Welcome to ASFN Fan Forums! We're glad to have you here. Please feel free to browse the forum. We'd like to invite you to join our community; doing so will enable you to view additional forums and post with our other members.
Registered Members don't see these ads. Register now it's free!
The Real Cost Of Offshoring
U.S. data show that moving jobs overseas hasn't hurt the economy. Here's why those stats are wrong
Whenever critics of globalization complain about the loss of American jobs to low-cost countries such as China and India, supporters point to the powerful performance of the U.S. economy. And with good reason. Despite the latest slow quarter, official statistics show that America's economic output has grown at a solid 3.3% annual rate since 2003, a period when imports from low-cost countries have soared. Similarly, domestic manufacturing output has expanded at a decent pace. On the face of it, offshoring doesn't seem to be having much of an effect at all.
But new evidence suggests that shifting production overseas has inflicted worse damage on the U.S. economy than the numbers show. BusinessWeek has learned of a gaping flaw in the way statistics treat offshoring, with serious economic and political implications. Top government statisticians now acknowledge that the problem exists, and say it could prove to be significant.
The short explanation is that the growth of domestic manufacturing has been substantially overstated in recent years. That means productivity gains and overall economic growth have been overstated as well. And that raises questions about U.S. competitiveness and "helps explain why wage growth for most American workers has been weak," says Susan N. Houseman, an economist at the W.E. Upjohn Institute for Employment Research who identifies the distorting effects of offshoring in a soon-to-be-published paper.
FLY IN THE OINTMENT
The underlying problem is located in an obscure statistic: the import price data published monthly by the Bureau of Labor Statistics (BLS). Because of it, many of the cost cuts and product innovations being made overseas by global companies and foreign suppliers aren't being counted properly. And that spells trouble because, surprisingly, the government uses the erroneous import price data directly and indirectly as part of its calculation for many other major economic statistics, including productivity, the output of the manufacturing sector, and real gross domestic product (GDP), which is supposed to be the inflation-adjusted value of all the goods and services produced inside the U.S. (For a detailed explanation of how import price data are calculated and why the methodology is suspect, see page 34.)
The result? BusinessWeek's analysis of the import price data reveals offshoring to low-cost countries is in fact creating "phantom GDP"--reported gains in GDP that don't correspond to any actual domestic production. The only question is the magnitude of the disconnect. "There's something real here, but we don't know how much," says J. Steven Landefeld, director of the Bureau of Economic Analysis (BEA), which puts together the GDP figures. Adds Matthew J. Slaughter, an economist at the Amos Tuck School of Business at Dartmouth College who until last February was on President George W. Bush's Council of Economic Advisers: "There are potentially big implications. I worry about how pervasive this is."
By BusinessWeek's admittedly rough estimate, offshoring may have created about $66 billion in phantom GDP gains since 2003 (page 31). That would lower real GDP today by about half of 1%, which is substantial but not huge. But put another way, $66 billion would wipe out as much as 40% of the gains in manufacturing output over the same period.
It's important to emphasize the tenuousness of this calculation. In particular, it required BusinessWeek to make assumptions about the size of the cost savings from offshoring, information the government doesn't even collect.
GETTING WORSE
As a result, the actual size of phantom GDP could be a lot larger, or perhaps smaller. This estimate mainly focuses on the shift of manufacturing overseas. But phantom GDP can be created by the introduction of innovative new imported products or by the offshoring of research and development, design, and services as well--and there aren't enough data in those areas to take a stab at a calculation. "As these [low-cost] countries move up the value chain, the problem becomes worse and worse," says Jerry A. Hausman, a top economist at Massachusetts Institute of Technology. "You've put your finger on a real problem."
Alternatively, as Landefeld notes, the size of the overstatement could be smaller. One possible offset: Machinery and high-tech equipment shipped directly to businesses from foreign suppliers may generate less phantom GDP, just because of the way the numbers are constructed.
Depending on your attitude toward offshoring, the existence of phantom GDP is either testimony to the power of globalization or confirmation of long-held fears. The U.S. economy no longer stops at the water's edge. Global corporations often provide their foreign suppliers and overseas subsidiaries with business knowledge, management practices, training, and all sorts of other intangible exports not picked up in the government data. In return, they get back cheap products.
