Bush's announcement of an injection of money into the US economy through tax cuts - without spending cuts - in order to prevent recession, is classic inflation of the kind condemned by monetarists such as Milton Friedman, who was not wrong in his analysis of the causes of persistent and generalised increases in prices, which is what this policy will lead to. It demonstrates the economic illiteracy of Bush and his advisors. It is the worst possible thing the US government could do. It will lead to disaster. The US balance of payments deficit has resulted in very large dollar balances being held abroad, especially in China and the oil producing countries. The mere announcement of this fiscal policy will promote holders of dollars to unload them and into currencies that seem more substantial, such as the euro, which is why it has risen against other currencies. The pound will probably fall with the dollar, which will result in widespread price rises in the UK also, especially if inter...
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