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> -----Original Message-----
> From: Hugh Whinfrey [mailto:whinfrey@xxxxxxxx]
> Subject: Sv: DEFLATION CRISIS... myth exposed
>
> I disagree here on a couple of points.
>
> 1) It is a 'global economy' these days, the US is nowhere near
> the 'closed system' it was in the '30s - where it seems to me
> the analogy is being drawn from here.
>
Are you sure? Foreign trade represents about 13% of US GNP. Trade with
Asia represents about 3%. Another interesting fact: At the turn of the
century, countries on average held approximately 10% of their investments in
foreign holdings. Guess what that figure is today? That's right, about
10%. In both cases the absolute numbers have soared, but in percentage
terms, they've barely budged.
> 2) "Oil and other commodities" have financial dynamics that
> are strongly influenced by developments outside any narrow
> definition of the 'US economy'. Oil has actually become more
> expensive in a number of countries lately in terms of the
> local currency.
Absolutely, couldn't have said it better myself. In fact, I think I did in
my "Asia Crisis" message... :)
> The point here is that the effects on the US economy
> from the external 'supply' side cannot be considered disembodied
> from the 'demand' side from the same foreign sources.
>
Yes, commodity prices are dropping in the US both because the inherent
economic demand for such goods in Asia has decreased, and because for Asia
the prices have actually increased. See "Asia Crisis... myth exposed" for
further details.
> >It's what's happening to prices in the
> >economy as a whole that is important.
>
> Yes and no. I'll agree with that literally, but now copy and
> paste the idea to Indonesia, Thailand, Russia, China, etc.
> and draw little arrows between them and the US.
> I see prices having gone up for a lot of the inhabitants of the
> planet, which doesn't translate into consumer spending,
> among other effects.
>
Yes, but I'm having trouble seeing what this has to do with deflation in the
US, other than it decreases demand for commodities (and US goods), which we
agree on.
> <snip>
>
> >Now if that's the case, all the government has to do to eliminate
> >deflation is PRINT MORE DOLLARS AND SPEND
> >THEM.
>
> The effectiveness of such an approach is intertwined with the
> degree of the 'closed' nature of the economic system involved.
> Such a measure is highly likely to see countermeasures abroad
> that would neutralize its effectiveness to some degree that would
> not be without significance.
Hugh, why would foreign countries take "countermeasures" against a
unilateral US action that only helps them? Asian nations are currently
BEGGING Robert Rubin to intervene and prop up the Yen (which helps Asia, but
only in the short run). Printing dollars is EVEN BETTER than currency
intervention for them, because even though the idea is to stimulate domestic
economic activity, some of the dollars will flow out of the country to
purchase foreign goods. This increases economic activity in their country,
raises the value of their currency, lowers inflation, lowers their debt
payments (which are mostly denominated in dollars) and makes commodities
less expensive for their manufacturers. Trust me, there would be no
countermeasures, except maybe in North Korea, where economic suicide appears
to be the goal...
> The point here is that the US policy
> makers are in less control of the global economy than they were
> of the US economy in the ´30s. Although the IMF does have its
> 'links' with the US Treasury, that may to some extent be balanced
> by the Chinese and Japanese holdings of US Govt. bonds.
>
Once again, I just don't understand what this has to do with US deflation.
We could debate how much "control" the US has over the global economy all
day long, but it just doesn't matter. The only possible way this is an
issue is if the US has a secret agreement with the IMF I'm not aware of that
allows them to seize and spirit away any increases in the US money supply
(which were intended to be injected into the US economy)! No black
helicopters on this issue. :)
> If it's going to be done regardless, then I say print it and spend it
> on free college educations for all Americans, on the primary and
> seconday schools, and, what the heck, universal health care. Might
> as well make it an investment in the country. Beats a bunch of
> oil sloshing around in some caves or even a war for that matter.
>
Sounds good to me! I could've used it in my college days. The problem is
the idea is to try to stimulate the sectors of the economy that are
currently in a deflationary cycle. Unfortunately, higher education is still
experiencing price INFLATION, so we'd only be adding fuel to the fire. But
how about free gasoline for college students on the way to the hospital to
visit relatives?
Either way, thanks for the response.
Bruce
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