fact we're not the only big dog in the yard anymore. And China owns us for all intent and purposes when you look at who's holding our debt. It ain't the family savings bonds anymore, is it?

You ain't kiddin