Americans may be tempted to take John Connally’s view that none of this is our problem, especially when U.S. stocks are rising and Fed Chairman Ben Bernanke says there’s nothing to worry about.
But that’s a mistake. Asset bubbles that build and burst in Asia will eventually cause trouble here, much as they did in the Asian monetary crisis of 1997. And if Chinese leaders conclude the U.S. is deliberately squeezing their currency as a way to devalue away America’s rising debt burden, they will find ways to return the offense””perhaps on Iran, or North Korea.
The larger mistake is to believe that any nation can devalue its way to prosperity. As other currencies rise in value and force productivity gains, the U.S. economy will become relatively less efficient. American living standards will decline, as those in Asia rise. This is the real lesson of the Connally-Nixon devaluations of the 1970s and the inflation that followed.
I could not agree more. Unfortunately, because our economy is so dependent upon trade with China and Chinese investment in our Treasuries, we have no bargaining ability with that nation, the next time a geopolitical issue confronts us. Also, the hyperinflation that will result in the next few years as a result of the enormous debt foisted upon us by the current administration will erode the American middle class. Without a strong middle class, and with a growing class of citizens expecting entitlements, our nation will be prey to every demigogue that surfaces.
Don’t forget that the prior administration doubled the national debt in 8 years and significantly contributed to the cost of the economic meltdown we are now obliged to pay. It’s not entirely the fault of the “current administration”.
And the Wall Street Banks continue to contribute to the problem.