Sunday, January 20, 2008

An economic stimulus won't save the dollar or the economy

Although it will surely help out people in need if it gets to them. The reason that it won't help out the dollar, well, first off the reason that the value of the dollar is important is that the U.S. economy has largely been propped up for the last decade or so on foreign investment. Foreign investment, in dollars as well as in assets, has helped to offset our enormous trade deficit, which saps money from the economy. Now that the dollar is in a tail spin investing in the dollar or in U.S. assets isn't attractive anymore, and people who have invested in U.S. assets are now seeing there hope of a higher return on their investment go up in flames. The housing bubble and the intertwined sub-prime loan market existed based on the idea that the economy could do no wrong and that the United States could still be able to pay its bills while behaving in whatever stupid way economically it wanted to. This was insured by foreign investment in dollars and in those tangible U.S. assets. But even people who tolerate U.S. excesses have limits.

If we want to solve the economic crisis which will surely get worse and worse as time goes by we have to look at what the origin of our economic instability is. To me, it's pretty obvious that our instability is caused by the undercutting of our manufacturing sector due to globalization and free trade, eliminating the base on which all economies function. We served as consumers without being manufacturers, beneficiaries of the Third World's largesse while not contributing much ourselves, except some software and copy righted media products. The only way to solve the problem is to build up our manufacturing base up again, which can only happen if we stop allowing our business to go to China and elsewhere. We need to first eliminate free trade and then seriously curtail corporate power, hopefully at the same time, in order that we can put people to work not in a house of cards called "the service industry" but in something that creates tangible value that can be used and exchanged.

Michigan in this, as in so many other cases, has unfortunately been ahead of the curve in experiencing the destruction that our policies have ultimately created.

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