huangjin

How to Avoid a Recession: Cut Down on Foreign Oil

Inflation is never a good thing and relative currency values are not the problem. The long-run cost advantages and disadvantages will always reassert themselves. Lowering the dollar doesn't actually make America more competitive, it just takes money away from American consumers and gives it to foreign consumers. American prices are lower for awhile, but manufacturers will pay higher costs for raw materials and eventually the prices in America will increase, so the net effect in terms of trade will be zero. However, the entire nation will be poorer because it suffered economic disruption and inflation.

A trade deficit is not debt. It makes no more sense to say you or I have a trade deficit with the grocery store than to say America has a trade deficit with China or another nation. What matters is real debt, which comes from spending more than you earn. Easy money is what created the debt problem, therefore easy money cannot solve the debt problem.

Dollars cannot leave the American economy. The U.S. dollar only has value because it can buy things in America. In order for it to have no value and leave the economy, foreigners would ahve to want them for their artistic value and hang them on the wall. I don't think foreigners get dollars for this reason, but rather to buy things from America, like Treasuries. When they do this, dollars re-enter the U.S. economy.

You are right that increasing domestic oil production, which would be easy to do if Congress would allow it, will help the economy. But it might increase our trade deficit, because the new wealth from oil production will be used to buy flat screen tvs from Korea.