George Sarant

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FUNNY MONEY

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Every day the dollar continues to decline against other currencies. There are some who think this is good because it increases exports, but there are downsides as well. The government is pursuing a weak dollar strategy to the long-term detriment of the country as well as the rest of the world. The decline is caused by increasing debt and a balance of payments deficit. This is before the government goes further in the red with health care and other spending schemes that will only exacerbate the situation.

A weak dollar is not in anyone’s interest. First it means a decline in living standards relative to the rest of the world, second imports and travel become more costly, third it generates currency instability throughout the world, and fourth it makes each one of us lose wealth because our assets and income are worth less. This is what usually happens with high inflation, which we don’t have yet, but is almost inevitable down the road if deficits continue to pile up.

This is the classic state solution to debt- inflate the currency so that dollar debt holdings are worth less and easier to pay off. This does not just screw the Chinese who are holding massive amounts of dollar debt, but any citizen who has savings or lives on a fixed income. This is beneath the dignity of the United States, but under the present course it will happen. This will end the dollar’s reign as the world’s reserve currency because its stability cannot be counted on. We will lose many of the advantages that come with reserve status, and it will represent an overall decline in American strength and influence.

A strong, stable dollar is in everyone’s interests. We need a reliable and predictable standard of value that we can trust in. Unfortunately the government has an ongoing interest in inflating currency because it is easier than the pain involved in cutting spending and reducing debt. But once the world loses faith in the dollar the government will be reduced to the constraints usually born by third world countries. So it is that the President of the United States this week was the recipient of humiliating lectures on fiscal responsibility from Asian countries.

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Written by georgesarant

November 18, 2009 at 12:09 AM

Posted in economy, government, international

Tagged with ,

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