Sunday, November 28, 2010

National Debt part 2: Simplifying the Economic Crisis

We are in dire economic straits because economics bore us, so we let other people do our thinking for us. In most cases, these people are the financial industry (stock and commodity food markets) and the government. Neither can be trusted to look out for our best interests. I think it would be too much of a digression to explain why these two put their own self interests before the good of the country, so let’s just say, they are predators, we are prey.

To start with some basic facts, all businesses are out to make money. A corporation is simply a business with shared ownership. U.S. corporations understand their market very well; we want quantity, not quality. We are into cheap goods. A wise corporation gives its customers what they want. There is no morality involved, they hear our call for cheap; they give it to us. So, the big box stores, like Wal-Mart grow rich moving production to other countries like China, Pakistan, Mexico, and India; maximizing their profits.

To do this, they need deregulation, and above all a “free trade” philosophy. We have provided this incrementally since the 1950s. The Republican Party has stood soundly on a “free trade” platform since the end of World War II.  I’ve listened to people scream about NAFTA. We seem to blame this on Clinton. I remind you that it was a George H. W. Bush project. It was only signed into law under Clinton and he was faced with a Republican majority that would have overridden any veto.

No other country would permit this to happen. We are now the fourth strongest economy in the world (down from first), led by Germany, China and Japan in that order. Each country ahead of us protects their industry. In the name of “freedom“, we do not. Corporate profits really hurt the United States. I do not find fault with Germany, China and Japan. They are simply more intelligent than we are.

The information is there; read Wall Street Journal, Forbes, and Fortune. They all acknowledge that it is the export of our industry that has created massive unemployment. It is the price of cheap products. It is not hurting the corporations; large U. S. corporations are reporting record profits.

Here is what it is doing. The U. S. Bureau of Labor Statistics published that unemployment is at 7.5% this week. That is a false figure. Just searching the Internet I came up with 18.8% unemployment. Another 9%+ are underemployed. A website called MintLife worked it differently and came up with 17.5%.

We have become a dependent nation for many of the necessities of living. We import food, technology, clothing, toys, kitchen gadgets and the components for many of our weapons systems (computer items just for a start). I am not sure this is smart. What happens if transportation costs rise? What if we go to war with one of our supplier nations?

We now have a disastrous trade imbalance. You cannot survive having more money going out than coming in. I know Keynesian theory says it can work, but no country has been able to make it work so far. I think I’ll believe in History.

As a result of our poor balance of trade, we are a debtor nation. We buy from other countries on credit. Even though it is a U. S. corporation owned factory or oil well, the economics of it is that we are buying from China or Saudi Arabia, much of the time on credit. Some of this is paid directly to the workers and associated overhead, but the bulk of it ends up in the hands of their governments. They hold this U. S. debt. They use it to buy our government debt in the form of bonds (actually we sell it to them). That is why China holds so much of our national debt. They can, and do, manipulate our economy by adjusting currency values. This increases our national debt; I understand that it currently adds about 25% to 30% to our debt load.

Think of this when you go to your favorite big box store to do your Christmas shopping.

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