http://www.businesspundit.com/does-the-us-need-to-maintain-the-worlds-financial-confidence/ Entrepreneurship, Startup Companies and Business Philosophy Sat, 20 Mar 2010 01:45:14 +0000 http://wordpress.org/?v=2.9.2 hourly 1 http://www.businesspundit.com/does-the-us-need-to-maintain-the-worlds-financial-confidence/comment-page-1/#comment-12283 Alan McRae Mon, 02 Feb 2009 21:40:04 +0000 http://www.businesspundit.com/?p=8524#comment-12283 Inflation might not be the result of a dollar devaluation and more dollar money supply. In a globalized economy with severely underutilized industrial capacity, any successful attempt to raise prices might spur rapid increases in production (supply) that could force prices back downward. Countries like China & India have a lot of incentive to get workers & assembly lines working again, even if it means dumping production into the US. Plus, with mountains of credit debt being written off everywhere and gobs of US dollars sitting in foreign central banks, it is likely that our money supply is overly contracted right now. Since US dollars sitting abroad are wary of investing in the US again (thanks Wall Street!), there is little hope of increasing the velocity & supply of money here in the US other than printing (or borrowing) some more of it and placing it in the hands of those who will spend it (preferrably on US made goods, if there is such a thing). Hmm... if foreigners see that we will devalue & dilute our currency to re-start our economy, maybe some of them will feel the urgency to spend or invest it before it devalues significantly? Anyway, it seems that we are about to embark on a colossal experiment to re-start a first world economy during a severe deflationary/recession. (Since our current experiments with market globalization, global warming and post-industrial service economies are on such bad tracks at the moment, I see no particular reason to be optimistic on this one other than the vast improvement in administrations.) Inflation might not be the result of a dollar devaluation and more dollar money supply. In a globalized economy with severely underutilized industrial capacity, any successful attempt to raise prices might spur rapid increases in production (supply) that could force prices back downward. Countries like China & India have a lot of incentive to get workers & assembly lines working again, even if it means dumping production into the US. Plus, with mountains of credit debt being written off everywhere and gobs of US dollars sitting in foreign central banks, it is likely that our money supply is overly contracted right now. Since US dollars sitting abroad are wary of investing in the US again (thanks Wall Street!), there is little hope of increasing the velocity & supply of money here in the US other than printing (or borrowing) some more of it and placing it in the hands of those who will spend it (preferrably on US made goods, if there is such a thing). Hmm… if foreigners see that we will devalue & dilute our currency to re-start our economy, maybe some of them will feel the urgency to spend or invest it before it devalues significantly? Anyway, it seems that we are about to embark on a colossal experiment to re-start a first world economy during a severe deflationary/recession. (Since our current experiments with market globalization, global warming and post-industrial service economies are on such bad tracks at the moment, I see no particular reason to be optimistic on this one other than the vast improvement in administrations.)

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