But the new numbers also require a reassessment of productivity and wages that could add fire to the national debate over the true performance of the economy in President Bush's second term. The official statistics show that productivity, or output per hour, grew at a 1.8% rate over the past three years. But taking the phantom GDP effect into account, the actual rate of productivity growth might be closer to 1.6%--about what it was in the 1980s.
More broadly, it becomes clear that "gains from trade are being measured instead of productivity," according to Robert C. Feenstra, an economist at the University of California at Davis and the director of the international trade and investment program at the National Bureau of Economic Research. "This has been missed."
Pat Byrne, the global managing partner of Accenture Ltd.'s (ACN ) supply-chain management practice, goes even further, suggesting that "at least half of U.S. productivity [growth] has been because of globalization." But quantifying this is tough, he notes, because most companies don't look at how much of their productivity growth is onshore and how much is offshore. "I don't know of any companies or industries that have tried to measure this. Maybe they don't even want to know."
Phantom GDP helps explain why U.S. workers aren't benefiting more as their companies grow ever more efficient. The cost savings that companies are reaping "don't represent increased productivity of American workers producing goods and services in the U.S.," says Houseman. In contrast, compensation of senior executives is typically tied to profits, which have soared alongside offshoring.
IMPORTING EARNINGS
But where are those vigorous corporate profits coming from? The strong earnings growth of U.S.-based corporations is still real, but it may be that fewer of the gains are coming from improvements in domestic productivity. In fact, holding down costs by moving key tasks overseas could be having a greater impact on corporate earnings than anyone guessed--or measured.
There are investing implications, too, although those are harder to quantify. Companies with their primary focus in the U.S. might suddenly seem less attractive, since underlying economic growth is slower here than the numbers show. But if the statistical systems of other developed countries suffer from the same problem--and they might--then growth in Europe and Japan might be overstated, too.
When Houseman first uncovered the problem with the numbers that is created by offshoring, she was primarily focused on manufacturing productivity, where the official stats show a 32% increase since 2000. But while some of the gains may be real, they also include unlikely productivity jumps in heavily outsourced industries (see BusinessWeek.com, 6/2/07, "Overseas Sweatshops Are a U.S. Responsibility") such as furniture and audio and video equipment such as televisions. "In some sectors, productivity growth may be an indicator not of how competitive American workers are in international markets," says Houseman, "but rather of how cost-uncompetitive they are." For example, furniture manufacturing has been transformed by offshoring in recent years. Imports have surged from $17.2 billion in 2000 to $30.3 billion in 2006, with virtually all of that increase coming from low-cost China. And the industry has lost 21% of its jobs during the same period.
Yet Washington's official statistics show that productivity per hour in the furniture industry went up by 23% and output by 3% between 2000 and 2005. Those numbers baffle longtime industry consultant Arthur Raymond of Raleigh, N.C., who has watched factory after factory close. "And we haven't pumped any money into the remaining plants," says Raymond. "How anybody can say that domestic production has stayed level is beyond me."
WRENCHING PROCESS
Paul B. Toms Jr., CEO of publicly traded Hooker Furniture Corp., (HOFT) recently closed his company's last remaining domestic wood-furniture manufacturing plant, in Martinsville, Va. It was the culmination of a wrenching process that started in 2000, when Hooker still made the vast majority of its products in the U.S. Toms didn't want to go overseas, he says, but he couldn't pass up the 20% to 25% savings to be gleaned from manufacturing there.
The lure ofoffshoring works the same way for large companies. Byrne of Accenture is working with a "major transportation equipment company" that's planning to offshore more than half of its parts procurement over the next few years. Most of it will go to China. "We're talking about 30% to 40% cost reductions," says Byrne.
Yet no matter how hard you look, you can't find any trace of the cost savings from offshoring in the import price statistics. The furniture industry's experience is particularly telling. Despite the surge of low-priced chairs, tables, and similar products from China, the BLS is reporting that the import price of furniture has actually risen 6.7% since 2003.
The numbers for Chinese imports as a whole are equally out of step with reality. Over the past three years, total imports have climbed by 89%, as U.S.-based companies have rushed to take advantage of the enormous cost advantages. Yet over the same period, the import price index for goods coming out of China has declined a mere 2.3%.
FACADE OF GROWTH
The import price index also misses the cost cut when production of an item, such as blue jeans, is switched from a country such as Mexico to a cheaper country like China. That's especially likely to happen if the item goes through a different importer when it comes from a new country, because government statisticians have no way of linking the blue jeans made in China with the same pair that had been made in Mexico.
