Hank Jestor

The Fed is Deflating: 10 Reasons Why

Smart Money,
Right call for the next 2 months, wrong call long term. That would be the right call long term if you believe the decoupling myth. I would want to be in anything overseas once the U.S. consumer really starts to shutdown. China and India do not have stable governments and the sh*t will hit the fan once inflation raises its ugly head for real there. Already seeing it in Asia. Ninety percent of the people in those countries live at the poverty line and food shortages are occurring now.
The reason that the U.S. has always been able to pull itself out of economic hardship is the fact that we are geographically isolated and can produce food likes there is no tomorrow.
There are already reports of Chinese workers showing up for work and finding the factories closed.

The Fed is Deflating: 10 Reasons Why

Deflating the currency is a good thing. I was a Ron Paul believer but now understand my folly.
The fundamental problem in the U.S. is they want less expensive goods from overseas in spite their face.
Like the Fed says, "there is no problem with a cheap dollar if you buy American products". What he is doing is shipping the pain overseas and bringing jobs back home. Will this work overnight? no. Will it hurt? yes.
Benefits:
Higher fuel cost will cause:
1. the needed investment into alternative fuels and lessen our dependency on Middle East Oil.
2. Slow consumption.
3. Bring jobs back to the U.S. since the cost of outsourcing will rise.

The Dollar only matters if you are buying cheap foreign products and anyone who thinks we don't buy enough cheap products from overseas is crazy.

The Fed is Deflating: 10 Reasons Why

Follow-up Predictions:
The Chinese will continue fighting inflation and not ease their trade barriers. This will cause a 1920's U.S. style depression in China. The U.S. will suffer from a short depression and mirror the German model of 1930's economic growth.(probably political changes ahead)
History always repeats itself and the fundamental issue is not sub-prime loans. The issue is that what people bought with their free cash was all Chinese, all the time. We have gutted the base of the economy with the trade deficit. To recover we will have to rebuild that base.
What can the U.S. do? Trade barriers. We need to force people to choose only U.S. made products. This will re-establish our economic base.
Thats my 2 cents.

The Fed is Deflating: 10 Reasons Why

Stanley,

You are correct. The Fed is attempting to Inflate, but the money is being blocked by the banks and being shifted to cover their losses.
The Fed is following the correct policy, its just to bad its the wrong country. They obviously have an American-centric view of the world. Instead of looking at how we could have avoided the 1930's depression from a U.S. perspective they should be looking at what the German and British could have done to prevent the depression in the thirties.
The Chinese model the role of the U.S. in the 1920's. They have the savings accounts to enable the inflationary policy that is needed to stimulate our economy.
To prevent a total worldwide collapse the Chinese should:
1. Open their markets to U.S. goods and encourage their purchase with tax breaks. This will cause the creation of jobs in the U.S. and provide a stable base of manufacturing in the U.S.

2. Lower interest rates by 2 points in China.
3. Re-peg their currency to the U.S. dollar.
4. Increase export taxes on Chinese goods.

This will cause a lot of pain in China and I doubt if they will see the long term benefits of having a stable U.S. economy. Their culture is not the same as in the U.S. No other country will ever be able to replace U.S. consumption and our ability to drive the world economy. Its a very cultural phenomenon.

I don't see the Chinese doing this at this point. They will continue down the road the U.S. went down in the late twenties.