How much more can the economy take?
Jun 28, 2009 at 9:10 PM Post #16 of 28

Originally Posted by mbriant /img/forum/go_quote.gif
IMO, even though we're all looking for a scape goat (greedy bankers, ponzi schemes, loose or tight credit ) and a quick fix for this present crisis, the reality is, what we're seeing is a long-overdue reality adjustment of real wealth (or loss of to be more precise) in the historical "have" nations.

too long didn't read
I am sure your post was excellent!
Jun 28, 2009 at 9:28 PM Post #17 of 28
Sorry, but the state of the economy is not something that can be capsulized in a single sentence or paragraph .... unless "we're screwed" will suffice. In fact, every point I touched upon, which was far from everything involved in such a complex situation, could be further explained and discussed in much greater detail.
Jun 28, 2009 at 9:46 PM Post #18 of 28

Originally Posted by mbriant /img/forum/go_quote.gif
Sorry, but the state of the economy is not something that can be capsulized in a single sentence or paragraph. In fact, every point I touched upon, which was far from everything involved in such a complex situation, could be further explained and discussed in much greater detail.

The Atlantic article touched on what you wrote about by saying that the US needs to export more than it imports which means we need to produce more here. I agree with you. A nation's wealth is directly tied to what it produces and exports...whether it be tangible goods or services. What we as a nation have been doing over the last half century is offshoring most of our manufacturing base in the name of cheaper goods to satisfy our insatiable need for crap. And now we...and the next several generations probably...will be paying for it dearly.
Jun 28, 2009 at 10:37 PM Post #19 of 28
Jun 28, 2009 at 10:41 PM Post #20 of 28

What we as a nation have been doing over the last half century is offshoring most of our manufacturing base in the name of cheaper goods to satisfy our insatiable need for crap.

This is probably the single largest cause of our economy's decline. I think three main things changed over the years to make this easier to do. 1) A quicker, more efficient transportation network. Years ago, it was not financially feasible to ship perishable or heavy manufactured goods any great distance. So people bought locally grown food and there were hundreds of small businesses that manufactured things like cast iron stoves as one example, to supply their local areas. Now we have a handful of furnace manufacturers and our grocery stores are full of foreign product.

2) Over the years, companies grew and swallowed up their competitors as they did. Eventually, instead of dozens or hundreds of small, family-owned businesses, who's founders lived in the same town as, employed, and worked alongside the people in their community, and had a sense of national pride and loyalty, we wound up with a handful of international mega-corporations, who's non-involved, wealthy owners and shareholders could live anywhere ... even in other countries. Many of them never even meet their employees, let alone their employees' families, so a sense of attachment no longer exists. The employees are now faceless numbers, looked at as a cost only. It's much easier to close down the factory and move to cheaper labour pools this way. The owners and shareholders don't suffer and in fact, usually gain financially.

3) Many former third-world countries now have an educated potential workforce that barely existed 20 or 30 years ago, and who through the media, have been westernized to a certain degree, making them easy to train. Having been "have nots" for so long, usually makes them not only cheaper, but more productive and less hassle.
Jun 28, 2009 at 10:53 PM Post #21 of 28
The big hit will be small business and that is the job and tax base. Besides the govt., there will be no jobs to support the massive loss of workers. Services have been our bread and butter but that is evaporating with the loss of industry. The old formula was to have a war. That is an obsolete idea thankfully, so now what?

I bet the biggest debt most owe is taxes and that is the area the govt. plans to exploit. Don't see how that will work with no income to tax.

Is the idea of America dead?
Jun 28, 2009 at 11:04 PM Post #22 of 28

Originally Posted by mbriant /img/forum/go_quote.gif
IMO, even though we're all looking for a scape goat (greedy bankers, ponzi schemes, loose or tight credit ) and a quick fix for this present crisis, the reality is, what we're seeing is a long-overdue reality adjustment of real wealth (or loss of to be more precise) in the historical "have" nations.

