Exporting Obama's Future

[This essay, about Obama's future, is the second essay I've published about the president today. The first essay is about Obama's past, and you can read it on Comments From Left Field.]

Some people think the timing of President Obama's economic trip to Asia, right after his spanking in the 2010 midterms, is too much of a coincidence. It has been insinuated that Obama is trying to avoid the news media, but the president timed his trip with India's Dilawi holiday -- which "is considered lucky for investments and business deals." So we can remove "fear of media" as one cause for the trip.

There's another coincidence of timing that hasn't been mentioned, though.

Just as Obama took off for his trip, the Federal Reserve is creating $600 billion out of thin air. Nominally, we've been told that the Fed is afraid of price deflation. This $600 billion is meant to insure that prices stay at their current levels, as well as flood the economy with so much money that business want to borrow, and banks have to lend. Getting banks to lend again has been the crux of our economic concerns. I'd argue that the fact they haven't been lending, despite being able to borrow money from the Fed at practically no interest for years now, makes banks pretty unpatriotic -- but that's another post for another time.

The Fed's intentions stand a chance of backfiring on the economy because $600 billion of new dollars is going to weaken the value of the dollar. We're already seeing the commodities market adjust to price inflation, and I don't even want to know what a gallon of gas will cost 2-3 months from now. Inflation, after all, raises prices -- but what happens if inflation rises faster than salaries? Americans are already pissed off, so why undercut the value of a dollar at a time when the economy is slumping?

For the answer, read President Obama's op-ed piece about his Asian trip in Saturday's New York Times. In fact, go read it now. I'll wait.

Finished? Great, now it's quiz time! How many times did Obama mention "China" in his op-ed piece? Can't recall? Once, maybe twice.. Hey, shouldn't a piece about American economic ambitions in Asia be all about our relations with China? You would think, but Obama didn't mention China by name once in his op-ed piece. You'd think the country somehow fell off the Asian political map.

But Obama's Asian trip is all about China, even if he won't mention it. For months now, the Obama administration has complained that the Chinese government deflates the value of its currency to make its exports cheap. In effect, the Chinese government undercuts global competition by letting the wholesale price of its goods rest on a currency that should be stronger if not for Chinese government manipulation.

So when you can't beat'em, join'em. When an high value dollar doesn't allow US exports prices to compete with Chinese goods, then why not have our government artificially decrease the price of our currency? Then when President Obama times his Asian economic trip during India's Dilawi holiday to open up new markets for US exports in Asia, he can point to the Feds actions and say, "Look guys, the price is right."

If this Federal Reserve Stimulus gamble revives the American manufacturing sector, then Obama will look pretty smart. But the president is taking a risk here, one that has less than two years to produce results. The rise of the cost of living in America will start taking its toll in 2011, and artificially inflating prices won't make Americans happy.

Obama's ardent supporters can talk all they want about how the president has lowered taxes for the middle class, but if the Health Care overhaul causes health insurance prices to spike next year, nobody's going to notice the difference between lower income taxes and whatever else the government just did to maul their paycheck. Obama's ardent supporters will also claim that his Health Care overhaul will not allow for an increase in coverage rates, but on a personal note, I'll tell you one thing: the Human Resources department where I work is afraid. They have no clue what's going to happen to health insurance prices next year, and projecting such prices is their job.

As for the possibility of a second stimulus bill, it's not going to happen with the GOP at the helm in the House of Representatives. Obama needed to get stronger stimulus passed at the beginning of his administration, but instead he watered down the stimulus bill with a lot of tax cuts in order to reach a bipartisan consensus with Republicans. Looking at last Tuesday's elections results, I don't think that whole consensus thing worked. Neither did the stimulus bill. We can all agree that stimulus helped the American economy avoid another depression, but it wasn't enough.

With more stimulus off the table, flooding the economy with billions so the value of the dollar dips, making our exports cheaper, is Obama's last hope of reviving American businesses. But lowering the dollar means increasing the cost of living. American workers must be able to find better paying jobs within the next 3-16 months for this plan to work -- hence why Obama is trying to open up export markets in Asia.

If time is on Obama's side by November, 2012, then Obama will have survived his ignorance of the Old Deal by uniting Americans behind a cause the left, right, and mighty middle can all agree upon: Battling the new economic giant, China, for global position of the world's greatest superpower.