Why the Value of the Dollar is Important, and why the Obama Administration Will Destroy It

By Phil Fraietta
Fraietta@Fordham.edu

In the midst of this recession it seems like it is impossible to pick up a newspaper and not see multiple stories concerning the economy. Interestingly enough, however, very few, if any, of these stories seem to discuss the matter of currency value.

It is an issue that has long lost interest in the United States. The policies of the Bush Administration substantially weakened the dollar, and the policies of the Obama Administration may very well end up weakening the dollar even further. But, while the issue may not receive much attention, it is one that is arguably the most important long-term issue facing the United States today.

Currently, Congress and the Federal Reserve are directed under law to make decisions in an attempt to attain short-term full-employment rather than in the best interests of the dollar. This is because according to Keynesian economic theory, the value of the dollar has little effect on the macro-economy and is only important to Americans who frequently travel or shop abroad. What the Keynesians fail to realize, however, is that the value of the dollar largely directs international investment into the United States.

But one may ask, what importance does international investment really have? International investment is of importance to the United States because it is what allows us to fund our budget deficit.

As most Americans know, we currently face a tremendous budget deficit that cannot reasonably be balanced for years to come. To make matters worse, the Obama Administration has determined that the deficit is not an important issue to face in these recessionary times and has continued to increase spending at the Federal level. Assuming the President does not retreat from his promises of tax cuts for 95% of Americans, it seems as if all of this spending cannot possibly be funded.

That is where international investment comes into play. In order to fund a deficit of such drastic proportions, without reducing government spending or increasing taxation, the Federal Government sells bonds to international investors. With doing so the government provides itself with the necessary income to fund its deficit.

But what people seem to forget is that these international investors must eventually be repaid. In this global recession, it is not crazy to assume that international investors would want to cash the bonds soon. After all, the tank of the stock markets has lost investors a lot of money and cashing in bonds would get these investors some of their money back.

So, assuming that foreign investors do suddenly begin to cash their bonds, how in the world could the Federal Government possibly pay? It seems the only way to do so is to simply print money. Obviously, printing money increases the supply of money internationally, which due to the laws of supply and demand, will cause the dollar to depreciate. If the dollar depreciates enough, we may very well find ourselves in a never-ending cycle of high inflation.

To explain, assuming the stimulus plan does work to stimulate demand and helps us escape the recession, foreign investors will be ready to invest again. However, if the dollar has depreciated sharply it will act as a disincentive to invest in American bonds because the investor will be repaid in with a weakened dollar. This means that the Federal Government will be forced to continue to print money in order to finance the deficit. Because printing money increases the money supply, it works to stimulate demand and thus creates inflation.

This is precisely what happened in Zimbabwe, where the Government turned to money printing in order to fund its deficit and now finds itself in a severe hyperinflation where prices are said to double every 24 hours. While it seems unreasonable that the United States could ever find itself in such a severe hyperinflation, it is not unreasonable to expect that printing money will cause inflation rates near 10% (an extraordinarily high number in an economy like the United States). It is now obvious why the value of the dollar is of such importance to the United States. If the Obama Administration continues to run the nation into debt and finances that debt with foreign investment, the dollar will be weakened. And, if we allow the dollar to be weakened enough, we may reach a point where foreign investors are no longer interested in investing in the United States. If this becomes the case, we can expect high inflation for the years to come.

This is not to say that we are hopeless. If the Obama Administration does act to balance the budget by reducing government spending, and the outdated Keynesian laws to strive to attain short-run full-employment are eliminated, we can avoid this fate.

To conclude, if the Obama Administration is concerned with the idea of hope, like the President claimed to be in his campaign, then this is the time to prove it.

Status Update: Big Brother is Watching You

By Louis Papa
Papa@Fordham.edu

The benefits of instant communication are obvious. But many lament that our vastly superior communication technology has made us tragically incapable of communicating with each other—text messages and social networks have basically retarded our ability to just sit down and talk to each other. On the other hand we are connecting with more people, and in that regard communication has substantially improved.

According to Mark Zuckerberg, the creator of Facebook, “More than 175 million people use Facebook. If it were a country, it would be the sixth most populated country in the world.” The size of this network is truly incredible, and it only continues to grow. But at least one fairly chilling aspect of this information revolution is not that we’re not sharing enough with each other…it’s that we’re sharing too much.

Admittedly, this concern is somewhat paranoid. Nonetheless, it absolutely boggles the mind that in a society that both condemns and fears wiretaps, spy surveillance, unwarranted monitoring and other generally Orwellian practices, we actually encourage putting as much private information about ourselves as possible on the single most accessible universal library in history—the Internet.

Consider: Without even a second thought, you supply who you are, who your friends are, what you look like, and what your political and religious affinities are. You not only list your friends, but you also specifically describe how you are related to each of them. Also, let’s not forget that you have no qualms about sharing your sexual orientation or your romantic exploits with what are really just a bunch of strangers. You put up photos of yourself that everyone can look at, shamelessly chronicling with unmatched detail every single one of your actions (including illicit drug use) and you carefully identify everyone in your photos. You can even put up numerous videos of yourself and your friends, but when that isn’t enough, you can post a note listing 25 inane facts about yourself for everyone to read.