Historically, the U.S. and Canada had two important advantages over the rest of the world. First of all, unlike Europe, it was a huge expanse of virgin territory, full of lumber, oil, metals, minerals, water, fish, etc., all waiting to be exploited by it's small, but growing, hungry, hard working, entrepreneurial, immigrant population. And exploit it they did, at a time when environmental concerns were practically non-existant. By tapping into this abundance, we were able to sell ( mostly raw materials for the longest time ) to the wealthy European nations, creating huge wealth for our own economy, which trickled down into the pockets of most citizens. North America is still blessed with an abundance of most raw materials, but because of increased labour costs, ecological concern costs, and increasing competition from other nations, it's not as profitable as it once was.

Secondly, the two world wars, especially WW2, was a massive boost to our manufacturing industries and therefore real wealth, because unlike Europe and Asia, our factories and infrastructure were not destroyed by war and did not require the huge costs of rebuilding. On the contrary, for at least two decades after WW2, we became the world's shopkeeper, selling raw materials, construction supplies, technology, and everything else that all the war-torn countries required to rebuild. And more importantly, while these countries were rebuilding their infrastructure and factories, and enjoying an era of peace and growing prosperity, we became practically the sole suppliers of consumer and industrial goods to the world. The Fords, GMs, General Electrics, RCAs, Westinghouses, etc., etc., manufactured everything from cars to toasters to cigarettes to TVs for the entire world during the two decades following WW2. Money was flowing into our economy's coffers at an unthinkable rate. It's no co-incidence that the 50's and 60's were a sparkling period of optimism and rapidly improving lifestyles for North Americans. The big flashy cars, the endless rows of suburban bungalows, the new hiways and skyscapers, the abundance of jobs, and the exploding, affluent middle class all happened because of this.

But by the 70's Europe and Japan had managed to rebuild their factories and infrastructures and gradually changed from being huge captive customers of North American goods to being huge, very competitive, competitors. Even though they had to practically start their industrialization process from scratch, fortunately for them, they had the old wealth of centuries of civilization to pay for it, and in the end, they wound up with newer factories and newer machinery than we had ... making them that much more competitive. Enjoying a practical world monopoly on manufacturing for two decades had made us not only wealthy, but complacent, and it took us two more decades to even realize this fact.

Combine this with the fact that our seemingly ever-growing wealth and prosperity brought on a universal human trait ... greed ... and North America's (and later, Europe and Japan's) real wealth started to decline. Workers expected more money for less work...while at the same time, as consumers, they expected more product for less money. For many, with more time and money for recreation, their work ethic and true productivity lowered. A growing group of people started to abuse the enviable and seemingly endless number of social safety nets our economy's wealth had allowed to develop. Sadly, the wealthy class that owned the businesses that provided the jobs and exported products that created the wealth, also sparked by greed, looked at all this and saw a win/win situation for themselves by moving their manufacturing to developing countries where the population had not yet become demanding, resulting in lower wages, taxes, and most other costs to themselves. This allowed them to make more money and made western consumers happy because they could buy more products for less money. Gradually, but at an increasing rate, the jobs ... jobs that not only provided income for many of these same consumers and in the case of jobs manufacturing exported products, brought real wealth into the economy, disappeared. Instead of every toaster purchased creating local jobs and bringing real wealth into the economy, they were now sucking money out of the local economy which with the lost jobs, had less money in circulation to pay for government and all the private sector paper-pusher jobs. A downward spiral.

