"The rebuilt American economy must be more export-oriented and less consumption-oriented, more environmentally oriented and less fossil-energy-oriented, more bio- and software-engineering-oriented and less financial-engineering-oriented, more middle-class-oriented and less oriented to income growth that disproportionately favors a very small share of the population."This, in my opinion, is an insight into all that Obama and his people have been doing since he took office. Simply speaking, I think that Larry Summers and Barack Obama want to see the destruction of the U.S. dollar as a means to the goals that he has expressed in the quote above.
Ever since Obama took office, he has massively increased the debt load and the deficits. That, in turn, has weakened the American dollar. When Obama took office you could exchange 1.32 dollars for one Eurodollar. Today, you will need to cough up 1.45 dollars for that same benchmark of European currency. That's a decline in the value of the dollar by 22%. The exchange rate with some other currencies is even worse.
Whenever the dollar is weakened, our products become cheaper to buy in other countries. Likewise, products being imported into America become more expensive for Americans to buy. We are already seeing this in oil prices. Despite the worldwide usage decline and the complete overstock of this commodity, oil prices have still been rising. Yesterday, it hit $75 a barrel before falling back. Most oil is traded in dollars. We are the world's leader in oil consumption. We import more than we domestically produce; and, therefore, the price will rise with any fall in the dollar. In effect, the weakened dollar is punishing us all at the gas pumps.
As the dollar continues to weaken, domestic products become cheaper and more attractive to buy than similar imported products. This could force manufacturers to establish or, just maybe, re-establish manufacturing operations in this country in order to regain price competitiveness. Subsequently, our exports could expand. I believe that is what Summers means in his comment that "a rebuilt American economy" must be "more export oriented."
The downside to the Summers philosophy is that America imports more than it produces domestically. In most cases, this is because many items are not even made here anymore. This is certainly the case for consumer electronics, most textiles, ceramics, etc. When Summers says "less consumption-oriented", he's not kidding. As the dollar falls, all those imported flat screen TV's will cost a lot more to buy because of it. Further, as the unemployment rate rises and the value of homes decreases, fear will cause consumers to hold onto cash and pay off their bills. People will buy less and save more money because they will have learned the value of saving from the hardships of this recession; just as the survivor's of the Great Depression did in and after the 1930's.
Mr. Summers is also right when it comes to his statement that American society will become "more environmentally oriented and less fossil-energy-oriented". As noted previously, the fall in the U.S. dollar will force world oil prices up and that, will, as a consequence, force up the price of gasoline. This, then, will make alternative and domestic sources of energy more competitive with fossil fuels; but, also, it will make every American's energy costs exceedingly more expensive. Because of the falling dollar and high imported oil prices, this Administration will be able to force-fit America into wind and solar by artificially pushing the cost of fossil fuels up.
The comment of "more bio- and software-engineering-oriented and less financial-engineering-oriented" is really referring to more control over Wall Street and our banking system. The mindset of this Obama-government is to completely control banking and completely stifle any more of those radical "wealth building" activities of Wall Street. We can see this with Obama's tactic of giving bailout money to Wall Street and the banks so he can absolutely control them; both in terms of business operations and in terms of salaries.
Our leadership in "bio- and software-engineering" might not be as doable as Summers thinks. We are losing ground in both these areas to countries who are getting educationally stronger than we are. However, it appears from the context of these words that Federal money will be funneled into these activities. We have already seen that in software-engineering due to Obama's push for the complete national database of health records. His funding and relaxed rules on Stem Cell research will certainly give a boost to bio-engineering.
Summer's last comment --- "more middle-class-oriented and less oriented to income growth that disproportionately favors a very small share of the population" --- is really key to Obama's populist and socialist attitude towards the rich. That statement says it all about his plans to kill off the wealthy through taxing and, ultimately, the redistribution of the nation's wealth. In effect, from that statement alone, it is the intent of this Administration to eliminate entrepreneurship in America by punishing the more creative wealth builders and giving that money to the less instrumental members of our economy. The downside is that unemployment will rise because we won't have the funds available for the building of new business opportunities and current business expansion.
I personally find Mr. Summers comments to be anti-capitalistic and naively socialistic. It is obvious that the Obama Administration seems to falsely think that a weak dollar is the key to rebuilding America. I say falsely because the big drawback of the Summers/Obama philosophy for a weakening dollar is the fact that our country will be so in debt that it will make us more and more dependent on the foreign countries that hold all that debt. For years we have been emasculated in dealing with Arab oil-producers because we are so dependent on their oil. In the future, we will be similarly emasculated in dealing with countries that hold our debt; like China. China, today, is increasingly trying to be the world's superpower and we are becoming more and more subservient to them. Not good!
Additionally, as the dollar falls, so does the value of our bonds (our debt). This, then, poses a real problem for China and all those other countries that we need, debt-wise, to bankroll all of our unfunded spending. But, if anyone buys our debt and the value of the dollar falls faster than the interest rate that is being paid on it, they will lose money on their investment. To overcome this problem, the buyer of our debt has only two choices: (1) stop buying, completely or (2) demand higher and higher interest rates.
If China and other countries continue to buy our debt, but at higher rates, it will mean that our national debt will be much more costly to us than it had been previously. We will have to issue more and more less effective debt instruments in order to cover our deficits. The interest that we will pay will skyrocket. Like the Carter years, the interest rates to buy a house will be double digits; probably above 20 percent. To buy a car may cost you interest of 15% or higher.
If the value of the dollar falls too low and China and other countries completely stop buying our bonds, we will be in a world of hurt. At that point, our dollar will literally collapse because all of the bonds will fall to junk status. Inflation will be uncontrolled. In fact, our economy could be very similar to many of history's "Banana Republics" that have all fallen by the wayside.
Debasing the dollar is OK if you don't have as much debt as the United States already has. But, we are increasingly looking like a spender who is quickly becoming the "up to their eyeballs in debt" debtor. Typically, that kind of person eventually winds up in bankruptcy court. There is no bankruptcy court for a country; just complete and utter collapse.
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