Wednesday, March 25, 2009

Obama's Economic Policies Alienate Rest of World

As much as Obama's domestic critics may be criticizing his policies for having a European socialist tone, it is becoming increasingly clear that the road that Mr. Obama is marching down seems so destructive that the rest of the world--socialist and communist alike--is rallying to criticize it, perhaps in the dim hopes of reversing it.

Obviously, China is not thrilled. China worries that the massive static reserves built up by panicked money-printing by the US Treasury, bailout-tossing by Congress, and Stimulating by the President, will lead to enormous inflation once US money velocity increases. Enormous inflation will gravely devalue the US dollar, giving China two serious problems: first, its large reserves of US bonds will be worthless. Second, it will become extremely difficult to export anything to the US if the dollar is weak against the yuan. There are people that would tell you this is a good thing, but these people would be wrong. In response to the spendthrift policies of the new administration, China has called for a "global super-currency" to replace the dodgy dollar. And before you give China a hard time for being simply selfish, note that the United Nations is making a report recommending that the entire world ditch the dollar, too.

Even Europe is fed up with US spending. EU (and Czech) President Topolanek called US spending a "road to hell," saying that bailouts and obsessive stimulating will nuke the world economy. Frankly, he's probably right. The Japanese are trying to quietly remind the United States about Japan's lost two decades, where they tried time and time again with no avail to stimulate their way out of recession and stagnancy.

Why is US spending bad for Europe? There are a few reasons. First, the state propping up broken financial companies with money that does not exist is a bold form of anti-competition. Europe is resisting the temptation to dump tons of money into most of its sectors, financial and auto-making sectors included. But European companies that were otherwise able to weather the storm will suffer if they are not able to compete with US companies that are receiving subsidies that are nearing 10% of the US GDP. It goes without saying that such propping-up decreases market growth opportunities for companies that managed to not drop the ball; it creates perverse incentives for American business executives (because currently, the way to make lots of money quick is to make your company look like it's broken and needy, rather than strong and efficient); it will lead to horrifying inflation down the line; and, of course, "buy American" policies sprinkled all over the stimulus plan will grossly damage developing nations and anyone that depends on exports, as well as generally shrink the world economy.

So, the President's (and Congress', to be fair) policies are doing very little to improve the US image abroad--and very little to help the world economy. As much as promises of free money now are keeping Obama's US constituency opiated and placated for now, those abroad that are not receiving these checks are much more cognisant of the terrible consequences of reckless spending and panicked economic intervention. When socialists and communists around the world are uniting to tell you to free your markets, perhaps it is time to consider that you're doing something wrong.
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