It is outside the scope of this article to discuss any one of these particular phenomena, but it’s worthwhile to take a moment to discuss the overall recklessness of putting this sort of stuff on the Internet. We have essentially created a compendium of information about ourselves that can be used at anyone’s discretion. We have done all of this absolutely free of charge without anyone even asking us. Never mind hackers and identity thieves. This is an Orwellian nanny-state’s wet dream—a populace that zealously volunteers information about itself for fun.

Legally speaking the government cannot spy on you. It is completely legal, however, for them to collect information that you volunteer. Hold on to your tinfoil hat, because if some shadowy government organization were putting together an index of some sort about its subjects, Facebook would actually be the best place for this cabal to start cataloging information about its citizens and begin categorizing them into various groups…for whatever reason.

But do you really volunteer that information? Take a moment to read over Facebook’s current terms of use:

“By posting User Content to any part of the Site [Facebook], you automatically grant…to the Company [Facebook, Inc.] an irrevocable, perpetual, non-exclusive, transferable, fully paid, worldwide license (with the right to sublicense) to use, copy…and distribute such User Content for any purpose…and to grant and authorize sublicenses of the foregoing. You may remove your User Content from the Site at any time. If you choose to remove your User Content, the license granted above will automatically expire, however you acknowledge that the Company may retain archived copies of your User Content. [Emphasis added.]” – Facebook’s Terms of Use, Date of Last Revision: September 23, 2008.

To clarify, this means that when you post anything on Facebook (wall posts, notes, status updates, drunken photos, etc.) you give Facebook the permission to share that content with anyone they wish (whom may then share it with anyone they wish, and so on). Additionally, even if you delete your account, anything you post is saved on a file that someone else (whom you most likely do not know) can access. There has been a recent movement on the site to change the terms of service. But regardless of whatever the final terms of service are, in the end this is an agreement with an intangible corporate entity and this agreement is based solely on trust.

Take this merely as a casual observation; there is no hard evidence actually indicating that Facebook is a part of some devious plot to conquer our Western democracies. (Though you might want to Google “In-Q-Tel,” “D.A.R.P.A.” and “data mining” to learn about a fascinating connection Facebook has with the Central Intelligence Agency.) But the main point is, before you post up that next bleary-eyed photo of yourself staring at the camera through a haze of bong smoke wearing your “ARREST BUSH” t-shirt, you might want to take a moment to consider just who is going to see it and just how they might react.

[Check out the following for something a bit more illuminating:
http://www.dailynewscaster.com/2009/02/18/is-facebook-ran-by-darpas-information-awareness-office/]

The Devalued Primeminister

Watch a British MEP stand on principle:

http://www.youtube.com/watch?v=94lW6Y4tBXs&feature=player_embedded

Obama's Empire

By Douglas Kohn
Kohn@Fordham.edu

Now that we are nearing the tail end of the Iraq War, one thing is certain: America is the worst imperial power to ever try to take over another country. It is not in our blood and we simply cannot do it.

It has now become clear that Obama is not going to withdraw all of our troops from Iraq. He has announced that about 50,000 will stay on longer than his promised withdrawal date of 16 months. This is the pragmatic, responsible thing to do.

I personally think the United States has been far too nice. We allowed oil prices to rise to catastrophic levels in the last few years, which no doubt did not make our economic crisis any easier.

Here is the proper solution. Evidently we Americans have resigned ourselves to some form of overseas empire, be it an empire of the mind or otherwise. If we are going to be an imperial power, that means doing it right.

We should use our military power to break up OPEC. As payment for the removal of Saddam Hussein Iraq should give American companies an option price on barrels of oil at $35 a barrel or less. Force them to pump more, force them to give us oil and stop trying to bring democracy in the most dysfunctional region of the world.

Second, as troops are withdrawn from Iraq send them to the border with Mexico. Illegal aliens are bankrupting this country pure and simple. They are the reason California is bankrupt and they are harming other states. For every working illegal alien there’s three on welfare. They get free healthcare, something your average American citizen does not have access to. They get as much healthcare as they want by simply walking into a hospital. Using the soldiers on the border with Mexico, the Mexican government should be forced to give us one barrel of oil a day for every illegal alien on welfare. Fair is fair.

It is time for the United States to stop being the nice country and we should start looking out for ourselves. No more bailing out of bankrupt third world countries now that we are becoming a third world country ourselves. If we are not going to kick out the illegal aliens that are bleeding the country dry, make Mexico pay for it. Make Iraq pay for their liberation just like Kuwait paid for it. Enough of the United States doing everything for everyone and not getting anything in return.

Reciprocity should be Obama’s foreign policy doctrine.

BREAKING NEWS!

Newt Gingrich, former Speaker of the House of Representatives and leader of the 1994 Republican Revolution, will be speaking at Fordham University on April 20, 2009.

