Say Anything Blog

My guess is that Bernanke and Paulson kowtowed to America’s biggest supplier and largest lender, and pleaded for them to keep the goods and credit flowing.  Although it didn’t take place in Macy’s window, the affair may qualify as the “mother of all butt kissings.”

The last thing that Paulson and Bernanke want is for the world to recognize the financial precipice upon which the U.S. economy now teeters, and China’s unique ability to push it over the edge.

It is absurd to imagine that they would actually demand that China revalue its currency.  Think about what such a request actually implies.  It means that Americans would pay higher prices for the goods they buy and higher interest rates on the money they borrow.  Does anyone really believe that American politicians are in China to demand higher prices and higher interest rates for American consumers?…

Think about today’s unchanged reading on November CPI, or Wednesday’s 1% gain in November retail sales.  What would happen to the CPI and retail sales if both prices and interest rates surged?  The biggest factor boosting retail sales was the 6.5% gain in consumer electronics.  Does anyone want to guess where most of that stuff was made, or how it was paid for?  How many big screen TVs could Americans “afford” to buy on credit if both prices and interest rates went up by 25% or more?  As usual, the media interpreted the recent retail sales figures as evidence of a strengthening U.S. economy.  Nothing could be further from the truth.  Such sales merely reflect the strength of the economies that produced the goods in the first place, not the economy of the nation that went deeper into debt to consume them.

Ironically, during the very week that Paulson and Bernanke were trying to convince the Chinese to keep buying dollars, Alan Greenspan was making a good case why the rest of us should sell.  The former Fed chairman, adding his voice to that of his predecessor Paul Volcker, predicted that the dollar’s recent slide would continue for years to come and cautioned that it would be foolish for anyone to keep all of their money in just one currency. 

From my perspective it would be foolish for anyone to keep any money in U.S. dollars.  If the Chinese come to their senses and pull all that American wool out of their eyes, then look out below.