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Strategies & Market Trends : Asia Forum
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To: Jack Clarke who wrote (422)1/4/1998 10:27:00 AM
From: tekgk  Read Replies (1) of 9980
 
>> are we the one-eyed country among the blind?

I love it, actually it's true IMHO. Bureaucrats everywhere have figured out the power of running a deficit and paying for it by depreciating the currency (inceasing the supply faster than the growth of the underlying economy). It is a hidden tax that allows the bureaucracy to grow almost without limits and to create a dependency on the bureaucracy by a large part of the population, thus ensuring their personal wellfare and power. As long as it is done slowly there is not much protest on the part of the citizens. Here in the US, the dollar has been depreciated by 92% since the second world war and other than a brief period in the 70's no one has made much of a fuss. Actually people mostly feel better under inflation conditions because they feel richer because their assets have gone up in nominal terms.

>> How many of these is the US guilty of now, in your opinion?

We are only guilty of a few. 1) The large budget deficit, (not the announced deficit but the actual growth in debt by the government) the current account and trade deficits will eventually become a problem that causes our currency to fall relative to other currencies. The United States is a very rich country, so other countries are happy to lend us money for a very long time (decades so far). When does the party end? When other countries have more important things to do with their money. Asia has internal problems and Europe will soon be defending the Euro -g-. 2) Excessive growth of money supply. The annualized rate for the past 3 weeks or so is 18%. The annual rate is around 10% and climbing. (I look at M3 because everything can be turned into cash instantly in today's markets). The economy is growing at a 2-3% rate. So far it hasn't mattered because we export most of our problem. However, when number 1 above reverses then so will the money supply problem.

I am not fond of the current administration, but they aren't bad compared with the rest of the world's leadership, so most of the other ways of destroying the currency in the previous message don't matter all that much or don't apply at the moment.
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