“The government is not helpless here, Morici says. We should be standing up to China by installing our own currency peg and making the dollar cheaper relatively to China’s yuan. This would help trigger inflation in the U.S., because Chinese imports would become more expensive, and it would also accelerate the growth of our exports.”
We often hear comments about how the US’ deficit when compared to its neighbor is an inevitable collapse, indeed, you’ve seen the comments: “Perhaps now is the time for USA to learn from Canada’s mistakes such as control their spending levels, eliminate tax breaks, and get their country’s poor financial house in order. If cutting government spending worked for Canada, it can work for the Americans.” The problem here is that people, especially Canadians, are given a false sense of security in their thinking that their country’s national debt is any more controllable than the US.
Actually, the Canadian national debt per capita is higher. The big difference between the two, is the US dollar is the reserve currency, while the Canadian dollar is nothing but a needle in a haystack. There are some profound differences between the two countries. Firstly, America’s debt is well beyond any hope of control. Its fate is sealed. Anyone who has a maxed out credit card with limited income can understand this.
Secondly, Americans are going to have to accept a significantly lower standard of living, even if they weren’t drowning in debt. This is because they lost their main economic activity — manufacturing — to China, and they don’t do much productive anymore. You can’t maintain prosperity while not doing anything productive to offer to the rest of the world. Americans weren’t willing to accept lower standards of living (they have a sense of entitlement) and over the last 30 years have simply been living beyond their means through more and more debt and lower and lower interest rates. That situation is about to implode, when the rest of the world dumps Treasuries as the reserve currency and shifts over to Chinese Reminbi.
Slashing government spending would send the economy into a deflationary depression and force Americans to reckon with their inevitable fate. Obama, like about 5 presidents before him, has stalled this day of reckoning by kicking the can further down the road and simply printing more money. The problem isn’t going away, it is being shifted into the future and made much worse. If US leaders refuse to allow the country to implode via deflation then it seems obvious that Obama, via his printing press and quantitative easing, will force a hyper inflationary currency devaluation.
Yes, Deflation’s Coming, Says Morici — Because The Government Doesn’t Have The Guts To Stand Up To China
In recent months, deflation fears have taken hold as the year-over-year growth in consumer prices trends ever closer to zero.
And everyone’s right to be worried, says Peter Morici, an economics professor at the R.H. Smith School Of Business at the University of Maryland. Deflation is coming. We’ve had it for a couple of years now in the form of shrinking economic output, and now we’re going to get it in the form of falling prices. And deflation will hammer any Americans who have borrowed money, because it will be harder to pay back the debts.
Professor Morici dismisses skyrocketing commodity prices–which, to some, seem a harbinger of inflation, not deflation–as the product of international demand. The U.S. is headed for deflation, Morici says, because of the combination of a weak economy, suffocating government restrictions, and an overvalued currency.
The dollar is too expensive relative to other critical currencies, Morici says–especially China and India. China is keeping its currency artificially low to make its exports cheaper and our exports (to China) more expensive. This is great for China, but lousy for us.
The government is not helpless here, Morici says. We should be standing up to China by installing our own currency peg and making the dollar cheaper relatively to China’s yuan. This would help trigger inflation in the U.S., because Chinese imports would become more expensive, and it would also accelerate the growth of our exports.
But our government is too wimpy to do that, Morici says. So get ready for deflation… from yahoo finance