Apparently, Secretary Geithner is going to China this weekend. In part, he’s going to be there to tell China to stop exporting so much.
Which, of course, raises a serious question. If China stops exporting (as much) to the US, where will they get the dollars to lend our government so that we can repair our crumbling roads and bridges?
The rather obvious effect: we’re going to have to get the money some other way.
For example, the Fed could just print the money and buy the Treasuries.
Some other interesting points:
(1) Peter Schiff predicted “decoupling”. I confess that I doubted this idea. Then, it started happening… and now the US’s Sec. of the Treasury is explicitly asking for it.
(2) As someone who is irrationally optimistic, I have held the belief that Bernanke wouldn’t allow a hyperinflation. That is, he would actually reverse course when inflation looked like it would be a problem. Given this new evidence, it’s obvious that Mark Thornton and Jeff Tucker (and others) are dead right. Bernanke’s choice isn’t just between hyperinflation and “somewhat higher” interest rates. It’s going to be between hyperinflation and soaring interest rates. It’s hard to believe that he’ll tolerate soaring interest rates – even if he would have tolerated “somewhat higher” rates.
Which really leaves the Fed with one halfway decent option. Increase reserve requirements.
But I’m finding it more difficult to be irrationally optimistic about that actually occurring…
