December 28, 2008

The Hole is So Deep

Lamenting the US trade deficit, the Baltimore Sun Editorial, "Trade Trouble" December 28, 2008, presents two paths for the US to get out of the deep hole we're in:

The U.S. must either get its economic house in order, by reducing debt-financed consumption and rebuilding savings, or learn to live with a decline in American buying power and its influence.

It is certain that we are heading for Option 2. Obama has promised a stimulus package as big, or bigger than, the $700 billion financial industry bailout that's been added to the US debt. Option 1 would spell a depression, so as cathartic and healthy as that might be in the long run, "There are no atheists in fox holes, and no Libertarians in charge of managing an economic crises."

You might look to the Plaza Accord of 1985 as a possible "third way." The Accord, signed by five major nations, agreed to depreciate the US dollar in relation to the Japanese yen and German Deutsche Mark by intervening in currency markets. The intent was to balance US trade deficits with Germany and Japan, but it didn't work. Prepare for less buying power and less influence.

Psssst... Do Something

Sources:

gdaeman_scroll_small

3 comments:

libhom said...

A decline in living standards would presumably result in a decline in debt based consumption. It's an awful way to go about it, though.

It's too bad our elected officials aren't smart enough to do the intelligent and humane things like repeal NAFTA and withdraw from the WTO. That would prevent a lot of economic pain.

GDAEman said...

Say it loud. Say it often. Thanks for saying it here.

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