Economic Crystal Ball

In my last post, I pointed to a method whereby Democrats could have a real impact on the level of red ink in the federal budget.

To be fair to the American People, we need to take out our economic crystal ball and start looking at what the effects of a balanced federal budget would mean for the American economy and yes, even the global economy.

Perhaps only someone as wise as Alan Greenspan could accurately forecast all the nuanced effects, but even the average American citizen can predict the obvious implications.

What is obvious? Who is currently financing the federal spending spree? Amongst the investors gobbling up all the federal IOU's is the Chinese government. As the level of promissory notes issued by the Federal government decreases, the Chinese government is going to be looking for new areas within which to invest the huge amounts of money they have from the outrageously large trade imbalance they enjoy.

The American governmental leadership (with input from the American People) need to start thinking about, and debating about, what we will allow the Chinese government to invest in within the American economy.

You see, when the Chinese see that the amount of money available exceeds the supply of Treasury promissory notes, they are going to be forced to come into the American market with a huge fat wallet. They are going to have money to spend and they are going to want to start buying and investing in things. What will we PERMIT them to buy?

Can we restrict what they can buy? Your damn right we can. The Chinese market does not match anything like a free market economy. There are restrictions on foreign investment and they even control the exchange rate of their currency. Fair is fair. We'll restrict what they are allowed to invest in and on what they are allowed to purchase. They will be forced to play by our rules or they will have to build up a mountain of greenbacks in their backyard and allow inflation to whittle it away.

I think the American People have the right to expect our governmental leaders to start thinking about these things. They draw a paycheck to think about this crap. They should allow the American People some input on the debate, but they should be opening up the debate and yes even, gasp, leading the debate.

What I am hoping for is that when the easy investment choice of guaranteed treasury notes are removed there will be a flood of money into riskier investment choices. Look what happened during the Clinton years as the federal deficit narrowed. The economy took off with a flood of venture capital with some losing everything and others becoming fabulously wealthy.

One rather obvious implication of Chinese investment that must be dealt with is that American investors are forced to deal with the Death Tax. The Chinese government will never die. Some method must be brought forward so that the Chinese government will be forced to play on a level playing field when it comes to the Death Tax. Perhaps it would be enough to force them to only invest in things like corporate bonds that have a maturity date or something - but even this has drawbacks. I am open to ideas however I will not accept that elimination of the Death Tax is the solution.

I am hopeful that China can be motivated to purchase some of the bountiful agricultural surplus America currently enjoys. I think China can be motivated to do this even through our own efforts to combat global warming. This step alone would do wonders for the American economy in particular but also for the global economy at large, including many third world developing nations.

Put on your thinking caps people! Balancing the federal budget is a good thing. However balancing the federal budget is going to cause things to happen in the economy. What will we allow to happen? What do we want to happen?

I'll tell you what I want to happen. I want to save the world, and I think I see a way to do it.