Balloon Squeeze

inflate, v. To blow out or distend with wind or air; to fill (a cavity of the body, a balloon, etc.).

I was an impressionable child during the height of economic misery for my generation.  Talking about stagflation – the simultaneous existence of unemployment and inflation – mattered a great deal during the 1970s, thus prompting me to warn about the liquidity trap caused by Barack Obama’s ineffective monetary policy, which now calls for the Federal Reserve to engage in a second round of quantitative easing (QE2).

But to the credit of President Richard Nixon’s leadership, one significant factor differentiates inflation in the 1970s from the current economic environment – China.

“On monetary matters,” says The Wall Street Journal, “China is an unusual case.”  And the website Deflationite explains the unusual inflation scare associated with QE2.

If you squeeze a balloon in order to make it smaller the amount of air in the balloon stays the same. The end you squeeze will get much smaller, but the area you do not squeeze will expand.

At the moment we have a global game of squeeze the balloon going on.

The countries faced with deflation problems are squeezing the balloon, and the countries without deflation problems are faced with the consequences.

To really simplify it, the U.S. is squeezing the balloon and China will be the recipient of the expansion.

The United States needs a president who understands that the nation faces two distinct but related economic crises: one characterized by global inflation scare pushing American unemployment well-above the historical average; the other defined by Obama’s rudderless fiscal policy robbing posterity of the potential for economic expansion.

Unable to elect such a leader to the Oval Office during their current session, the United States Senate and House of Representatives should judge it as necessary and expedient to continue stimulating an economic recovery, extending President George W. Bush‘s tax cuts for all Americans.

References

Graham Bannock, Ron Baxter, and Evan Davis, The Economist Dictionary of Economics, Fourth Edition (Princeton: Bloomberg Press, 2003).

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