2012-05-06itulip.com

If asked how much foreign debt is too much, the simple answer is this. Too much foreign debt is the amount that causes a nation to stop making political decisions in its own interest. The US passed that point with China long ago. We are no longer a sovereign nation in relation to to China. We are afraid to call China out on its mobster ruling class of the Chinese police state, a fact that becomes painfully obvious when on occasion a foreign national gets offed or a dissident's family is rounded and jailed. Going into debt to China will turn out to be the worst economic policy error in America's history, right up there with the Argentine's going into debt to the British in the 1850s -- it was all downhill from there. I can't think of a worse country to be in debt to.

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The "lesson" that central bankers "learned" from the Great Depression was that deflation is the enemy of economic and political stability and monetary policies must to be aimed at preventing it, starting with the abolition of the deflationary gold standard. Then the "lesson" of 1970s was that without the discipline of the gold standard, inflation is the enemy of economic and political stability and monetary policies must to be aimed at preventing that. I think after 20 years of policies aimed at trying to control bond markets the lesson for central banks after the next crisis will be this: Stop Trying to Price Fix Bond Prices. Inflation is as necessary a part of the operation of markets as deflation to flush bad debt out of the economy.


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