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Wednesday, January 12

Worst Trade Deficit. Ever.

Political Strategy - Politics, Strategies, Tactics, News and Opinion

If you know anything about the Permanent Income Hypothesis , it argues that people examine their lifetime incomes when making consumer decisions. A deficit today implies a surplus tomorrow. The US has already devalued its bond holdings 40% and nobody has taken notice. Could it be that people the world over do not want to buy American? Eventually, Osama or "the terrorists" will get blamed for the inevitable collapse of the US dollar and the economy.

More inflation? Higher rates?

Secretary Snow forgot to address these issues. More worrisome, Republicans will likely use this data as 'evidence' that high wages in the US are stifling consumer demand for domestic made goods in favor of cheaper goods from abroad (Read: Wal-Mart and China).

'Minimum wage,' they'll argue, 'is waging war on both our export viability and our demand for domestic goods by inflating the prices of goods made here at home. It would not make sense to raise it any time soon. Perhaps consideration of a cutback would be a wiser decision. Ha ha ha ha ha ...'

And then they will go after the unions, 'The unions are artificially bloating the hourly wages of US workers, increasing the cost of domestically produced goods and forcing our brave, patriotic corporations to outsource, and establish their headquarters offshore. They will have to rely on various developing nations to complete their workforce.'

And of course they will ignore the fact that a declining dollar resulting from the twin deficits (among other reasons) causes us to import inflation (A weaker dollar has less global purchasing power than a stronger dollar and thus, the relative price of goods imported are higher.)

Oh yeah, and mortgage applications dropped 5.8% last week after dropping 13.7% the week before.

To Summarize: Bush = Inflation, Higher interest rates, weaker dollar.

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