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Don't Blame Obama for Economists' Ignorance; Trade-Surplus Countries May Never Balance Their Trade Voluntarily, the US Must Follow Nixon's 1971 Example.

The only way to avoid the collapse of the dollar is for the US to impose a gradually increasing general tariff to all products from export-surplus countries

DENVER, Nov. 18, 2010 /PRNewswire/ -- The Following is a statement by J. Moromisato, director of the Reformed Economics Institute at Denver.

5. The Denver Plan: The Solution to the Trade Deficit, and More.

The recent failure of President Obama's efforts to get some relief from the destructive US-trade deficits points to the limits of appeals to self-sacrifice. Trade surplus is in fact tremendously advantageous for any country that can achieve it consistently -- for example, it creates more jobs than the domestic economy can sustain.

Take China, for instance. Its trade surplus has allowed its economy to grow at an incredible rate, while accumulating several trillions dollars in foreign reserve. The Chinese government is now flush with enough money to not only equip its army and influence its neighbors, but also to send explorers to the Moon. Why would they give up all that? Just because Obama asked nicely?

And all that President Obama is asking the Chinese is to let their currency appreciate. Even if they agree to that -- a big "if" -- that would not guarantee a balance trade.

The other big trade-surplus countries, Germany and Japan, have the same internal pressure to provide jobs for their people; it would be political suicide for them to even agree to work on balancing their trade.

President Nixon found himself in a similar predicament in the early 70s -- the large accumulated trade deficit was then depleting the US gold reserve. France was building up its gold reserve and agitating to increase the price of gold. Nixon, against the advise of his trusted economic advisor, decided to "close the gold window," moving the entire world to a fiat money system -- unconvertible money. Japan and the major European countries, the big exporters at the time, agreed to a sizeable devaluation of the US dollar against their currencies.

After almost a decade of financial upheaval made worse by the emergence of OPEC, and the bout of inflation at the end of the Carter Administration, the entire world entered a period of unprecedented growth -- with the exception of many countries in Africa, and a few elsewhere. The fact that Nixon's unilateral decision was not directed to any country, or any product, in particular, made it more palatable to other countries.

Now, the only way the US can avoid the collapse of its currency is to impose a gradually increasing general tariff to all products from export-surplus countries.

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J. Moromisato is the founder-director of the Reformed Economic Institute, and author of The Origin of Wealth and Poverty (2007), The Coming Age of Freed Money (2010). And The Denver Plan to End Unemployment (Oct 2010).

Contact: J. Moromisato, (303) 321-0577

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SOURCE J. Moromisato
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Publication:PR Newswire
Date:Nov 18, 2010
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