Talking about The next crisis has already begunPosted: June 1, 2009
Bill Fleckenstein writes about the spiral of money printing and a weakening dollar that we are entering. Every printed bill has a value in comparison to global currencies. When you increase the number of bills without increasing the wealth pool that the valuation is based on, then it is obvious that the value per dollar bill will go down. Majority of the goods that we consume in the US are foreign made. With a weakening dollar there will be pressure for the price of those imported goods to go up. In many cases the producing countries will eat up loss in margin due to the shere volume and general international competition for those lucrative supply contracts, but in any case we will start to see interest rates and inflation rise.
As much as I personally hate the weak dollar it has its up side. When the dollar was its weakest (1.5 against the euro) large corporations like IBM where making a killing as a large chunk of their business was in foreign currencies. Also a lot of USA’s foreign dept is in dollars. The weaker the dollar the less the dept is worth… now I can imagine that China would not like this very much. With a weak dollar US made products start to be interesting accross the world. Disney World starts looking like a fairly inexpensive holiday destination for British tourists.
Ultimately the dollar must strengthen, otherwise it’s dominance as the main global currency will be questioned again. I personally agree that now is the time to print money to stimulate and stabilize. I believe the stimulus should be invested in major national improvements that will be an investment into future generations… quite frankly we owe them that. Any major project will create jobs. The Eisenhover interstate network, the Apollo program, the Manhattan project, Hoover Dam, etc.
However, there will come a day when we need to start paying back. Some of the banks are already starting to do that. GM and Chrysler must do it was well. AIG needs to turn a profit for the tax payer. Freddie and Fannie need to pay back as well. This will mean that those institutions will not be high divident payers for a long time as majority of any future profits should go to paying back the tax payer. Another strategy is to pass on any dividents making the stock very attractive raising its market value and slowly diluting the government ownership recovering the bailouts… with interest.
This is just one part of the equation… health care… the cost of multiple wars… retirement of the baby boomers and the massive strutural unemployment. It is intesrting to see how the administration will handle all these issues that define not just this recession, but a whole decade.