Tuesday, April 14, 2009

Maybe Bernanke Is Right?

Today, I watched a speech by Ben Bernanke discussing the cause of the current Great Recession. For several years, he has been warning about the “savings glut”, i.e., those nations like China who run huge cash surpluses and lend the cash back to the consuming nations, effectively pushing up debt levels in our national economy. I’ve always felt like that was blaming somebody else for the mess we created. Bernanke gently hammered that point again today, and I’m starting to believe him. Regardless, it is one more reason we should become an exporting-oriented economy, which benefits from a weaker dollar.

Friday, April 10, 2009

Back To The Future

Yesterday we learned the U.S. trade deficit decreased unexpectedly. The surprise was not that imports fell for the seventh consecutive month, but that exports actually rose for the first time in six months, despite the strong dollar. Our trade deficit in 2006 was $681 billion compared with an estimate of only $373 billion this year. Nice trendline, indeed!

Early stage economies tend to grow by being export oriented. Mature economies tend to grow by being consumption oriented. The rest of the world has long envied our consumption based economy, which consumed their products. They were only too happy to continue lending us money to buy their goods. But, the world has changed . . .

To change our consumption orientation and again become an export economy, we need a cheaper dollar, which is the inevitable result of inflation. In other words, maybe we actually need inflation!