Ronald Grey

Trade War: Obama’s Game of Chicken

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International System of Units

Principle of Sound Money

The danger of Barack Obama’s weak-dollar policy is illustrated in the following parable taken from “The Theory of Money and Credit”:

Inflation works as long as the housewife thinks: “I need a new frying pan badly.  But prices are too high today; I shall wait until they drop again.”

The critical stage begins when the housewife thinks: “I don’t need a new frying pan today; I may need one in a year or two. But I’ll buy it today because it will be much more expensive later.”

Then the catastrophic end of the inflation is close.

In its last stage the housewife thinks: “I don’t need another table; I shall never need one. But it’s wiser to buy a table than keep these scraps of paper that the government calls money, one minute longer.”

Obama Declares War on American Trading Partners

Describing his plan for change at a security summit, Obama said, “Rebalancing of the world economy would be important.”

But Obama obviously didn’t think before he started talking change at the security summit, ironically, about how he was declaring a trade war. “We believe that part of that rebalancing involves making sure that currencies are tracking roughly the market and not giving any one country an advantage over the other.”

Obama’s trade war is playing out in a game of chicken he’s forcing on China. With the aid of his fellow Democrats, he’s recommending legislation to force China into making its money more expensive in currency markets compared to the dollar, which would effectively make American exports cheaper while raising the price of Chinese imports.

In response, China announced its own import tariffs that would more than double the price of American chicken.

Bitter or Better End

Highly unlikely but relevant to the change sought by a misguided theory for global markets to rebalance money and credit, Obama’s trade war could force China into redeeming its $1 trillion in American debt for the same value in chicken from the United States. The end result would indeed be catastrophic: a dollar worth only the paper it’s printed on and American chickens worth more than their weight in gold.

It’s time for a new president, who has the technical, tactical, interpersonal, and conceptual skills for leadership you can trust to solve problems in the global economy.

We have not yet begun to succeed — join me

References

Ludwig von Mises, The Theory of Money and Credit (Indianapolis: Liberty Fund, 1980).

Barack Obama, “Press Conference by the President at the Nuclear Security Summit,” The White House,” http://www.whitehouse.gov/the-press-office/press-conference-president-nuclear-security-summit

Judy Shelton, “Our One-Dollar Dilemma,” The Wall Street Journal, September 27, 2007, A17.

F.A. Hayek, “A Commodity Reserve Currency,” The Economic Journal, June-September 1943.

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