The swing set
Ah, so the 600 billion dollar -- Krugman prices it out at 800 billion - tax cut has been passed. The price tag in the headlines is, as everybody knows, a joke. We are in an extremely bizarre time. As the deficit piles up, we get a tax cut that is thinly justified as an attempt to bootstrap the market. Yep, get those equities flyin' again.
At the same time, the Bush administration is gambling with the dollar. This is, perhaps, all they can really do -- the brain-dead people in Bush's Treasury have no other options. So the race is on to press the dollar downward.
Now, LI is a simple country hayseed -- shucks, we just tried to buy the Brooklyn bridge from a passin' stranger yesterday. Yet even we noticed a curious disparity between the two strategies. Like, ain't it true, like they teach in the one room schoolhouse in the Hollow, that when you devalue the dollar, money flows to assets tied to other currencies? And don't that promote a flow out of US Markets and into other markets? And ain't that flow going to accelerate, as the wealthy, who benefit most from the tax cuts, seek a higher ROI than is going to be given by investing in dollar based instruments?
Of course, LI knows we don't have the rocket science of the fiscal system down, like our hero president -- well known fighter pilot and all -- but gee, won't the flight from dollars accelerate as the deficit grows, forcing interest rates upward, and shutting down business borrowing -- thus shuttin' down plant and other investment -- and thus upping cost cutting measures, such as shedding jobs?
So, what is happening here? A conservative Republican government is basically stoking the fires of inflation, in the hopes that we will get the system of production moving -- thus taxing the poor, basically, and the middle class, who are already facing the continuing inflation in housing, education and medicine -- and all of this supposedly in the era of "limited" government. Of course, since no Republican really has the guts to limit government -- they are throwing money hand over fist at Defense, and they absent mindedly voted in various medical benefits last year that add 300 billion dollars to that -- we are faced with pressures all along the financial dams.
Krugman is worried about a deflationary spiral. We personally think that this underestimates the integration of the American economy on other economies. Unlike Japan, we outsourced our manufacturing base long ago. Having depended for a long time on the absurdly low wages of foreign workers to underwrite our service sector economy, we think we are going to feel the effects of that soon.
Incompetent in war, disastrous in peace -- our administration. You gotta love em!