Tuesday, November 16, 2010

World economy gone awry

We have some pretty big problems happening right now in the world economy. There are 3 primary engines, and all three are sputtering. This post is just about one economic engine - China. More on the other two, later.

The primary sputtering engine is China. Their problem is inflation. China just reported annual inflation running at over 4%, and climbing rapidly. The worse part of it is food inflation. There are hundreds of millions of people in China who live in poverty. These poor folks simply can't afford climbing prices, especially for food. The fear is that inflation will lead to social unrest, and a massive mess will ensue. Can you imagine hundreds of millions of people marching on China's capital to overthrow their government? The leaders in China live with this potential nightmare. Its in the forefront of their mind, always.

If China was acting in the best interest of the entire world economy, they would focus on their inflation by adjusting the exchange rate of the Yuan. If they allowed the Yuan to strengthen, that would choke off some export activity, allow for more slack in their economy, and relieve the pressures causing the rising prices. That tactic would help the rest of the world too. All the rest of us would stop choking on cheap Chinese products. And we'd be able to sell more goods into China. But, the Chinese leaders are stubborn. Instead, they are raising their interest rates. Normally, that would enable their currency to also strengthen. But, since capital flows into their country are restrictive, their currency will likely not budge. Not much good will come of their efforts.

It gets even worse. Not only are the Chinese not operating in a manner that would enlarge the economic pie for the entire world, they are trying to blame Ben Bernanke and our Federal Reserve Board's quantitative easing actions for causing their problems. Well, duh. Ben is doing what needs to be done. America needs to force China to act in the best interests of the entire world. We need to force China to allow their Yuan to strengthen. And Ben knows that forcing inflation into the Chinese economy will eventually break their backs and force action on the Yuan. He won't admit it. But he knows it. And he knows his actions may well lead to actions on the Yuan. No one else has been successful in jawboning China into taking action on the Yuan. And Ben is our final and best hope on this front.

So, what does our Congress think about all this? Those idiots, including our US Senator Richard Burr, stand with the Chinese. They are all attacking Ben. They are all standing around and blaming Ben for everything going awry right now. Give it time. Ben will be right. Congress will be choking on crow. The bottom line though, our US Senator is an idiot. Our Congress is full of idiots. Elect an idiot, and you get an idiotic economy. But Ben is going to rescue us from the idiots.

North Carolina deserves better than Republican Senator Richard Burr.

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