What makes manufacturing so important to a country's economic well-being is something I think many people don't understand. It's fairly simple actually. When a country sells it's raw materials, it's talent, it's services, and more-so, it's manufactured goods to another country, new money ... another economy's money... flows into it's economy and it becomes financially wealthier. Export manufacturing jobs create new, real wealth for a country. If the U.S. sells a billion dollars of U.S. manufactured toasters to China, not only do a large amount of American citizens get employed and paid, the U.S. now has 1 billion additional dollars circulating in it's economy and China has a bunch of toasters but i billion dollars less circulating in it's economy. Conversely, if the U.S. buys 1 billion dollars of toasters from China, the U.S. economy has 1 billion dollars less circulating in it's economy. It's this circulating money that allows an economy to support the many citizens who are employed in non-wealth creating jobs. These workers are often acurately or not, grouped under the term "paper pushers". Through them, existing money in the economy gets shuffled around, keeping us all busy and productive. It's not that these non-wealth-creating jobs are not important, as they provide other citizens with required services, better living conditions, and often luxury. Government employees are necessary to keep the country functioning ... as are lawyers, bankers, and accountants ... but unless they're billing people in other nations for their services, which most don't, they are not creating wealth for their own country's economy. They are simply shuffling around the money that already exists in that economy. And every time they buy an imported product ... like a Sony stereo or a Mercedes Benz, some of that money goes out of the national economy and out of circulation. Medical personnel, educators, local musicians, restauranteurs, nanny's, cab drivers, consultants, mechanics, and in fact, most occupations, do not create real wealth for their country's economy. They often create wealth for themselves personally, but that wealth is at the expense of fellow citizens, not the citizens of another nation. You pay your lawyer $10,000 and he's $10,000 wealthier and you are $10,000 poorer. The nation's net wealth remains the same. The stronger and healthier an economy is, the more "paper pushers" (Please don't be offended, I'm one of them too) and taxes, it can handle ... keeping everyone employed, fed, sheltered, and comfortable. But again, if a nation (or individual for that matter) is going to be affluent, ( as North America and much of the west has been since the industrial revolution) it must have more money coming in than going out. Unfortunately for us, that hasn't been the case in recent years.

Many of us so far, despite the fact this decline has been happening for years, have managed to delay or at least ignore this very real lessening of our economy's and therefore, our wealth, because we have a cushion of accumulated personal or family wealth, lot's of credit, or because (like many government and big union employees ) we have been receiving a steadily increasing paycheck by living in an unrealistic, completely artificial employment bubble with employer-paid drug and medical benefits, guaranteed pensions, regular, guaranteed wage increases ( no matter what state the economy is in and often unrelated to real productivity ), and even guaranteed employment ( which in the real world is unbelievable ). Unfortunately that group's lifestyle is supported most often at the expense of those who aren't lucky enough to have any of those often unrealistic benefits. If this latter group are unhappy with their job or wages, their only option is to either tough it out or quit. They don't get automatic wage and benefit increases ... if they indeed have any benefits at all. If they're a business owner and the business is losing money, they personally lose money ... even while their employees demand increased wages and benefits. Some day, with so much money leaving our economy as we purchase more and more foreign goods and without new money coming into our economy, even the accumulated personal wealth will dry up for many, and the government and employers ( like the banks and car companies for example) will be forced to face reality and declare bankruptcy ... ending the fairy tale continuous spiral of increased wages, cushy pensions, and guaranteed jobs their employees have long enjoyed. This of course will speed up as the rest of us, who live in the real world economy where if there is more, you get more, and if there is less, you get less, without the protection of government jobs or the extortion ability of unions to make never-ending unrealistic demands, wind up living in complete poverty in the streets. In other words, the recent pain of this "recession" is not being borne equally by everyone. Some aren't feeling a thing, and some are actually earning more than ever. This leaves all the burden on the shoulders of those who don't have guaranteed raises and/or employment. The scary part is, a good number of these folks are the ones who work, or more accurately "worked" for manufacturing companies that even if non-exporters, at minimum, by supplying local markets, kept the money from leaving the country.

Long story short, the basic things that made us wealthy are disappearing and IMO, this ain't no recession, it's a major economic reality check and re-adjustment ... and not a pretty one ... and not the last one. It's long over-do and was not caused by some recent, specific, identifiable event but was rather caused by years of gradual change in the world, some of it a natural evolution and some caused by simple greed and denial. The "have" countries will have less and the the have-not countries will have more. Most westerner's standard of living is dropping, while the standard of living in countries like India, China, Korea, etc., is rising. We used to think of this "sharing the wealth" as a win/win situation because as the population of these poorer countries became more affluent, they could afford buy our manufactured products and we'd get wealthier too ... but wait a minute, we don't manufacture most of the products any longer ... they do. So that old balance no longer exists. Sure, the stock market will continue to waffle up and down in it's completely out-of-touch-with-reality, manipulated realm, and many of those doing the manipulating (the very wealthy) will continue to do fine because of it. But it doesn't matter who or what we blame or which political party is in power, as there is very little anyone can do to fight human greed and human nature, and as someone else already mentioned, any band-aid thing they do, will only eventually make things worse. (Think of the inflation that eventually has to happen with all this new money being borrowed and printed.)

