Friday, January 4, 2008

Americans Living Beyond their Means Create Climate Ripe for RECESSION!

My hero Robert Reich is sounding more and more like Lupita every day! From Robert Reich´s Blog:
The Widening Trade Deficit With China, in an Election Year
America’s trade deficit with China looks like it will exceed $250 billion for 2007....the trade deficit numbers are deceptive. Much of what we buy from China today we used to buy from Japan, South Korea, and Taiwan. China has been importing more and more parts from these countries and merely assembling them. But because the final goods are exported from China, they’re counted as Chinese... Remember, we’re dealing with big global companies that are seeking the lowest costs from anywhere around the world — companies often headquartered here in the United States. ..The real problem isn’t our trade deficit with China. The problem is that America as a whole is living beyond its means. If anything, China has been an enabler – lending us heaps of money to continue our buying binge, including (at least until the bubble burst) homes with low-interest mortgages. That binge seems to be coming to a close. But if American politicians succeed in forcing China to raise its currency another 10or 20 percent, the binge will end faster than you can say the word “stagflation.” But not all Americans feel they've been living beyond their means. For most, wages continue to stagnate, inequality is widening, and jobs are less secure. The median wage, adjusted for inflation, is below what it was in 2000. Almost all the benefits of American economic growth have gone to the very top. Don't make China a scapegoat for this, either.

14 comments:

Lupita said...

China has been importing more and more parts from these countries and merely assembling them

Reich is a bit outdated in his information. As it is, China is importing less and less parts and is now producing them internally. Consoling as it may be to think that Chinese are mere zombie assemblers for Wal-Mart, data contradicts this fantasy. China now produces most of its own components and is exporting more and more machinery, whereas Boing now basically produces a shell and imports its components.

China is rapidly industrializing while the US has de-industrialized. Now, the empire is also selling off its crown jewel, the financial sector, to Arab and Asian government funds. How long before China's state farms start inundating the market with agricultural exports? Will the US' heavily subsidized, foreign-labor dependent agricultural sector be able to compete?

Dee said...

Lupita, Given all you have said, I am curious about what you think China will do next? This cartoon I found, what do you anticipate China will do with the $1.33T in Reserves? In your view, how will this impact the US?

Lupita said...

A great chunk of those reserves have gone to an investment fund that is buying mining rights, corporations, banks, you name it, around the globe. It affects the US because China is no longer lending its reserves to the US to keep up consumption but is rather taking advantage of the fire sale in the US to buy assets and rock-bottom prices.

The US is in such a financial bind it is incredible that it has not yet collapsed.

patriot said...

Could it be that part of the reason that Americans are living beyond their means is because their wages have stagnated and their taxes are on the rise?

Lupita said...

Taxes are not on the rise, that is the problem. Americans merrily supported the invasion of Iraq and have not had to spend a cent on it. They are leaving the bill, with interest, to the next generations.

Furthermore, consumerism and indebtedness seem to be an Anglo-Saxon malaise. Great Britain, the US, Australia, Canada, are the countries currently spooking the world with the explosive growth of their debt ratios.

patriot said...

Property tax is one tax that is on the rise. Have to fund all those extra schools we are having to build, right?

Dee said...

Pat, I have not found documentation on the web which indicates there has been a significant increase in property taxes. What documentation do you have to indicate property taxes have significantly increased in your state vs. the rate of inflation?

Liquidmicro said...

Property taxes increased with the rise of the housing market, now that the market is deflating, people are getting their properties re-assessed at a lower amount to actually reduce the tax owed. Thus CA $14B hole. I'm sure other states are also seeing the same thing.

Dee said...

So Liquid, you say the property taxes are going down.

Pat, so much for your argument!

patriot said...

They will only go down if you have your property re-assesed and that is only because of the value of housing going down. Prior to that property taxes were high most everywhere.

Lupita said...

But that is not the government raising taxes, just the effect of financial bubbles and inflation.

Dee said...

Lupita, If I am understanding you correctly, China is self sufficient. They do not outsource their manufacturing or farming. If we were to stop trade with them, they would be able to sustain themselves.

The US, on the other hand, is dependent on China and other countries since we outsource our manufacturing. (your example of Boeing only building shells and imports the bulk of their products).

Therefore, China and many other countries do not have to import as we do. If China switches its $1.4T in reserves from dollars to Euros, our spending spree stops. No more cheap loans. We fall quickly into a Recession or worse. Huge Trouble ahead!

ultima said...

Nothing in excess, everything in moderation whether it is debt or illegal aliens. We have no sense of proportion. What is admirable or acceptable on a small scale is monstrous on the large!

Lupita said...

China is self sufficient. They do not outsource their manufacturing or farming

Therefore, China and many other countries do not have to import as we do

China imports raw materials. However, it is establishing long term strategic alliances with its trading partners and does not impose silly ideologies on the countries it deals with. Furthermore, it has lots of money to lend and give gifts (it just built a conference hall in Ethiopia for the African Union headquarters).

The US, on the other hand, is dependent on China and other countries since we outsource our manufacturing

The US' main dependency is financial, it needs to borrow money to fight wars of choice and overconsume. China and other countries are lending the US rope to tie its noose.

If China switches its $1.4T in reserves from dollars to Euros, our spending spree stops.

China does not need to convert its foreign exchange reserves for that to happen, just stop lending the US fresh money.

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