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POLITICAL ECONOMY
Outside View: The road to a socialist paradise
by Peter Morici
College Park, Md. (UPI) Jul 15, 2013


disclaimer: image is for illustration purposes only

Fed Chairman Ben Bernanke has convinced financial markets easy money policies will continue as long as needed. That may be forever and those policies place U.S. prosperity and sovereignty at grave risk.

The economy is as sick today as it was prior to the financial crisis and Great Recession. Those were caused by fundamental dysfunctions that remain unfixed.

China, Japan and Germany -- the three largest economies after the United States -- pursue cheap currency and protectionist growth strategies. Each amasses trade surpluses with the United States to prop up domestic employment.

U.S. consumer dollars that buy their products but don't return home to purchase U.S. exports tax demand and push up unemployment.

But for easy money those would throw the United States into a depression.

During the Bush prosperity, China printed yuan to purchase dollars and U.S. securities. Those drove down interest rates on bank loans and mortgages, helping bankers trade in derivatives, inflate housing prices and keep consumers piling up debt until the house of cards collapsed.

Nowadays, the Fed helps Beijing pass out the drugs. It buys $85 billion in Treasury- and mortgage-backed securities each month. Those finance Wall Street speculators in the housing marketing and another epidemic of derivatives trading.

Sooner or later the new housing and derivatives bubbles will pop and America will be back in the soup -- but it will be a lot hotter this time.

Cheap credit is driving up prices for farmland and propping up businesses that should fail. Securities dealers are hoisting junk on retired investors who can't get any interest on certificates of deposit.

The Fed's printing press is propping up an already anemic economy. Since October, gross domestic product growth has barely averaged 1 percent.

Americans are taking on too much debt to buy cars. The Detroit Three can credit their financial recovery to replacing cars worn out during the Great Recession with options-laden, expensive replacements.

U.S. President Barack Obama has pushed down unemployment by persuading young people to earn degrees that provide no gateway to good jobs.

In the end, consumers laboring to pay car loans and mortgages on overpriced homes will cut back spending elsewhere, students and weak businesses will fail on loans and banks will need another bailout.

The economy will collapse again and then what will the Fed do? The only thing it has left -- enable more federal stimulus by printing even more money. Hyperinflation and unemployment above 15 percent could easily follow.

America, welcome to the Weimar Republic -- Germany in the 1920s!

It may go better -- the economy just slogs along at near zero growth, Americans continue to borrow and sell its prime assets to Chinese, Japanese and German investors and becomes a pitiful recreation of the Middle Kingdom at the time of the Boxer Rebellion.

All as the Obama administration uses the IRS and other federal agencies to target political opponents and relies increasingly on executive orders to get around a Congress that smells something terribly rotten -- a president dictating the change he can't win through popular support.

There are better ways. Obama could stand up to China, Japan and Germany about mercantilism but he appears to have another agenda. In 2016, voters in economic crisis will be much more receptive to Hillary Clinton than a Republican preaching personal responsibility and limited government.

Democrats will scapegoat Wall Street and the Left's socialist paradise will be at hand.

Remember socialism -- the system that makes everyone equally miserable.

(Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former chief economist at the U.S. International Trade Commission. Follow him on Twitter: @pmorici1)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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