A Falling Dollar (Not Budget Deficit Funded Lifestyles) is What The Country Needs

This large correction is doing wonders for the world, in my opinion. Inflated prices in the US caused by unheard of leverages and the assumption that a sink called AIG would continue to exist has been shattered like the dreams of so many American who have lost their homes and employment. The new assumptions has got to be that cheap capital with obscene leverage is just NOT available anymore. This also means that money in the US will chase projects that provide real returns, competitively measured against what the same money could have obtained when used by other emerging middle classes. Even real estate prices in Manhattan have begun to correct –  a good example of artificial inflation of prices getting adjusted downwards.

Unfortunately, the US government has stepped in to keep prices from falling and the economy from further self-correcting. This will put tremendous pressure on the dollar with capital flows going out of the US to more competitive markets. The US has entered a stage where prices have to fall for economic profits to be made – but government and unions still have not realized this position. The US is a saturated economy with falling and negative growth rates. Operating margins are razor thin in several industries due to intense competition and cost of doing business is increasing every day. Economics states that capital chases attractive risk-reward positions. We can no longer say that the US continues to possess the best risk-reward situation in most business areas. 

See what the US billionaires are doing. Are the incrementally investing more in the US or in other emerging middle classes? In the answer to this, lies the relative attractiveness of the US middle class to the emerging global middle class. I am yet to see any concrete prognostications from President Obama’s Middle Class Task Force. I for one advocate that the President sets aside a separate day every month where he delivers State of the Middle Class addresses to the nation. Global capital flows will be defined by the purchasing powers of competing, emerging middle classes around the world. 

I have a thumbs up for the US nuclear and defense industries, whose products would be sought after by global middle class taxpayer moneys and the captains of this industry would gladly work toward a falling dollar. Another area is US education, given the excellent university and collegiate systems we have, a falling dollar will entice more international students to complete their studies here, generating much needed revenues. Endowments in US universities are massively shrinking and it is time that these systems looked at real revenues rather than market-leverage generated unsustainable profits to keep their endowment basket full. It is imperative that the US remodel its economy to take advantage of the falling dollar and attract the well-heeled members of the global middle class to its shores. We have land to build more educational institutes and health care centers and we have an emerging global middle class that will spend their money on our education and health care centers. Will we build more to get more from the world, or will we close ourselves off to the world and rely on massive government deficits to finance our lifestyles? Only time will tell!