Phantom GDP can also be created in import-dependent industries with fast product cycles, because the import price statistics can't keep up with the rapid pace of change. And it can happen when foreign suppliers take on tasks such as product design without raising the price. That's an effective cost cut for the American purchaser, but the folks at the BLS have no way of picking it up.
The effects of phantom GDP seem to be mostly concentrated in the past three years, when offshoring has accelerated. Indeed, the first time the term appeared in BusinessWeek was in 2003. Before then, China and India in particular were much smaller exporters to the U.S.
The one area where phantom GDP may have made an earlier appearance is information technology. Outsourcing of production to Asia really took hold in the late 1990s, after the Information Technology Agreement of 1997 sharply cut the duties on IT equipment. "At least a portion of the productivity improvement in the late 1990s ought to be attributed to falling import prices," says Feenstra of UC Davis, who along with Slaughter and two other co-authors has been examining this question.
What does phantom GDP mean for policymakers? For one thing, it calls into question the economic statistics that the Federal Reserve uses to guide monetary policy. If domestic productivity growth has been overstated for the past few years, that suggests the nation's long-term sustainable growth rate may be lower than thought, and the Fed may have less leeway to cut rates.
In terms of trade policy, the new perspective suggests the U.S. may have a worse competitiveness problem than most people realized. It was easy to downplay the huge trade deficit as long as it seemed as though domestic growth was strong. But if the import boom is actually creating only a facade of growth, that's a different story. This lends more credence to corporate leaders such as CEO John Chambers of Cisco Systems Inc. (CSCO ) who have publicly worried about U.S. competitiveness--and who perhaps coincidentally have been the ones leading the charge offshore.
In a broader sense, though, the problem with the statistics reveals that the conventional nation-centric view of the U.S. economy is completely obsolete. Nowadays we live in a world where tightly integrated supply chains are a reality.
For that reason, Landefeld of the BEA suggests perhaps part of the cost cuts from offshoring are being appropriately picked up in GDP. In some cases, intangible activities such as R&D and design of a new product or service take place in the U.S. even though the production work is done overseas. Then it may make sense for the gains in productivity in the supply chain to be booked to this country. Says Landefeld: "The companies do own those profits." Still, counters Houseman, "it doesn't represent a more efficient production of things made in this country."
What Landefeld and Houseman can agree on is that the rush of globalization has brought about a fundamental change in the U.S. economy. This is why the methods for measuring the economy need to change, too.
Registered Members don't see these ads. Register now it's free!
That's exactly how I think of it, it's all fine, nothing to see here, everything is going peachy, and if it's not we'll just say it is.
A lot of economics is expectations, if you can manipulate peoples perceptions then they'll act differently than if they think trouble is brewing.
All you have to do is tweak a few numbers and call things good and it stays good but the flipside to all of that is that if you're caught you should lose trust only it's very hard to prove this and it's also not an easy issue to explain to people.
People don't grasp a lot of this and it's minutia, also when discovered people just yawn at it so the government gets a pass on all of it, where are the academics blasting this? There there but no one cares.
This strategy can avoid falling into a recession or cover up a mild one but if things go very bad then people will micromange the why it happened and in there will be all your lies and at that time the jig is up.
Maybe it's just an honest mistake but IMO it's not at all it's on purpose.
__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.
~Abraham Lincoln Lyceum Address
Last edited by conraddobler; June 14th, 2007 at 11:07 AM.
By Steven Pearlstein
Wednesday, June 13, 2007; Page D01
To understand why there's a credit bubble, how it's inflating the price of stocks and what it will mean for you when it bursts, let's consider the acquisition of Avaya, a large telecommunications equipment maker, announced last week by two private-equity firms, Texas Pacific Group and Silver Lake Partners.
Avaya is expected to post revenue of about $5.4 billion this year. It has virtually no debt and has $825 million in the bank. Operating earnings -- profit before counting things like interest payments, taxes, depreciation and amortization -- are expected to reach $700 million. And if that's correct, it means the price being paid for Avaya, $8.2 billion, is 12 times operating profit, making it one of this season's richest deals.
What's driving such high valuations is cheap debt, and plenty of it. We don't know yet how the all-cash purchase of Avaya will be financed, but if it follows the pattern of other recent buyouts, the new owners will take on at least $6 billion in debt. Given the junk-bond rating that has already been assigned to the deal, that is likely to work out to an average interest rate of about 8 percent, along with the obligation to pay back 1 percent of principal every year. Add it all together, and the new, improved Avaya will have to pay about $540 million more a year in debt service than it does now.
