Let's pretend that I do not thoroughly understand Macro-Economics :-)

By: john4_SamRasoul_2008
Published On: 4/26/2007 5:24:31 PM

Thu Apr 26, 2007 at 17:09:50 PM EDT
But, I have pieced together this puzzle of economic relations where control is slipping from the grasp of the USA:
1) Today the USA no longer manufactures and exports very much.
2) OPEC requires payment for oil in US Dollars [US$s].
3) The USA is financing a deficit spending program in part by just printing US Dollars (US$s).
So, coming full circle, the demand for these US$s, used to buy oil from OPEC, is the main force which has, thus far, prevented a hyper-inflation of our currency -- the US$.
We read often that our shaky US$ is frightening for our foreign creditors, primarily Japan and China:
See: NewsMax Media, of Saturday, April 21, 2007 9:00 AM, Subject:
"Japan Cautiously Mulls Dumping Dollars" < www.newsmax.com/money/archives/articles/2007/4/19/085543.cfm?MN=1&PROMO_CODE=32C0-1&s=sp
>
  ***
Now, our Bush II R+¬gime has failed to gain lasting control in Iraq; plus they have made a lot of enemies throughout that region. Thus the ability of the USA to coerce OPEC to continue demanding that all oil payments be made in US$s is slipping away. 
Indeed, there are probably many folks in the Middle-East and Central Asia who are now more than anxious to switch to the Euro for all of their transactions.
When that switch, by OPEC, to the Euro occurs, there will be few incentives to sustain the demand for the US$.  Actually, there will be many incentives to divest away from the US$ all together. 
From our political leaders, I would like to know if:
1) A hyperinflation of the US$ would be likely under the circumstances described above?
2) Do we have plans to move away from the Military-Industrial-Congressional Complex as the primary focus of our economic development, here in the USA?
3) Do we have plans to stop Federal deficit spending financed primarily by running the printing presses?

Comments



A cousin of mine in Mexico (Hugo Estrada - 4/27/2007 7:34:20 AM)
said that he thought that investing in American treasury bonds was risky because of these conditions. I was amazed that he understood them so well.


US Economic Evolution (samrasoul - 5/2/2007 5:16:27 PM)
I will answer your questions to the best of my ability given my limited knowledge of economics. The decreasing value of the dollar in recent years is a point of concern for American industry and our economic stability. When our dollar is worth less than another currency of a given country, then more dollars are required to purchase that currency to purchase goods from that country (unless the price has been fixed to the dollar). This means that companies that are doing business with Europe and paying in Euro have taken a very hard hit in recent years and especially recent months.

There is a positive side to this. This makes the price of investment in the United States by foreign investors much more attractive if investing with foreign dollars, and this also allows for our exports to be less expensive to foreign buyers who are paying in dollars. One of the biggest unknowns for our country in the future with respect to hyperinflation of the dollar will be the monetary policy of China. I believe that the market is definitely sensitive enough to any change from Bejing, evident in the hiccup the DOW experienced several weeks ago.

As for any peril to our Republic, with respect to maintaining a military presence abroad, we must look at the big picture:
-- Our massive military presence abroad does not directly effect the viability of our Republic, save that the money spent is unavailable to address domestic needs, such as education and affordable quality healthcare.
-- But, with fewer military bases abroad, our country would have a reduced logistical support capacity for action of any sort, either military or humanitarian relief, around the world.  [We are wise to recall the old saying that:  Military amateurs want to talk tactics, while professionals want to talk logistics.] 
-- On balance, an effective defense posture is my top priority.  But, resources beyond that, directed to excessive defense spending, are not available for our often neglected domestic needs.  And this is exactly the peril that President Eisenhower warned us against when he coined the term "Military-Industrial Complex".  
-- Finally, in the recent past, diplomatically, our flamboyant military grandstanding often has not increased, and had degraded the effectiveness of our foreign policy efforts.  This sort of behavior is both dangerous and undignified

Changes to the functionality of our economy will realistically only take place one of two ways:
(1)Through evolution, a gradual maturation of the citizens of the United States to push for quality leaders who implement policies that help to shift us away from our current economic political model which focuses on big business special interests
(2)A dramatic shock from an outside force, such as a terrorist attack of an immense capacity, a collapse of major industry due to any number of potential causes, or a fundamental shift in the economic policies of other major nations.

As for federal spending, this is an issue that our government can take control over easily and quickly relatively speaking. By moderating our military spending somewhat, closing off-shore tax gaps for the wealthy, ceasing to implement ill-advised tax cuts for the wealthy, and not adding "pork" projects to legitimate legislation, our country can start on a path to becoming more fiscally responsible.