MY FRIEND LARRY

I have a friend named Larry who is an economist and a really smart guy. Oh not THAT Larry; my friend has actually had a couple of real jobs in which he tried to make a good deal of money for other people rather than trying to figure out how to spend other people's money in the creation of larger and larger government. Along the way, he made a good deal of money for himself so when Larry gets onto something it is generally a good idea to listen to what he is saying.

Larry is down in Latin America talking about the U.S. dollar and the "dollar trap" that certainly China, and if they don't look out,in which other developing nations might find themselves...especially Brazil. Unfortunately, the options for these countries are limited and they tend to wait upon some bold move from China and the U.S. to regularize the currency situation which in recent months has been anything but regular with swings in currency valuations up to and in some cases in excess of 40% It's enough to keep finance ministers and economic planners up at night.

The problem is, of course, China has found it difficult if not impossible to match bold steps with some fairly bold rhetoric regarding alternatives to the dollar as a reserve currency, touting SDRs but recognizing that no bod ee wants anything to do with the IMF overseeing currency valuations or flows. Even the Fund recognizes this with its musings that what might be needed is a brand new world central bank. Problem is no one has a clue how that would work.

So, Larry's conclusion is that we will probably be forced to muddle along with nothing short of a world crisis fostering meaningful change with China running continuing surpluses and the U.S. continuing (and growing) deficits as a matter, for both countries of policy rather than anything else. He's probably right as usual, but what he fails to address are the consequences of such a status quo, particularly as they affect this country. I have my own thoughts but I'm going to ask him for his. Stay tuned.