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Thursday, November 4, 2010

China, not the U.S., is the beneficiary of U.S. stimulus

"Made in China."

Whatever Washington decides to spend and inject back into the economy goes directly overseas. Fact of the matter is, stimulus packages are creating jobs but not here in the US.

The reason is simple: Producers take stimulus funds to make product overseas where the cost of labor is cheaper; employing people of developing countries and not the US.

Inflation will then come back to the US in the form of commodity prices. US workers will demand higher wages as a result. Higher wages leads to higher expenses for producers, who will pass those expenses onto consumers causing more inflation. The Fed will be forced to "sponge up" the excess liquidity by raising interest rates. Triggering massive bubble bursts around the world.

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