[Rhodes22-list] Role reversals

[DCLewis1 at aol.com]

John,
 
The story is on the front page of Sats WSJ.  You might find a copy and  read 
it yourself, that would eliminate my biases.  From my perspective, the  WSJ is 
an enthusiastic apologists for anything the Bush administration does so  you 
have to consciously derate what they say and try to be aware of what’s  really 
going on.  
 
As I recall the devaluation was all about the trade deficit.  I  don’t think 
they called out China specifically, but if you break it down by  country the 
big imbalance is with China.  The Administration’s approach is  pretty 
sophomoric, if we cut the value of the $ then the cost of our goods  to others will be 
less, they’ll buy more, thus mitigating the deficit.
 
To those of us that graduated from the third grade there are a couple of  
obvious problems: First, the big problem is with developing countries,  
specifically China.  If the rimimbi is pegged to our $, and we let our  currency 
devalue, their currency automatically devalues and all you really  have is a 
deflationary cycle.  You can't devalue your way out of the  problem as long as they 
maintain their peg.  This is a very likely outcome  since their industries 
absolutely have to have our demand.  Second, can you  really devalue enough to 
make a difference? With the US you are dealing with  $15/hr workers, in the 
developing world (China, Malaysia, India) you’re dealing  with  50 cents/hr, so 
even after any “reasonable” devaluation there is  still a huge disconnect that 
is only going to be redressed when American workers  move into mud huts - you 
can see this dynamic being played out at  Delphi/GM.
 
The sophomore economists in the administration have yet to sort out the  
above.  Actually there is a straightforward solution to the problem called  
tariffs, but tariffs are politically incorrect. It's important to  understand that 
"free trade" is a theology not a thought process, and a central  tenet of free 
trade is that tariffs are bad - it's part of the creed - so forget  tariffs.
 
In the meantime, in the real world the real story is that the dollar has  
already devalued markedly as a consequence of historically huge trade and  
government deficits that are passively accepted by the “conservative” Bush  
administration.  To be explicit, at the end of the Clinton administration  you could 
buy 1.3 Euros for a dollar, now you get 69 cents for a Euro - that’s a  huge 
shift and it’s getting worse (and I think it’s the major contributing  factor 
to $3/gal gas).    Without a huge shift in the way this  country and this 
government does business, devaluation is going to continue and  get worse.  This 
is a big problem, nations have failed because of their  money supply was 
debased (e.g. Germany post WWI).
 
So what’s really going on is that the "conservative" Administration  has 
decided to accept the current situation because they don’t have  the guts to try 
to change or fix it, and because they are largely  responsible for it. They are 
going to let the dollar fall against other  currencies and gold and pronounce 
it "policy".  All your assets that you've  worked and saved for are worth 
less, the economic value of your work,  and every other Americans work, is worth 
less when measured against an  external standard.  Don't you feel good? 
 
If you do feel good about it standby, the consequence of devaluation is  
inflation, you're going to love that to.
 
And it's all a consequence of "conservatives" (Reagan, Bush1 and Bush2)  
extraordinary abuse of debt to finance government operations - none of them can  
spell "balanced budget" -and a theological commitment to "free trade"  (WalMart 
and every other importer loves these guys).  
 
Which comes back to the Role Reversal concept that Robert introduced.   
Incredible as it sounds, the quantitative record unambiguously shows that  over the 
past 100 years, and absolutely since Reagan,  the Democrats  are much more 
responsible when it comes to running the economy and the  government than the 
"conservative" Republicans - Jerry Fallwell  notwithstanding.
 
Dave