The sad truth is, it's as it's always been ... every man for himself. For the most part we in the west gained our wealth and high standard of living at the expense of others .... others in other countries. The only thing that's changing is that now others from other countries are gaining their wealth from us, and because of this, many of us are now scrambling to maintain the status quo by gaining wealth at our fellow citizen's expense. Can't really blame us however ... it's human nature.

Even though it is a long post, it bears quoting, because it is an absolutely outstanding one. I agree with it word for word, and even though the issues it brings up are extremely complex, the facts are all there in a very objective wording.

We are now a service based country with no real way to fend for ourselves industrially. We are at the mercy of other nations to manufacture our goods, because we are not willing to pay for domestic production. That is what got us into this mess, and that will be our downfall.
Jun 28, 2009 at 11:07 PM Post #23 of 28
I am thinking about moving to a 'developing country'... seems like a better chance to have gainful employment and future growth. I will still be paying Uncle Sam though (international taxation for US citizens), so that way I am exporting myself for the benefit of the greater U.S. economy

If we can't export anything else, at least we can export ourselves
Jun 29, 2009 at 8:47 AM Post #25 of 28
BlindTiger, ecclesand, Happy Camper, Hi-Finthen: you're welcome.

Unfortunately, what passes for economic coverage in the mainstream US press is abysmal. Too many vested interests at work, I suppose. It's quite sad when The Daily Show with Jon Stewart is one of the most reliable sources on TV (I stopped watching TV for news a long time ago).

Fortunately, you can get a high caliber of information on the Internet. I read Willem Buiter's column in the FT though my RSS reader, there are many others (I read Brad DeLong, Tyler Cowen, Arnold Kling/Bryan Caplan and Paul Krugman to get a balanced view). The sad fact is, economics is not an exact science (arguably it is in fact pseudo-science) and far too many economists are venal flacks twisting theories, models and facts to suit their paymasters.

This recession is not a US-only phenomenon. The UK is even worse off, due to their policy of betting everything on the financial sector, as is Germany, because of its reliance on exports. The problem is, the US is in serious danger of losing its economic leadership to China if it dithers too long. There are many serious structural problems in the US economy that need addressing, such as the hypertrophied financial, real estate and health sectors, but I don't see any steps being taken to correct them. (MOD EDIT: Specific political commentary/opinion deleted.)

My main concern is that high levels of public debt may well cause the dollar to collapse and lose its role as the world's reserve currency to the Euro, Renminbi or SDRs. If that happens, you can kiss goodbye to the 2-3% of extra annual growth the dollar's privileged position brings to the US.
Jun 29, 2009 at 3:17 PM Post #26 of 28
Jul 1, 2009 at 10:49 PM Post #27 of 28

Originally Posted by majid /img/forum/go_quote.gif
This article by a former IMF staffer may change your perspective and explain much of what is going on.

Quite a read, thanks.

I don't like politics or politicking. Certinly some goes hand-in-hand with country and global economy. It was evident we were heading for a train wreck. Most notable being the rise in housing costs. It was clear it would eventually burst. There are many contributing factors, some of which are the responsibility of the USA. America has to take care of herself and then set a world example. Our last examples have been poor. We can't continue to live on credit. We have to work for it.

We no longer live in a world ripe for the taking. We need to learn patience in the wake of disaster. We must learn what we need and not just what we want. We must overcome the fear of tomorrow by working for today.
Jul 1, 2009 at 11:27 PM Post #28 of 28

Originally Posted by mbriant /img/forum/go_quote.gif
......short novel.........

I actually read every word in your short novel. Excellent read. So very true. Economics 101 (micro and macro).

The straw that broke the camel's back is the convoluted fincancial system set up across the globe.

Users who are viewing this thread