Friday, June 12, 2009

Deadbeats pay cash

Increasingly Chinese manufacturers are finding themselves holding the bag or rather stacks of shipping containers sitting on the dock in US ports. Big Box stores are often backing out on deals for goods already shipped and the Chinese aren’t happy. The American business model is starting to look far less attractive in China when you can be upwardly mobile one day and living under a bridge the next. Americans are no longer viewed as Masters of the Universe to model one's life after.

Chinese companies are starting to require bank letters of credit or even cash up front before they will start work on an order. And when they say cash, they mean real cash, not US Dollars.

And speaking of people with too many dollars: the Republicans are really working the street to gin up the fear of inflation. You would think that with the Government and the Federal Reserve printing all these trillions of dollars that inflation would be heating up. But consumer prices are sputtering along at about the same level despite a big spike in gas prices. The reality is declining wages, bankruptcies, a steady stream of layoffs and a lack of confidence among anybody who still has a dollar to spend. This makes the threat of deflation loom ever larger.

The general consensus among economic pundits is that Obama missed an opportunity by letting the large and completely insolvent banks return their TARP loans. It appears these banks have wiggled out from under Government control and Obama could have used the crisis to crack down on these pirates. The sliver lining to runaway deflation is that it would put an end to the insane credit economy the Republicans have built over the past 30 years.

But runaway deflation would make the banking upheaval last year seem like nothing worse than a shortage of free toasters at the teller window. Obama has probably decided not to waste his time trying to fix anything from this crisis and is planning for the next one. At least I hope he has a plan, canned goods only go so far.