More details to come!

The Decline and Fall of General Motors

By Douglas Kohn
Kohn@Fordham.edu

There was a time when the saying “What’s good for GM is good for America” used to hold water. No longer. GM has been destroyed not by its inability to sell cars and adapt, but by Big Government and Big Labor. It has not been significantly undercut by foreign competition alone and the quality of GM and other American cars, though not up to par with Japan’s cars, are significantly better than most of the cars coming out of Europe or emerging car companies in India and China. GM fell because of mismanagement and labor unions, not subpar demand for its products.

In 1977, GM dug its own grave. It signed a contract with the American Auto Workers Union, guaranteeing full benefits to each employee for the rest of their life after retirement. Sounds like a good, fair deal for everyone but this was deeply flawed. It is not that GM should not pay generous pensions and benefits, it is that they essentially unilaterally lowered the retirement age. After only 30 years of working at GM, a retired worker was entitled to all these benefits and luxuries. This means that if someone began working out of high school at age 18, they could then retire at 48. First of all, why should GM’s retirement age be any lower than that of governments around the world? It is simply economically unfeasible.

The other reason that GM became unable to meet its costs is that the cost of healthcare in America skyrocketed in the last generation or so. It came to the point where roughly $2000 of every vehicle sold by GM went to pay health benefits of employees and pensioners.

If GM had had the proper foresight and not entered into these bogus contracts, it would have been hurt by the current recession but probably not forced to go to the government for a bailout. This would be in spite of a boom in oil prices.

How do I know this? Because in the last few years GM’s sales of cars were increasing until the beginning of the current recession. The American market was mostly saturated and GM was the market leader, but it was rapidly increasing its sales to developing countries. Nations in Latin America and Russia were rapidly increasing purchases of GM vehicles as their emerging middle classes gained a taste for SUVs.

Congressional Republicans like to point to Toyota and BMW as models of how car manufacturers should manage their businesses when producing in America. Fair enough. GM’s workers, including compensation, were being paid the equivalent of roughly $70 an hour. Toyota and other foreign car manufacturers were paying their workers approximately $37 an hour. All of this is understandable but completely ignores the fact that many states where foreign car manufacturers operate gave subsidies to those companies to open factories.

So consider this. Government intervention allowed those foreign car manufacturers to operate in America and create jobs. GM is essentially now requesting the same subsidy. I am not writing this piece to take a position on either the issue of subsidies or bailouts but simply wish to state the reason why GM collapsed and the circumstances of other car companies. Unions may have once been a good thing, but they have no place in 21st Century economies.

The United States of Argentina

By Douglas Kohn
Kohn@Fordham.edu

Those steeped in history can best predict the future. George Santayana said “He who does not understand history is condemned to repeat it.”

Argentina, at its peak was the fourth wealthiest country in the world. That’s right, Argentina, now just one of any number of Latin American economic basket cases. In the case of Argentina, the once mighty have fallen quite far.

Argentina was once considered a model of economic prosperity, prudence and management. Its people enjoyed an incredible standard of living. Out of 38 million people, 20 million are of Italian descent. Argentina was a place immigrants wanted to go, much like America. It was a land of promise and opportunity.

Of course, like the rest of the world, Argentina was crushed during the 1930s. It began to recover during World War II when renewed global economic activity pushed up prices for Argentine goods. Then came Juan Peron.

Peron began an economic program that nationalized much of Argentina’s industry. He also began massive public spending programs that were ill advised. He threw up trade barriers. All of this was done in the name of making Argentina economically independent and prosperous. What followed was a disaster.

Argentina began periods of stagflation and massive recessions. The country became a serial defaulter on its debt. This debt became so overwhelming that the government, after Peron left, was forced to raise taxes to a level that destroyed business activity. The country was ruined by populist policy, over spending and ruinous trade barriers.

The country is still the wealthiest in Latin America but is nowhere near developed status. Recent developments such as the default of 2001 and the inflation driving public spending continue to plague Argentina.

This is the history of Argentina. Why should the history of the United States be different? Under George Bush the deficit reached record levels. Under Barack Obama, it has now been doubled.

Every time a Republican points out that the deficit is too high they have the Bush years thrown in their face and rightfully so. But this is still counterproductive, especially from someone with my view who never approved of Bush’s wild spending. Obama is just the same as George Bush. They were both basically fiscal Marxists. There is no justification for Obama’s massive spending.

Now America is becoming a mix of Argentina and the Weimar Republic (interwar Germany). We owe all our debts to foreign powers and are about to undergo a trillion dollar tax increase. We have committed ourselves to insane public spending that will take a generation to pay off. Somehow, I doubt there will be a world war to end the economic pain quickly. Just because the Republicans overspent, does not make it the right thing to do when it is Democratic spending. It is childish now to say ‘Bush started it.’ It is quite obvious, but now that basically all of Bush’s policies are continuing and it is just Barack Obama doing it, that somehow makes it okay.