OpEdNews - Page 2 of Article: Take off those inauguration beer goggles

(Warning: metaphor ahead.) A global economy is like a spacecraft traveling in deep space where terms like “up” and “down” and “sideways” are meaningless. The only state that counts for a spacecraft is “stability.” If a spacecraft loses stability it tumbles out of control. And, unlike an airplane that can leverage earthly forces like gravity and aerodynamics, a spacecraft cannot. Once a spacecraft goes out of control, more often than not, it's curtains. So, the trick is to make sure the damn thing does not become unstable to begin.

And that's where we are right now. The economies of the world have tumbled out of control and no one is quite sure how to regain stability. Just how stability is reestablished will be the story of our time.

For example, if Obama does as he says he will do, like strengthen the dollar, that solves one set of problems by trading them for another set problems. (It's like firing only the port side thrusters on our tumbling spacecraft.) A strong dollar will help the financial sector, but will make our $11 trillion national debt, which is priced in dollars, even more of a burden. If the dollar were allowed to fall it would hurt the financial sector, but allow us to repay our national debt with cheap dollars.

A strong dollar would also require higher interest rates, which would only worsen conditions for America's debt-burdened homeowners and consumers. A strong dollar would also hurt US exports because a weak dollar makes US goods cheaper overseas thereby boosting domestic production/hiring.

"For the United States, a structural tendency for domestic savings to fall short of domestic investment leads to significantly higher interest rates when economic activity picks up speed. Government policy can also affect interest rates and the exchange rate. Large government budget deficits will tend to push up interest rates and the exchange rate. Budget surpluses have the opposite effect. Tight monetary policy tends to raise interest rates and the exchange rate. A stimulative monetary policy has the opposite effect. Recent U.S. economic history has demonstrated the great importance of these fundamental factors in determining the exchange rates path.

"And that's just one tiny corner of the mess. There are literally hundreds of similar Hobson's choices Obama will have to make in them months and years ahead, each an action with it's own opposite and equal reaction somewhere else in the system." (Full policy paper)

It's the push and pull of the laws of economic physics, laws that are just as real, and just as unavoidable, as the laws of that govern our physical world -- like gravity. Violate the physics of economics and you do so at everyone's peril, as we are now learning.

My cousin dropped me a note the other day complaining that “you are always screaming 'iceberg ahead,” but never telling us where the damn lifeboats are.”

I replied, “There are lifeboats, unfortunately our new banker, China, is holding them as collateral.

My point, I guess, is that Obama and his team may be able to regain stability, but it'll be a long time coming. They will push every button, pull every lever and fire every thruster. In the meantime the rest of us are in for something our great grand kids will watch on the History Channel some day.

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