Can the company handle that? Well, consider that only three years ago, Standard & Poor's calculated that operating profits for companies involved in leveraged buyouts were typically 3.4 times debt service. Last year, the number fell to 2.4. So far this year, it is 1.7.
And the Avaya deal? It's 1.3 to 1, which, if you think about it, isn't much of a cushion if revenue suddenly falls or expenses rise more than expected. Nor would there be much cash left over for the company to increase its investment in research or pay for new plant and equipment.
In other words, a deal like this would never get financed in normal times. Bank lenders and bondholders would demand that the new owners use more of their own money and take on less debt. Or they would demand interest rates so high that the company, as presently configured, wouldn't be able to generate enough cash to cover debt service. Either way, the buyers would never have agreed to pay $8.2 billion.
But these are not normal times, and overpriced and over-leveraged deals like Avaya have been getting financed in record numbers. Back in 2004, about $275 billion in loans were issued for such highly leveraged transactions. By last year, that had risen to $490 billion. And in just the first five months of 2007, that record was broken.
At some point sanity will be restored, triggered by any number of events. A high-profile acquisition could collapse because the new owners could not secure financing. Or a deal could blow up after it is discovered that there's really not enough cash to meet the debt payments. Or interest rates could suddenly rise from their current low level, threatening the viability of recently acquired companies and making it unlikely that the new owners will be able to sell for anything close to what they paid.
In fact, over the past several weeks, all those things have begun to happen.
On the bond market, yields on the benchmark 10-year Treasury bill have increased from just under 4.5 percent to more than 5.25 percent -- a three-quarters-of-a-point jump without any action by the Federal Reserve.
And just last week, William Gross, one of the country's leading bond investors, recanted on his prediction that interest rates were headed down, warning instead that yields on 10-year Treasurys could reach 6.5 percent over the next several years.
Syndicated loans used to finance the recent purchases of the Minneapolis Star Tribune, Linens 'n Things and Freescale, a semiconductor maker, are trading at significant discounts only months after the deals were closed, after the companies reported disappointing earnings or cash flow.
Meanwhile, the Wall Street Journal reported that after a period in which lenders were throwing money at leveraged buyouts with few if any conditions, several private-equity buyers are having more trouble financing their deals. Those include KKR's $26 billion acquisition of First Data and Texas Pacific's purchase of JVC, the struggling consumer electronics giant.
It is impossible to predict when the magic moment will be reached and everyone finally realizes that the prices being paid for these companies, and the debt taken on to support the acquisitions, are unsustainable. When that happens, it won't be pretty. Across the board, stock prices and company valuations will fall. Banks will announce painful write-offs, some hedge funds will close their doors, and private-equity funds will report disappointing returns. Some companies will be forced into bankruptcy or restructuring.
But the damage won't be limited to Wall Street and its investors. For if we've learned one thing in the past 20 years, it is that what happens on financial markets, in booms and in busts, can have a big impact on the rest of the economy.
Without the billions of dollars flowing each year to financiers and corporate executives, there will be less money to trickle down to car salesmen, yacht makers, real estate agents, third-home builders and busboys at luxury resorts.
Falling stock prices will cause companies to reduce their hiring and capital spending while governments will be forced to raise taxes or reduce services, as revenue from capital gains taxes declines.
And the combination of reduced wealth and higher interest rates will finally cause consumers to pull back on their debt-financed consumption.
It happened after the junk-bond and savings-and-loan collapses of the late 1980s. It happened after the tech and telecom bust of the late '90s. And it will happen this time.
The recent decline in home prices and the meltdown in the market for subprime mortgages are the first signs that the air is coming out of the credit bubble. Already, those factors have shaved half a percentage point off the economic growth rate. And you can be sure that there will be a much larger impact on jobs and incomes from a broad decline in stock and bond prices, a sharp tightening of credit and the turmoil that both of those will create in the murky derivatives markets.
People get the idea I'm anti business with some of the threads I've started on this stuff and nothing could be further from the truth.
I am a true conservative on business matters, I believe there are no shortcuts and that the world of business is the efficient engine that we all use to drive our wealth.
Now sure there are greedy people in it and it gets out of control and so it needs some rules or the law of the jungle will take over and you'd have Microsoft or Walmart owning everything.
