Inflation: America 's Greatest Export

[Crewleader]

Feb 22, 2008 - 01:48 PM

By: Peter_Schiff

Economics


Unfortunately one of the few things still made in America is inflation. In fact, it now ranks as our greatest export.

A significant by-product of the current global economic system, wherein Americans spend money they do not earn to buy foreign products that they do not make, is that trillions of dollars are now parked in foreign banks just looking for somewhere to go.



In a healthy trade relationship, a nation pays for its imports with equal exports that result from real productivity that pumps up demand. In contrast, the current U.S. import boom has been created by the artificial demand of inflation, in which increased money supply has put more dollars in the hands of U.S. consumers. Normally, such growth in money supply would result in more substantial increases in domestic consumer prices. However for a number of reasons, the United States has been able to partially dodge this bullet. In short, we have exported our inflation abroad.

Our foreign creditors basically have two choices as how to dispose of their excess dollars. They can use them to buy U.S. financial assets, such as bonds, stocks or real estate, or they can exchange them for other currencies or commodities, such as gold or oil. If they choose the former, foreign central banks are off the hook, as those dollars find their way back to the U.S. economy without any additional money creation. However, as foreigners are increasingly choosing the latter, foreign central banks have been “forced” to print money like it's going out of style.

In years past, foreign investors were happy to hold strong U.S. dollars, which they either saved as a store of value, or used to purchase mighty Wall Street stocks and bonds. However, when the dollar began its epic swan dive, and U.S. investments began to grossly underperform non-U.S. alternatives, private investors dumped their dollars en masse by exchanging them for local currencies. The unwanted dollars then became the property and problem of foreign central banks.

http://www.marketoracle.co.uk/Article3783.html

[bhikkhu]

1. And so inflation is a powerful tool of foreign policy

As much as personal debt is a problem of US residents, it is a bigger problem for the banks and governments of Asia and Europe.

Economics gives me a headache, but it is hard to imagine a scenario where the US is not forced to "inflate" its way out of decades of fiscal irresponsibility and a historically unprecedented mountain of of debt.