Tuesday, January 22, 2008

American Economy

Americans are becoming increasingly worried about the shap of their economy, so the presidential hopefuls are jumping on the bandwagon. Bill Bonner has the following thoughts.

President Bush is pushing a plan to give the country a “shot in the arm” – at a cost of $150 billion. If Congress would just get behind this thing, he says, we could have rebate checks in the mail in just a few weeks. Our president misses the point. He, like all the White House hopefuls, wants to keep the phony boom alive – in the worst possible way, by providing more “stimulus” to consumers...that is, by helping them spend even more money they haven’t got on things they don’t really need. What this perverse economy really needs is not a shot in the arm, but a shot in the head.
Over the past few year, the world has been awash in money flowing out of the American Federal Reserve. This cheap and easy credit has created all sorts of distortions in economies throughout the world. Now that that easy credit is drying up, these same economies are starting to starting to creak in their joints. The solution is not more cheap money and easy credit. The world will have to "dry out" and live within its means.


Gene said...

Agreed, but living within it's means will be more painful than the world may agree to without conflict.

In the USA our standard of living has declined significantly. I'm old enough to remember when. Oh, we worry about Brittany Spears and have our big screen TV's but we don't buy cars as often, we take fewer vacations, we don't have money in the bank, our outgo is far mare than our income, the jobs we looked forward to having even to prepare ourselves for are not there. The Jobs we can get are poor pay and no sustainability.

There are wealthy but globalism has taken it's toll.

If Americans back off further which they will and if the world has to dry out, it's going to be painful particularly in emerging economies. India and China.

I wish the White House would leave things alone. Let's go thru the pain once and for all.

The only good news is, by the end of the year the pain will be subsiding.

I wish the old standard of living from the 70s and early 80s could return. It won't. We now live much poorer. It's not due to war. It's not even due to Oil prices.

It's due to unrestrained globalizatin that has allowed cheap WalMart product made in the far east and driven lower and lower wage pressues on the hourly worker.

It's a crime without a perpetrator but wide victimhood.

This drying out will have a far more devastating effect in places that don't need it right now than it will in the USA.

Ron McK said...

I think that you have got the wrong end of the stick.

First, globalization is not a great conspiracy to harm innocent people, but a part of normal human development. It is the natural outworking of improvements in communication and transport.

Two hundred years ago, everything that a person could consume had to be produced in their village. Only the rich could afford Chinese silk or Indian tea. Life was pretty mean for ordinary people. I would not want to go back to that.

Improved communication and transport now gives ordinary people access to a vast range of goods and services that our ancestors never dreamed could be possible. At the same time the expanded division of labor has dramatically reduced the cost of most the stuff that we buy, improving the well being of almost everyone.

The people of Detroit are currently feeling pain, but so did the people that made carriages, and harness, when cars replaced horse transport. We cannot lock history in the past. I don’t like horses that much, so I pleased that we do not depend on them for transport.

There is nothing that Washington can do to prevent globalization. They cannot stop the Chinese from making very good television sets and they cannot stop American consumers from buying them if they are cheaper than American made ones. The only way that Washington could stop globalization would be to start a world war that disrupts global transport and communication, but I doubt that even you would want that.

Second, Walmart is not the enemy. If Walmart was not importing cheap goods from China (almost all retailers are now doing the same), the pain being felt by poorer Americans would be much worse. If you could only buy American made, Americans would not be able to afford your current lifestyle.

You should not be too indignant about the Chinese. Although very poor, the people of China are effectively forced by their leaders to save about half of what they produce. The Chinese monetary authorities have channeled those saving into US Treasury bonds. The money then feeds through the American financial system to the credit cards of Americans. The result is that ordinary Americans have been using the savings of the Chinese to pay for their consumer goods. If this pattern stops Americans will feel as much pain as the Chinese.

So as well as providing you with cheap goods that you could not otherwise afford, the Chinese are also providing the savings so that you can buy goods that you cannot afford. You should not be complaining about them.

Finally, the current economic problems have not arisen because Washington has been inactive, The problems have arisen because Washington has been too active. The glut of credit was caused by the Federal Reserve with approval from Washington. More action by Washington might be a short term panacea, but it will deal with the real problems.

Giving an alcoholic another drink relieves their DTs, but it does not help long term. Today, Ben the Banker gave the gave the US economy another drink, but it will not get it “off the wagon”.

Gene said...

Ron, I know on the surface it seems like that to most people.

I'm NOT an economist. I defer to your expertise as you might if the topic were horticulture.

But, the US standard of living has been negativly affected over my lifetime. We are poorer. We have exported our lifestyle. We are more like Argentina than I wish we were. Very wealthy and very poor and an edge of poverty middle class.

Washington has done too much.

Globaliation started when Columbus discoverd America and imported tobbacco to Europe. It hasn't stopped.

But, we are poorer for it. And continue. India and China's lifestles improve in direct proportion to a decline in America's lifestyle.

Can it be stopped? I don't know. Maybe not by politicians. Maybe by high Oil Prices. Maybe by devaluation of the Dollar making imported products too expensive.

I'm not an economist but I can say as a frog in the boiling pot, things are not as they should be.

Ron McK said...

Yes, you are poorer, and things as not as they should be, but globalisation is not the reason.

The reason is that your nation has lost the blessing of God.