It's governments job to be a referee and harness that power for good, although they turn into something different altogether they turn into a corrupter of the economy and an abuser of power.
The government does try and help but it's woefully inadequate to do the job and there is no replacement for ethics, if people by and large have none, your society by and large will have none.
The whole thing is just a reflection of us, if we stand up and throttle the robber barrons they'll back off, if we yawn and go back to watching Idol they'll make off with every last stick while we aren't paying attention.
The system is now a shadow of itself just like our morals.
Business ethics have to be taught now, it's common sense, what's right isn't that hard to figure out, it's just painful to practice.
The whole thing wraps around the avoidance of pain, each and every trick they pull out that takes away pain now makes them look like they're doing something but pain is a reality of life and the best way to deal with pain is to take your medicine and let the problem come to a head and get it over with but that's not the politically best solution and it's not in the fat cat's best interest to have the market judge them so influence is bought the pain is covered up and it festers like a boil on your butt.
One day it's gonna pop and then it'll be a holy mess and they'll all point the finger at us, China, the world, just about anyone but themselves for this mess.
If you ever study the great financial collapses of the world, at each and every turn the government does the wrong thing at every turn, it trys to FIX the problem, or avoid the problem and people demand that they fix or avoid it.
The problem is the problem and the market will fix it, brutally but efficiently, it'll clean it right up but tons of people will lose everything, if the government steps in then just DIFFERENT people will lose, the loss will be the same no matter what, it'll just inefficently run down the NEW BOGUS path of least resistence, if you change the stream bed by regulation or fixes then the stream runs over other people not the ones deserving it.
In a gold based monetary system the government can't do anything to manipulate money or it's severely restricted, there are other factors like reserve requirements for banks you can play with but if you put the economy on autopilot by establishing sound systems then all these things will cycle in and out on there own and it requires almost no intervention at all.
That's not good for business if your in government though, thats WAY TO RESTRICTIVE and stops your pork and all the other goodies you want to hand out so obviously it we can't have that, in the meantime the fake money steals your real worth even while you're sleeping and you won't notice at first but then it gets worse and worse and finally no one wants to hold money anymore.
This is hyper inflation which if it dosen't go that way, it goes into a depression the opposite but equally bad outcome, either one is inevitable, we'll get one or the other because they've delayed the midterm corrective forces, these forces don't go away they just hide all over the place, the end game is always the same, total economic destruction of fiat money.
This article is entirely consistent that government is simply hiding figures that it want's to hide, you can pretty well bet that it's infiltrated almost all their figures.
__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.
~Abraham Lincoln Lyceum Address
Last edited by conraddobler; June 14th, 2007 at 01:10 PM.
It’s Official: The Crash of the U.S. Economy has begun
by Richard C. Cook
Global Research, June 14, 2007
It’s official. Mark your calendars. The crash of the U.S. economy has begun. It was announced the morning of Wednesday, June 13, 2007, by economic writers Steven Pearlstein and Robert Samuelson in the pages of the Washington Post, one of the foremost house organs of the U.S. monetary elite.
Pearlstein’s column was titled, “The Takeover Boom, About to Go Bust” and concerned the extraordinary amount of debt vs. operating profits of companies currently subject to leveraged buyouts.
In language remarkably alarmist for the usually ultra-bland pages of the Post, Pearlstein wrote, “It is impossible to predict when the magic moment will be reached and everyone finally realizes that the prices being paid for these companies, and the debt taken on to support the acquisitions, are unsustainable. When that happens, it won't be pretty. Across the board, stock prices and company valuations will fall. Banks will announce painful write-offs, some hedge funds will close their doors, and private-equity funds will report disappointing returns. Some companies will be forced into bankruptcy or restructuring.”
Further, “Falling stock prices will cause companies to reduce their hiring and capital spending while governments will be forced to raise taxes or reduce services, as revenue from capital gains taxes declines. And the combination of reduced wealth and higher interest rates will finally cause consumers to pull back on their debt-financed consumption. It happened after the junk-bond and savings-and-loan collapses of the late 1980s. It happened after the tech and telecom bust of the late '90s. And it will happen this time.”
Samuelson’s column, “The End of Cheap Credit,” left the door slightly ajar in case the collapse is not quite so severe. He wrote of rising interest rates, “As the price of money increases, borrowing and the economy might weaken. The deep slump in housing could worsen. We could also discover that the long period of cheap credit has left a nasty residue.”
