icandoitdon

Path Dependency in the EU and U.S. Economies

mdmrjsds.....

nice explanation of inflation as a monetary phenomena. but there is much more to our economic problems than inflation/deflation and it is unprecedented in modern history.

the loss of confidence in the u.s. dollar has extraordinary implications, some of which we've seen as of late...specifically the price of oil. oil is no longer trading as a raw commodity. it is trading as a financial instrument. holding dollars is getting increasingly unattractive due to negative real interest rates, which seem to have become institutionalized under federal reserve policy, and the steady decline of our currency, which the federal reserve and treasury are virtually ignoring.

imagine this scenario:

china decides to let it's currency float against the dollar in order to help contain their inflation problem. but they become fed up with our fiscal/monetary mismangement and tell us that they will no longer purchase our treasury securities to fund our structural debt. they insist that we borrow and repay in their own currency to protect themselves from the our dysfunctional economic policies.

what is u.s. inflation going to look like under that scenario? under the current policies of artificially low interest rates and never ending budget and trade deficits it will go parabolic and utterly bring ruin the u.s. economy. for those who believe it cannot happen because the world "needs" the u.s. consumer, i beg to differ. it's just another version of the bogus "too big to fail" argument.

alternatively, what if the arab states decide to decouple from the dollar and price their oil in some other currency. we're lucky that oil is priced in dollars today...if it were priced in euros, all other things being equal, we'd all be walking.

we are a nation that relys on imports and we cannot afford to have a weak dollar. this "weak dollar helps exports" nonsense doesn't hold up. countries cannot devalue or borrow their way to prosperity and we're trying to do both.

current u.s. fiscal/monetary policy is dysfunctional and must be changed regardless of the short term pain it brings, which will be substantial.