Political Economics

Copied in its entirety from Winter Watch:

Congrats, Russ! Awesome post.
I think you’re absolutely right about inflation triggering social unrest. Here’s my theory about how it comes about. Let’s use China as a model. Why does China have 9% inflation? I would say that it’s a result of their monetary policy. This policy has consisted of printing Yuan to buy dollars. Why would they do this? Because if they didn’t buy the dollars that exporters received, then the exporters would have bought Yuan, taking money out of circulation and raising the value of the Yuan. This, in turn would have made exported goods more expensive in foreign countries, limiting the growth and profitability of the export business. So, the exporters/owners of capital/rich colluded with the government to devalue everyone’s money, rich and poor alike. The exporters never care when this happens, because they’re always ahead of the curve. The poor are always behind. They don’t realize that they’ve been robbed until it’s too late. The rich have taken their money out of the country, or are making even more off the crack-up-boom. (Nothing against the rich here, just trying to explain what happens here. It’s human nature to look out for yourself first.) But why the shortages? Price controls always cause shortages. PetroChina just lost $18 Billion on price controls, selling gasoline at a loss. Do you think they’re trying to supply the Chinese people with more or less gasoline?
It is not an accident that export driven economies with currencies pegged to the dollar have runaway inflation.
On the other hand, look at Brasil. They’ve allowed their Real to float against the dollar, and they have a healthy economy and falling inflation (currently 3-4% instead of close to 20% a few years ago, if my memory serves me well). Russ, correct me if I’m way off base with Brasil.

This summarizes my current thinking on politics and economics, and why I think the dollar has a lot further to fall. There are a lot of pegs to be broken or "revalued."