Inflationomics

Passing the Baton from the United States to China

America grew to become a world superpower because it was an economic powerhouse. During the late 1800s and early 1900s, the United States was foremost in the development of numerous industries that the rest of the world hungered for: oil, steel, food, automobiles, airplanes, etc. It was representatives of these industries that countries around the world welcomed with open arms. Why? Because they wanted the jobs, income, wealth, and know-how that these people brought with them. They wanted the same economic prosperity that America had. They wanted to emulate the rich Americans.

Somewhere along the line, however, America turned on itself and began to throttle its own prosperity, its own businesses. It was a gradual process, a little at a time. Things like the Sherman Anti-trust Act, the income, estate and gift tax laws, National Labor Relations Act, laws restricting the right to work, and the build-up of the military and other government bureaucracies that sap the capital out of the economy and reduce Americans' efficiency and productivity. Look at California today for a microcosm of what the United States has become.

In time, the emphasis changed from innovation and productivity to regulating, controlling, national security and safety, which includes military adventurism in all parts of the world. Of course, the additional weight of government has taken its toll in other ways; i.e., through the consumption of capital, manipulated markets, and a reduced incentive to save and invest in the future (because of artificially lowered interest rates). It is becoming more difficult on a daily basis for the United States to dig itself out of the hole it's in. And when interest rates rise (because of inflation), the U.S. government will either default on its debts outright, or have to print the U.S. dollar out of existence. All the countries that hold the U.S. dollar as a reserve currency will curse the Fed and U.S. government for the loss of U.S. dollar purchasing power. And that's just part of the picture.

Today, the United States is known more for its exporting of soldiers, weapons, financial aid (that discourages local development and encourages dependence on the aid), debt, and inflation. At the same time, China is just starting to emerge as an economic powerhouse that many nations are courting and hoping to entice to invest in their underdeveloped land. China is helping Iran to develop its oil reserves and selling Iran gasoline in spite of international pressure to punish Iran for developing nuclear power. China and Brazil have entered into a Joint Action Plan to develop all aspects of their economies—everything from agriculture, mining, the information industry, space exploration, and education. China is Australia's largest trading partner. China wants iron ore, coal, liquefied natural gas, and uranium from Australia, while Australia imports clothing and various electronic items from China. Even Taiwan wants to expand its trade with China. And lastly, U.S. businesses want to set up shops in China. Why? The world wants some of the jobs, wealth, and know-how that China is developing. At the same time, the world is tiring of modern-day American exports; i.e., wars, weapons, U.S. dollars (IOUs), inflation, rules and regulations (IRS), and debt.

Wonder who will come out on top during the twenty-first century? Better teach your children and grandchildren Chinese!

Robert Jackson Smith

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