Other writers with less prestigious platforms than the Post have been talking about an approaching financial bust for a couple of years. Among them has been economist Michael Hudson, author of an article on the housing bubble titled, “The New Road to Serfdom” in the May 2006 issue of Harper’s. Hudson has been speaking in interviews of a “break in the chain” of debt payments leading to a “long, slow economic crash,” with “asset deflation,” “mass defaults on mortgages,” and a “huge asset grab” by the rich who are able to protect their cash through money laundering and hedging with foreign currency bonds.
Among those poised to profit from the crash is the Carlyle Group, the equity fund that includes the Bush family and other high-profile investors with insider government connections. A January 2007 memorandum to company managers from founding partner William E. Conway, Jr., recently appeared which stated that, when the current “liquidity environment”—i.e., cheap credit—ends, “the buying opportunity will be a once in a lifetime chance.”
The fact that the crash is now being announced by the Post shows that it is a done deal. The Bilderbergers, or whomever it is that the Post reports to, have decided. It lets everyone know loud and clear that it’s time to batten down the hatches, run for cover, lay in two years of canned food, shield your assets, whatever.
Those left holding the bag will be the ordinary people whose assets are loaded with debt, such as tens of millions of mortgagees, millions of young people with student loans that can never be written off due to the “reformed” 2005 bankruptcy law, or vast numbers of workers with 401(k)s or other pension plans that are locked into the stock market.
In other words, it sounds eerily like 2000-2002 except maybe on a much larger scale. Then it was “only” the tenth worse bear market in history, but over a trillion dollars in wealth simply vanished. What makes today’s instance seem particularly unfair is that the preceding recovery that is now ending—the “jobless” one—was so anemic.
Neither Perlstein nor Samuelson gets to the bottom of the crisis, though they, like Conway of the Carlyle Group, point to the end of cheap credit. But interest rates are set by people who run central banks and financial institutions. They may be influenced by “the market,” but the market is controlled by people with money who want to maximize their profits.
Key to what is going on is that the Federal Reserve is refusing to follow the pattern set during the long reign of Fed Chairman Alan Greenspan in responding to shaky economic trends with lengthy infusions of credit as he did during the dot.com bubble of the 1990s and the housing bubble of 2001-2005.
This time around, Greenspan’s successor, Ben Bernanke, is sitting tight. With the economy teetering on the brink, the Fed is allowing rates to remain steady. The Fed claims their policy is due to the danger of rising “core inflation.” But this cannot be true. The biggest consumer item, houses and real estate, is tanking. Officially, unemployment is low, but mainly due to low-paying service jobs. Commodities have edged up, including food and gasoline, but that’s no reason to allow the entire national economy to be submerged.
So what is really happening? Actually, it’s simple. The difference today is that China and other large investors from abroad, including Middle Eastern oil magnates, are telling the U.S. that if interest rates come down, thereby devaluing their already-sliding dollar portfolios further, they will no longer support with their investments the bloated U.S. trade and fiscal deficits.
Of course we got ourselves into this quandary by shipping our manufacturing to China and other cheap-labor markets over the last generation. “Dollar hegemony” is backfiring. In fact China is using its American dollars to replace the International Monetary Fund as a lender to developing nations in Africa and elsewhere. As an additional insult, China now may be dictating a new generation of economic decline for the American people who are forced to buy their products at Wal-Mart by maxing out what is left of our available credit card debt.
About a year ago, a former Reagan Treasury official, now a well-known cable TV commentator, said that China had become “America’s bank” and commented approvingly that “it’s cheaper to print money than make cars anymore.” Ha ha.
It is truly staggering that none of the “mainstream” political candidates from either party has attacked this subject on the campaign trail. All are heavily funded by the financier elite who will profit no matter how bad the U.S. economy suffers. Every candidate except Ron Paul and Dennis Kucinich treats the Federal Reserve like the fifth graven image on Mount Rushmore. And even the so-called progressives are silent. The weekend before the Perlstein/ Samuelson articles came out, there was a huge progressive conference in Washington, D.C., called “Taming the Corporate Giant.” Not a single session was devoted to financial issues.
What is likely to happen? I’d suggest four possible scenarios:
1.
