The chart above illustrates the monetizing by the Fed of US Treasury debt, a trend that cannot continue indefinitely without serious inflationary consequences. This piece by Spengler asserts that that the US has replaced Japan as the home of the carry trade, and that the profligate spending, ultra-low interest rates, and depreciation of the dollar do not add up to an effective stimulus plan over the intermediate term.

In general we agree with Spengler that the Obama deficits are unfinanceable, and that a wise economic course for the US would entail becoming more like China: growing the export sector substantially while increasing domestic savings. These goals seem achievable to us, given a clear vision and proper leadership in the public and private sectors.

Because of the structural imbalances that have grown over the last decade or two, the continued exporting of American debt is a non-starter, and will result in the US dollar’s ceasing to be the world’s principal reserve currency. This would be a fatal blow to America controlling its own destiny in the world (as our shockingly irresponsible energy policy will also come to be seen). Alas, that seems to be the way we’re heading at the moment.

This entry was posted on Friday, October 9th, 2009 at 2:27 am and is filed under business, China, Democrats, General, Republicans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.