Elaine Meinel Supkis
Here we go yet again: the trade deficit makes new records, shooting through the roof. And the same solution is offered: make the Chinese currency stronger than the dollar. This is pure insanity and has nothing to do with China as the chart above shows. Since 1980, the USA has been falling steeply in the red on all levels.
The USA can't balance any books at all.
By MARTIN CRUTSINGER, AP Economics Writer 1 hour, 30 minutes ago
WASHINGTON - The U.S. trade deficit set a record for a fifth straight year, and the imbalance with China soared to an all-time high as well.
The Bush administration pledged to keep pursuing its free-trade policies, while Democrats now controlling Congress demanded a change in course.
The gap between what the U.S. sells abroad and what it imports rose to a record $763.6 billion last year, up 6.5 percent from the previous record of $716.7 billion in 2005, the Commerce Department reported Tuesday.
For December, the deficit jumped a bigger-than-expected 5.3 percent to $61.2 billion.
The problem with anyone focusing on only one thing at a time is, they can't see the bigger picture. And the big picture is the red ink that is rising on every level in our culture. It isn't just the USA, all the major developed countries are struggling in this New World Order business. But none are doing it at as many levels and as horribly as the USA. We are truly #1 when it comes to irresponsibility.
The epic levels of bad financial news in so far as deficits of any sort is concerned takes the breath away. Not only are all the bad numbers shooting steeply into the red, there is NO point where ANYTHING is positive at all!
Whether one looks at percentages of debt ratios with the GNP or percentages savings versus income or trade deficits and government spending deficits, all are running in the negative and all spell clearly our future prospects: we are doomed.
This is all very sad because the raging insanity of the Reagan economic system is now perfectly clear: almost NONE of these numbers were in the negative when he declared, 'Morning in America!' and launched us on this road to hell. Gambling, which was trying to sneak into our society for years, was basically not only legalized but encouraged to spread until is has taken over vast swaths of our economic landscape. Interest rates which Jimmy Carter's economic crew had to raise very high to kill inflation which was raging due to the USA hitting its own Hubbert Oil Peak and the need to pay government debts from the Vietnam War via making money worthless.
This cut consumer spending and the trade deficit, which was just beginning to take off under Nixon's mis-management, was balanced again, as it had been before the Vietnam War. Thanks to high interest rates, people began to save again and the savings rate was healthy. Reagan said, 'Why worry about the future,' and some of his own cabinet ministers even said out loud, 'There will be no future, anyway, because this will be the End of Times.'
This childish belief we will be seeing the End of Times has gripped the same voters who fell for Reagan's siren song of easy money/easy living. So indeed, we will be seeing the End of Times: the dominance of the USA as not only an empire but as any operative entity.
The perverse economic attitude has not only infected the Stock Market, it is now responsible for enabling the destruction of our economic system.
Wall Street, as it often does, took cheer from bad news. Stocks rallied yesterday as the prospect of slower growth eased concerns that the Federal Reserve might bump up interest rates to fight inflation, and revived hopes in some quarters that the Fed might cut rates soon. But slower growth could also make businesses more cautious about expanding, meaning higher unemployment for U.S. workers.
In Congress, the new Democratic leadership used the record deficit to accuse the Bush administration of selling out the interests of American workers in pursuit of trade deals. In a letter to President Bush, top Democrats, including House Speaker Nancy Pelosi (D-Calif.) and Rep. Charles B. Rangel (D-N.Y.), chairman of the Ways and Means Committee, called the trade deficit "unsustainable," listing among its consequences "failed businesses, displaced workers, lower real wages and rising inequality."
Thanks to the economic distortions set in motion by Reagan and the GOP, our economic system has been set on 'cannibal' mode. Stocks go up only on bad news. If something is bad for the American workers such as their wages go down, stocks shoot up and the brokers celebrate breaking the economic balance of power. As workers got poorer, the ruling elites dropped interest rates so the workers could go into debt.
These low interest rates meant businesses could borrow money recklessly. They borrowed it in order to use that capital to eliminate American workers. Shutting down factories here and opening them in other countries meant they could play currency games as well as evade a host of taxes and wage expenses and so the investors became tremendously rich while the workers accumulated fatal levels of debt.
This game could roll on for only a short while, looking at history as a whole. 40 years is the maximum and we are already 27 years down the road to bankruptcy and we will be bankrupt just in time for all the baby boomers to be retired. Since Social Security has saved zero dollars, it being raided to pay for the government's portion of red ink, this means the only solution to our looming economic problems will be to throw out all the baby boomers and let them beg for food on street corners.
China asserts that it has been made a scapegoat for the loss of U.S. manufacturing jobs. Many of China's exports are produced in factories owned by U.S. firms for shipment to American stores, said Zhang Erzhen, a trade expert at Nanjing University.
Zhang echoed contentions from Beijing that China's trade surplus with the United States would be smaller if Washington relented on national-security restrictions that bar Chinese companies from purchasing some U.S.-made high-technology goods.
Since Chinese labor is now exploited for the benefit of Wall Street and the American government, these same people are blamed by both for our present problems.
But looking at the graph I drew above, it is obvious that all the negative forces at work today tearing down our own economic system were all launched long before we traded so much as a chopstick with China: 1980. This is a significant year. Nearly all the bad graphic lines which were in more or less balance before 1980, take off at that point in time.
All negative economic forces began to shoot out of control around that year. And the only really significant event that year was the revolt of the American voters wishing for a free lunch, the tooth fairy and Santa Claus all at once. This was granted by Santa Claus who has an army of elves who are tabulating all this on a super-big bill that will be presented to us one fine, nasty day.
