Inconvenient Economics

clipped from www.qando.net China’s current-account surplus, the source of the funds for its Treasury purchases, has dropped precipitously as the global economy has contracted over the past several months. And, the oil-exporters are in no shape to be buying anything right now, as oil prices have collapsed since last summers $147/barrel peak. Russia is busy selling foreign exchange to prop up its currency. Brad Sester of the Council of Foreign Relations reports that foreign demand for long-term treasuries has faded, and notes, ominously, that “global reserves aren’t growing”. Accordingly, borrowing does not look like an option. Which leaves really just one choice. Printing money in a down economy, which will have to be done, increases inflation and saps purchasing power (potentially leading to hyper-inflation). We may be able to pay off our debts this way, but we’ll wipe out the wealth of the nation doing so. In short, our government is currently cashing checks that our economy can’t pay.