Federal Reserve and Monetary Policy: Bernanke and the $Dollar

I was watching CNBC’s coverage of Bernanke’s nomination for the position of Chairman of the Federal Reserver. Normally a nomination would not prompt me to write, however, former Federal Reserve Governor Brimmer made a statement that caught my attention. He said that Bernanke should consider global markets only at the margins (I’m paraphrasing). I believe that this attuide and/or actions will only box in the Federal Reserve when it comes to making monetary policy. Read my blogs: Federal Reserve and Monetary Policy and Neoclassical Theory of Production. Consider the following:
I’ve stated, my opinion, that the trade deficit and government debt are linked and are, in fact, ‘Twin Deficits’. I’m including local, state and federal debts. See the following for Bernanke’s views: March 10, 2005 The Global Saving Glut and the U.S. Current Account Deficit.
“Here I simply note that the so-called twin-deficits hypothesis, that government budget deficits cause current account deficits, does not account for the fact that the U.S. external deficit expanded by about $300 billion between 1996 and 2000, a period during which the federal budget was in surplus and projected to remain so. Nor, for that matter, does the twin-deficits hypothesis shed any light on why a number of major countries, including Germany and Japan, continue to run large current account surpluses despite government budget deficits that are similar in size (as a share of GDP) to that of the United States. It seems unlikely, therefore, that changes in the U.S. government budget position can entirely explain the behavior of the U.S. current account over the past decade.” The world has changed.
Keynes has concluded that GDP is made up with public, private and government investments. A Chinese businssmann has stated that Bush’s tax policy is a boom for him. This implies Bush’s tax policy has a very big “leak”.
India is not an economic crisis. The country has made great strides to allow both currency and information to flow freely. I know that there is inflation and inflationary expectations due to increases in wage and salaries. This is important to me because I’m in the process of starting a web service company. China is a different story. They have a Communist government and a command economy. This means that neither information nor currency can flow freely. China is an economic crisis. There is an economic accident, Greenspan’s words (see: Energy) , out there and it will involve China.
Now the connection: I’ve stated that off-shoring expands the community. Using a global, progressive tax system implies that the expanded communities’ output is not being credited to the US of A communities’ output. I’ll make a simple connection. Off-shoring has made US of A’s natural resources less valuable. During the time the US of A was a manufacturing center, these natural resources had a tax trail. This tax trail was from the time it was harvested/dug to the time it was included in the final product. Government debt is related to spending and tax revenues. In other words, moving the manufacturing floor to China and other low wage countries has, in effect, removed the tax revenues from the US of A’s natural resources. I’m a physicist and I believe that currency flows have to be balanced. What goes in must equal to what goes out.
Currently this balance is due to the increase of US of A’s land value. I do not believe that home owners will take equity out of their homes to pay for healthcare, gas and food. Doing so will be irrational and I do not believe that US consumers are irrational with respect to their homes. (I could be wrong)
The previous paragraphs suggest a way to credit the expanded communities’ output. One can tax the exported raw materials, which is not done currently.
Delphi’s Chairman has stated that US of A’s work force is in direct competition with others. If one goes back to the arguments of NAFTA one will see that there was a concerned that the US of A work force NOT compete directly with low wage work forces and that education is the key to maintain the US of A’s competitive edge. The recent report on the ranking of the US of A’s higher education system shows that the Bush administration has failed on both fronts.
I believe that I was successful in placing the business cycle directly in the neoclassic theory for production. It is too late to go back. It is not too late to remove those tax policies that have only resulted in repatriated money going into buying back stock and in the bonuses of top executives. I believe that any government spending that bypasses Wall Street and goes directly in to the hands of the community, specifically, in to the hands of small businesses will work. Tax policies should be targeted for seeking out and maintaining the US of A’s work force. I believe playing by the “golden rule” would give allow the time necessary for the US of A’s work force to be retrained. I also believe that the US of A has to move toward a “universal healthcare” system.
It was Gephardt, I think, who said that the US of A must accelerate the inclusion of the global work force. I believe that a business model that has a cultural bias will be successful in increasing the global GDP. A business model that is cultural biased will also remove the sting of US of A’s work force’s backlash. The Bush administration must now recognize the importance of the Internet and must allow the evolution of the US of A’s work force. This is the only way out of the structural problem this country is facing. It is also the reason why the Federal Reserve must become the leader in global stability.
Watch the $dollar.