Even after the bad effects of the Reagan fiscal philosophy was made painfully obvious back in 1992, even after Clinton tried successfully to fix one of the broken pipelines of red ink, our budget deficit, even that infuriated the American voters who trooped off to vote into power, the GOP. They opened the sluice gates of debt and let her rip.
Here is some OLD analysis from the San Francisco Federal Reserve circa 2005:
According to the model, the personal saving rate would be expected to halt its decline and start moving up if stock or housing markets sagged, or if long-term interest rates jumped, say, due to inflation fears. An increase in the personal saving rate would slow the growth of household spending which, in turn, would have negative implications for the derived demands of business investment, inventory accumulation, and business hiring. But, on a positive note, a pickup in saving activity in the household sector would help offset the ongoing deficit spending in the government sector. A rise in net domestic saving would reduce the U.S. economy's reliance on foreign capital inflows as a source of saving. At present, the U.S. current account deficit stands at more than 6% of GDP, implying that the U.S. economy must draw in around $3 billion per day from foreign investors to finance domestic spending.
Policy implications
The decline in domestic saving activity and the accompanying increase in the U.S. current account deficit have been labeled "unsustainable" by many analysts and commentators.
Will strengthening the yuan fix problems that are at multiple levels and all of which began long before any real trade with China started? Of course not.
Chinese industry is acting in an economic system set up by the American elites and the Japanese imperialists. This was a see-saw using currency manipulations to keep interest rates low in Japan as well as discouraging imports by severe government and social restrictions on any imports except for a handful of luxury items coupled with a steady flow of savings from Japan exported to America to cover our red ink.
This system, once it was set into motion, meant the Japanese would get richer and richer and we would slide into debt. Because they offered low interest rates, we thought this stupidity was a nifty bargain. Once it got rolling, it became difficult to escape because we would have to stop buying not just Japanese stuff but our own stuff as well because credit would dry up! And not only that, the money we printed up to ship to Japan (actually, all of this is simply numbers we produce and then relay to Japan) would have to come home, worthless. Namely, the yen would have to displace the dollar in Asia as the top currency.
Even with Japan as the world's #2 economy, the yen is used for virtually nothing in international markets due to its false value. It is as fake as the Russian ruble back in communist days which the Russians valued at a ridiculously high level that was not reflected by reality. They did this to garnish foreign exchanges within Russia, it was a hidden tax. So no one used rubles outside Russia and inside Russia, they all wanted to us USA dollars.
If we were to convert our dollars to Japanese yen and then go shopping in the USA for Japanese goods, we would be horrified at the inflation this reveals. The difference between the value of the yen and its real value for Japanese goods here is startling and it is a clue as to how steeply they have discounted their own currency in order to keep interest rates at around zero in Japan and their trade surplus at historic levels.
They don't worry about the high cost of oil which is denominated in dollars, not yen, because they use their dollars directly to buy the oil. This keeps a good part of their surplus dollars circulating outside Japan. This fatal relationship is never mentioned in the news, Americans only hear about China.
China, being much bigger than Japan as a country, has a suitably bigger trade surplus with the captive USA markets. In Japan's trade surplus, all the companies are owned and operated by Japanese men and they have colonized a good part of the native American manufacturing base, too. But in China, many of the companies are American-owned...for the present. And so the trade deficit is really Americans off-shoring costs so they can collect a profit and not share much capital with American workers.
Let's be very clear here: all Japanese factories in the USA are for assembling stuff produced in Japan for the USA markets. And this is to hide the true level of the trade deficit we have with Japan! Namely, the Japanese don't want us to know it is really double the size we see today in the trade figures. This is true of many European manufacturers who also have taken over a good hunk of our industries as we madly sell off everything we built in order to raise more money for loans to ourselves.
The Chinese are barely beginning to do this too. Eventually, they will do it to the same degree as their competitors. Germany, forcing everyone using the euro to save money thanks to the German desire for little inflation/big savings, has made the euro a strong currency. But the Japanese have undermined this with their ridiculously weak, feeble currency which is why the world's monetary balance is way off. The meeting this week in Europe whereby Japan totally slipped the leash and only China was punished over these currency woes launched by Japan and the USA in 1980, irritated me tremendously. This was pure politics as the Europeans struggle to please the USA by playing foolish political hopscotch.
Even as foreign powers chew their fingernails over the deteriorating American fiscal and trade situation, they are helpless because the USA is very belligerent right now and strident about continuing this foolish course. It is nice to hear the Democrats talk about all this but they won't talk about the entire picture because this means raising taxes and cutting spending.
I noted this week how the entire left side of the web universe got all defensive about Pelosi needing a private military jet to fly nonstop across America---heh, talk about 'what is wrong with Kansas'! Obviously, Kansas is pure poison to her!
The fact is, she shouldn't be getting this at all. Indeed, the USA's Presidents shouldn't be tooling around in a huge flotilla of jets loaded with the latest toys. We are poor. Or we should tax the rich to pay for Bush's flotilla! Since our wealthy citizens don't want to pay a penny, we should have ALL our politicians hitchhike. The stories we see today are all attached to this notion that no one has to pay their own way, no one has to pay the piper and Santa Claus is going to save us.
Wall Street shoots up not because things are going great but because they hope things deteriorate so badly, the Federal Treasury will drop interest rates to Japanese levels and then everyone will spend even more and debt will shoot up even more and so on....a total disaster! As Carter's finance minister, Volker, keeps reminding us, this is unsustainable. He is practically in tears trying to persuade us to stop doing these stupid things.
No one seems to be listening except for the gold bug people. They remember how the price of gold shot up under President Ford. Through the roof. Ford, like the people running things today, kept interest rates really low even as inflation shot through the roof.
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