Dollar Warning From Asia

News is everywhere today regarding Obama's meeting with the Asians.

It appears that Obama may have gotten an earful behind closed doors before they all emerged smiling and shakings hands for the photo opp.

An earful on what?...you may ask.

On our pathetic attempt to restart our economy by printing copious amounts of paper money. The world is NOT HAPPY WITH U.S. LEADERSHIP ON THIS ISSUE.

Let me explain briefly what is happening. Currently the U.S. is artificially keeping interest rates really low in hopes that the super-easy money entices all of us consumers to go spend like the wind and thereby lift ourselves out of this Great Recession. (the likelyhood of this happening are slim and none)

But that's not what is happening. Most of us are trying to find a job and pay our existing debts...but the Fed has no recourse but to keep holding interest rates low and hopes something changes....and we start our daily shopping binges once again.

So what's happening is that investors from around the world are borrowing U.S. dollars at 3% annual interest and then taking them over to China or Japan and investing them where they can get a higher rate of return than 3%. It's called a "carry trade".

This could prove to be a catasrophe for Asia as huge asset bubbles are building as the cheap U.S. dollars are used to buy everything in sight in Asia...and when they burst it will blow up on us...and the world will be even more miffed at our irresponsibility.

This is a dangerous game that could lead to some serious economic policy mistakes, not the least of which is the imposition of capital controls as countries try to stem the incoming tide of "hot money." Brazil did this last month, and Taiwan followed suit last week, freezing foreign investors' ability to place money in time deposits. Other countries may be tempted to follow. This impedes the capital liberalization that so many developing economies desperately need.

Americans may be tempted to take John Connally's view that none of this is our problem, especially when U.S. stocks are rising and Fed Chairman Ben Bernanke says there's nothing to worry about.

But that's a mistake. Asset bubbles that build and burst in Asia will eventually cause trouble here, much as they did in the Asian monetary crisis of 1997. And if Chinese leaders conclude the U.S. is deliberately squeezing their currency as a way to devalue away America's rising debt burden, they will find ways to return the offense—perhaps on Iran, or North Korea.

The larger mistake is to believe that any nation can devalue its way to prosperity. As other currencies rise in value and force productivity gains, the U.S. economy will become relatively less efficient. American living standards will decline, as those in Asia rise. This is the real lesson of the Connally-Nixon devaluations of the 1970s and the inflation that followed.

Read it here; http://online.wsj.com/article/SB10001424052748704431804574540052282519972.html

Make no mistake about it folks...conflict is coming. Furthermore Jesus himself guarantees that the conflict will only grow worse as His return approaches. So encourage each other with these words.