Now is a good time to bet on the American dollar

One of the problems with spouting good-sounding but dead-wrong policy changes is that it is so hard for the egos to admit they might have it even possibly, maybe a little, just a teensy bit, wrong. You see, all this economic disaster has happened before — in fact worse — to many of the world’s largest economies. In the 1980s Japan suffered an economic bank meltdown that made our savings and loan disaster look like a kiddies’ party. So bad was the financial outlook for the world’s third largest economy that they were faced with two options: Raise taxes for the rich while sticking trillions into the economy (stimulus money) or cut social services, slash government spending and try and balance the budget. The argument was fierce at the time. The more rational voices prevailed over the wealthy conservative party. All of industry was against the stimulus spending. Aha, but within five years Japan had not only regained lost ground, it had also improved on its balance of payments and economic outlook. Most of the good news was in exports; think Sony, Toyota, Nissan and company.That is why it is particularly cruel that after the economic bust affecting all the leading nations’ spending habits (fewer cars, TVs and stuff being sold for the past two years now), Mother Nature should deal such a harsh blow to the Japanese economy, which had, by and large, weathered our mortgage crisis storm. So now, what to do? They need to spend trillions to right the aftermath of the tsunami and earthquake disasters. And if the nation is spending trillions, how are they going to balance the budget and help the economy off its knees once again?Funny thing is, their Congress, the Diet, heard proposals to remedy the situation with stimulus spending on top of recovery spending. There were dissenting voices, to be sure, but industry has been quiet this time round. Seems that the large companies learned from the last success that sometimes it takes money and fiscal tightrope-walking to make it to the other side of a financial chasm. And that’s what they have. And we do, too.Meanwhile Europe is trying the same old slash-and-cut, tighten-your-belts gambit. Well, does that work? Sure, up to a point. The problem is it breeds inflation. Look, let me explain this simply. If you make 100 cars, you buy steel cheaper than if you were only making 40 cars. If you only make 40 cars, you have to charge more for them. If you buy gas for your gas station but then cut that back 40 percent because of your customer’s hard times, you end up paying more for the gas in your holding tank and that means you charge the customer more. If you buy carrots for a supermarket, but buy less because your customers are buying less, you will not get the same bulk discount, the farmers will plant less, and so on. It is a vicious circle. Can we all make do with less? Sure, but — here’s the point — the factory needed to build 40 cars is the same size(cost) as one to make 100 cars. The holding tanks are one size, one truck fills them. Not everything can scale down. The delivery truck still costs as much to run per year, the driver still gets paid … but when the driver needs to pay 20 percent more for a loaf of bread, he’ll need more money to feed his family. Inflation.But what does not go down? Taxes on that plant making fewer cars, the cost of running a gas station, the operating expenses of a supermarket. So the markup on every item is greater. The customer pays more, and more and more.Inflation is as dirty a word as depression. Inflation punishes in the same way: People lose the ability to survive, to stay in their houses, to find a paying job. While the U.S. economic picture has seen overall drops in the rate of unemployment and only a modest rise in the staple prices of wheat and grain so far, Europe has seen some food prices rise by 33 percent this year. Already European unions, bankers, white-collar staff and civil servants have started negotiating pay raises, some asking 20 percent increases. Meanwhile, back in the United States, McDonald’s is predicting U.S. food prices will rise by only 4.5 percent (which is bad enough). That is not going to last, since cheap American grain is more desirable in Europe in 2011 and 2012 and, of course, we now have the Mississippi flooding and lost soybean and corn crops to contend with insofar as commodity prices are concerned.So what should we do? China saw the solution when their economic disaster struck in 2005-2008. They took the Japanese model to heart and spent, spent for all they were worth. Anyone reading this think China is a failing economy today? What has ravaged Japan decided on? Spend. What did Eisenhower do after World War II and the Korean War? Spend on national projects. Gee, I wonder if the later 1950s and early 1960s were good times? You bet they were, and we never went broke, either. Nor did the very rich. Sure, they were hurt for a while with higher taxes, but boom times for all acted as a rising raft for them as well. Trickle up economics.Perhaps Congress should try to evaluate what worked in Japan and China just recently and take the road less traveled, certainly less traveled than the European model currently in force, because inflation has definitely begun to rear its ugly head there already. In Italy there have been near-riots over the increases in pasta (26 percent) and bread (12 percent). The citizens of Greece, Portugal, France and Holland are also complaining. Since the country with the worst economic disaster was the United States in the mortgage crisis, since the United States spent trillions in stimulus money (and still wants to), and since the United States has the slowest inflation rate of any leading nation — can no one else see the folly in changing course and following the cut-back disaster plans which will, even by the most conservative think tanks, bring back inflation like an express train?If it were up to me, I’d swallow my pride and continue to do what the winners are already doing. Peter Riva, formerly of Amenia Union, lives in New Mexico.