Where Do I Even Begin?

Son,

It's times like this when I wish I had spent more time teaching you economics rather than taking you to soccer practice. Where do I even begin?

Stanford Kids Versus The Double Dip

The Stanford Kids were right. If only Obama had done what they suggested--leave well enough alone. But no, Obama did exactly what they told him not to do (remember a similar situation in your childhood?) Obama, Pelosi and Reid, the "Unholy Trinity, "couldn't resist their leftist tendencies to get the government involved to the tune of $ 787 billion. What has this money been spent on? Wealth transfer whereby the Unholy Trinity gave "tax refunds" to people who never paid taxes, and such "necessary" infrastructure projects as the high speed train between Disneyland and Las Vegas. While Obama is connecting the Mouseketeers with the Racketeers, China is connecting cities like Shanghai and Beijing, and Wuhan and Guangzhou, with high speed trains, increasing the productivity of tens of millions of people in the process. And then Americans wonder why we have to depend upon the Chinese to buy our bonds!

Combined with the tremendous amount of monetary stimulus that has been injected into the system, the Unholy Trinity's heavy fiscal stimulus means that all bets are off as far as the double dip--the Stanford Kids are off the hook. If this leads to inflation, as many believe, and the Fed has to tighten, interest rates will go up, business expansion will be choked off, and we will re-enter the recession---hence the double dip. If this happens, Obama and the Dems's are dead and out of commission for a long time to come.

Deflation is Good? Really?

Despite your argument to the contrary, deflation is not good. In fact, most economists will say that deflation is as bad, and perhaps worse, than inflation. Everyone loses with deflation. I0% deflation, such as we had during the Depression, means that the values of all assets are falling across the board by that amount, wages are falling, prices are falling and there is no incentive for anyone to invest or do business. Most economists believe that price stability, plus modest inflation is the ideal state. This is what Obama has the luxury of working with for the moment. He's working very hard to get us into the stagflation (high inflation with no growth) scenario that Carter managed to work us into. Since deflation is bad, the Depression had a Misery Index of 33, Reagan had to deal with 23, and Obama had to deal with a recession that was already over.

Why Don't The Chinese Revalue Their Currency?

It's pretty simple. One of the key reasons is that they don't dare to because the value of the dollar under Obama's tax and spend policy has been dropping like a rock. Have you been to Europe lately? The Chinese own in excess of $1 trillion of dollar denominated assets. If they let the yuan appreciate by 10 %, they lose a cool $100 billion right off the bat, and then stand to lose even more if the dollar continues to drop. Even in Obama's world, $100 billion is a lot of money. When sound fiscal and monetary policies take hold in Washington (i.e. in November when the dem's are tossed out), the dollar will strengthen, the Chinese will feel free to de-peg their currency from the dollar, and the yuan will appreciate.

That's enough economics for now---off to soccer practice!

Dad