Acceptance by the U.S. population of diminished prosperity and a declining role in the world. Grin and bear it. Live with your parents into your 40s instead of your 30s. Work two or three part-time jobs on the side, if you can find them. Die young if you lose your health care. Declare bankruptcy if you can, or just walk away from your debts until they bring back debtor’s prison like they’ve done in Dubai. Meanwhile, China buys more and more U.S. properties, homes, and businesses, as economists close to the Federal Reserve have suggested. If you’re an enterprising illegal immigrant, have fun continuing to jack up the underground economy, avoid business licenses and taxes, and rent out group houses to your friends.
2.
Times of economic crisis produce international tension and politicians tend to go to war rather than face the economic music. The classic example is the worldwide depression of the 1930s leading to World War II. Conditions in the coming years could be as bad as they were then. We could have a really big war if the U.S. decides once and for all to haul off and let China, or whomever, have it in the chops. If they don’t want our dollars or our debt any more, how about a few nukes? 3.
Maybe we’ll finally have a revolution either from the right or the center involving martial law, suspension of the Bill of Rights, etc., combined with some kind of military or forced-labor dictatorship. We’re halfway there anyway. Forget about a revolution from the left. They wouldn’t want to make anyone mad at them for being too radical.
4.
Could there ever be a real try at reform, maybe even an attempt just to get back to the New Deal? Since the causes of the crisis are monetary, so would be the solutions. The first step would be for the Federal Reserve System to be abolished as a bank of issue and a transformation of the nation’s credit system into a genuine public utility by the federal government. This way we could rebuild our manufacturing and public infrastructure and develop an income assurance policy that would benefit everyone.
The latter is the only sensible solution. There are monetary reformers who know how to do it if anyone gave them half a chance.
Quote:
Richard C. Cook is the author of “Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age.” A retired federal analyst, his career included work with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, and NASA, followed by twenty-one years with the U.S. Treasury Department. He is now a Washington, D.C.-based writer and consultant. His book “We Hold These Truths: The Hope of Monetary Reform,” will be published later this year. His website is at www.richardccook.com.
That concept reminds me of Musical chairs with a little Ponzi thrown in.
The tertiary economy is a very real effect of globalization. Other countries make the goods cheaper, we, being lofty Americans, offer the services. We sell each other stuff.
I'm baffled how we let our own companies turn foreigners into indentured servants while undermining our own long-term capacity to sustain an economy. We sort of sold ourselves out in the 40s and 50s by buying into the belief that corporate America would take care of us. What a crock that was.
It is truly staggering that none of the “mainstream” political candidates from either party has attacked this subject on the campaign trail. All are heavily funded by the financier elite who will profit no matter how bad the U.S. economy suffers. Every candidate except Ron Paul and Dennis Kucinich treats the Federal Reserve like the fifth graven image on Mount Rushmore. And even the so-called progressives are silent. The weekend before the Perlstein/ Samuelson articles came out, there was a huge progressive conference in Washington, D.C., called “Taming the Corporate Giant.” Not a single session was devoted to financial issues.
The answer as to why politicians won’t discuss this is simple (assuming they themselves are prepared to profit from a collapse): “Bush vs. Gore”. Gore had detailed programs for how he would deal with issues, Bush did not. Bush just spouted simplistic one-liners without any substance. He was just a “drinkin” buddy that Middle America could relate to. He didn’t force people think about real issues – he made it all seem so simple, “don’t worry, we’ve got a plan”. Gore’s solutions were much more thought out and complex for the average man to either understand or bother understanding.
Politicians have no way of explaining the complexity of these issues to the average dimwit. So they’ll stick to the simplistic type of marketing jingoism that worked for Bush. “Tax Cuts for everyone = Healthcare for everyone”.
And you could never sound an alarm before the impact. Opponents would roast the politician that sounded the alarm of impending economic doom as pure alarmist lunacy – and that would be the end of that “wacky” politician. More power to the politician who has the guts to say something, unfortunately they will be branded a “fringe” candidate at best.
Most American’s just don’t want to hear about complicated, “depressing” stuff like that. They want someone to make them feel good. They want “hopeful” or simple messages spoon-fed to them. They don’t want to their news sources showing them what war really looks like or complex issues about how the economy really works. We wouldn’t want people to have to be “concerned” or “think”. Ignorance is bliss.
For me, the signs have been growing for awhile now, and I’m a bit worried about the future.
The arrogant and insulting tone of 7's post was so over the top that I couldn't take it seriously.
Not one shred of counter to his arugement, just insult laugh and move on.
You sir are a perfect example of what he just said.
__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.
