Inflation: America 's Greatest Export

Inflation: America 's Greatest Export | Economics / US Economy Feb 22, 2008 - 01:48 PM | By: Peter_Schiff

Unfortunately one of the few things still made in America is inflation. In fact, it now ranks as our greatest export.

A significant by-product of the current global economic system, wherein Americans spend money they do not earn to buy foreign products that they do not make, is that trillions of dollars are now parked in foreign banks just looking for somewhere to go.
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In years past, foreign investors were happy to hold strong U.S. dollars, which they either saved as a store of value, or used to purchase mighty Wall Street stocks and bonds. However, when the dollar began its epic swan dive, and U.S. investments began to grossly underperform non-U.S. alternatives, private investors dumped their dollars en masse by exchanging them for local currencies. The unwanted dollars then became the property and problem of foreign central banks.

If central banks did not buy these dollars, foreign citizens would have been forced to sell their surplus dollars on the open market. To prevent this from happening these banks have become the buyers of first and last resort. However, to sop up all of the excess supply, central banks must create more of their own, resulting in rapidly expanding money supplies. As much as Wall Street and government economists pretend otherwise, the expansion of money supply is the essential definition of inflation. The real reason that prices are rising in China is that so many yuan are being printed to buy up all these surplus dollars. ...