The_Red_Crayon said:

So the Saudi's are buying GE's plastic section (plastic is made from oil after all), And the Chinese just bought a fucking investment firm to figure out what to do with all the american dollars they have.

This is a sad sad day in America my friends.

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The plastics division has struggled since 2004 because of inflation in natural gas and raw materials such as benzene. Profits for the division fell from $867 million in 2005 to $674 million last year, or about 22 percent.

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One worrying parallel is the Japanophobia of the 1980s and early 1990s. Back then, Japan's rising bilateral trade surplus and its mounting foreign-exchange reserves were seen as “proof” of its manipulated currency and mercantilist attitude. America's paranoia deepened as its jobless rate climbed—especially when the Japanese started buying landmarks like the Rockefeller Centre. In fact, Japan's bubble economy ended up bursting; but not before an outbreak of foolish protectionism. The economic tension even undermined support in both countries for America's security alliance with Japan.

The case against China is even weaker than the one against Japan was. Its economy is far more open. Though much poorer than Japan was then, China is already America's fastest-growing export market. And in contrast to the 1980s, the WTO now exists as an umpire for trade disputes. But logic, alas, may count for less than political grievance. America's low unemployment rate looks set to rise in the wake of the housing bust. To American voters, the Chinese are likely to become more prominent rivals, whether it be displacing America at the top of some economic league tables, winning Olympic medals or buying big American firms (the Chinese are rightly keen to diversify from treasury bonds). Most worrying, though, are the strategic risks. Japan was an ally in Asia: China is potentially a military competitor. Trade tensions could make it easier to see China as a rival and harder to enlist it as a partner.

Running such geopolitical risks would be understandable if China's policies posed a true threat to America's economic health. But they do not.

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Redstorm said:

That sort of shift in the economy is expected when a state is moving towards postindustrialism and postmodernism.

Canada, Japan and the Western European countries all show the same shift in economic sectors. The only place where this is not happening to the same degree is the Nordic countries.

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Yes economist, this is all good, but we are not exporting or manufacturing, America is fast turning into a completely service economy.

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The alleged demise of U.S. manufacturing is a key example of how uncompetitive perception often trumps competitive reality. U.S. manufacturers produced $1.5 trillion worth of goods in 2005, up 70 percent from $900 billion in 1992, according to Edward Gresser of the left-leaning Progressive Policy Institute. Manufacturing now accounts for a higher share of the U.S. economy than it did fifteen years ago, and for the same share of world production it enjoyed in the early 1990s. Yes, there have been manufacturing job losses, but virtually all of them have come from productivity-enhancing automation.

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Well phred you can post as many statistics and numbers as you want, unfortunately they dont mean much to me as much as something anecdotal.

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Now you can call this knee-jerk statement but its what Im seeing with my own eyes in my region, its becoming very hard to get by.

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The_Red_Crayon said:

Well phred you can post as many statistics and numbers as you want, unfortunately they dont mean much to me as much as something anecdotal.

What I see is the price of gas driving GE's plastic division to Saudi Arabia, The price of food rising from the price of gas (due to ethanol and logistics) The cost of the Iraq war is straining our national guard and customs. In my area I see tons of home foreclosures.

Now you can call this knee-jerk statement but its what Im seeing with my own eyes in my region, its becoming very hard to get by.

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The_Red_Crayon said:

Yes economist, this is all good, but we are not exporting or manufacturing, America is fast turning into a completely service economy.

Another thing is how fast the American worker is becoming "obsolete" You can see it with the amount of h1 visa's being issued to foreign workers to come to america and work.

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The_Red_Crayon said:

Excuse me if I find it hard to believe when people say things are going swell.

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The_Red_Crayon said:

Yes economist, this is all good, but we are not exporting or manufacturing, America is fast turning into a completely service economy.

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The_Red_Crayon said:

So the Saudi's are buying GE's plastic section (plastic is made from oil after all), And the Chinese just bought a fucking investment firm to figure out what to do with all the american dollars they have.

This is a sad sad day in America my friends.

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America Is No Longer Independent & Self Sustaining - China & Japan Can Pull The Rug Out From Us At Any Time
Published 04/26/07 by Tom Rafter - Print Article

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We have heard it all before: America is the world’s only superpower, the US military is unrivaled, and it’s GDP thriving. But what you don’t hear is that our economy is not supported by wealth accumulation or production, it is heavily propped up on borrowed money. The US is currently standing on a rug of insecurity that at any time can be pulled out from under us by foreign creditors who own the national debt and are financing our government.

By analyzing our strengths and weaknesses, it will be seen that the rising debt and the dependence on foreign creditors to purchase and keep purchasing our debt has put the US, the so-called ‘superpower,’ in a very un-healthy and vulnerable position.

Currently Japan holds 644.3 billion in US government debt, China 349.6 billion, the United Kingdom 239.1 billion, according to the most recent December 2006 statistics from the US Treasury.

If any of these countries quit loaning us money and take their money elsewhere, domestic inflation would skyrocket and our economy would be unsustainable, we would be in serious trouble.

The US then in international relations is a dominant military force backed by an economy that is not very healthy as its existence is propped up by debt. If foreign nations keep buying the federal governments debt, then the US economy will think it can continue to prosper. But if foreign countries take their money elsewhere, then inflation will skyrocket and the economy would be in serious trouble. Our standard of living would dramatically erode and we could no longer maintain and support our military.
The US ‘superpower’ is standing on an economic rug of wellbeing that foreign countries like China and Japan can tug out from under us whenever they desire. Contact your local Congressman and tell them the current deficit and dependence on foreign creditors is dangerous and unacceptable; that a real superpower’s economic health shouldn’t be dependent on a foreign countries good will and willingness to support us forever.

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But in what in your opinion is the fastest growing economic sector in America? Maybe im in the wrong business.

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The_Red_Crayon said:

Yes economist, this is all good, but we are not exporting or manufacturing, America is fast turning into a completely service economy.

Another thing is how fast the American worker is becoming "obsolete" You can see it with the amount of h1 visa's being issued to foreign workers to come to america and work.

Now maybe your right economist as far as Japan in the 80's their was a lot of hype, It frightens me that communist countries can own so much infrastructure, But im afraid that on a long enough timeline the foxs will be guarding the henhouse.

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Q. It doesn't matter who owns the factories or the corporations. If foreign companies buy our factories or build new ones here (and thus generate U.S.-based foreign-controlled production known as "insourcing"), surely this creates plenty of jobs for Americans. What's wrong with that?

A. The benefits of insourcing have been greatly exaggerated and the costs almost completely overlooked. Here are some problems with insourcing:

1) Foreign corporations operating in America typically pay far less tax than their American counterparts. Operating from nations where corporate accounting standards are much lower than in the United States, they rig their bookkeeping to pretend that they make no profits in the United States. As reported by the General Accounting Office, one typical gambit is "transfer pricing." This typically involves a foreign parent company charging its American subsidiary exorbitant prices for key inputs. A variant on this technique is for the foreign parent to pay artificially low prices for the American subsidiary's output. Either way the impression created is that the American subsidiary is unprofitable and thus no tax is payable in the United States. Among other paper games that can be played are the rigging of interest rates on loans or the creation of artificial deductions.

2) Insourcing creates few jobs. Typically foreign manufacturers' US subsidiaries are engaged merely in final assembly. They rely on the foreign parent and its home-country affiliates and partners for supplies of most of the key components. Take, for instance, Toyota's new San Antonio plant, which will produce 150,000 trucks per year with just 2,000 people. The reason the staffing is so low is because most of the serious manufacturing will be done elsewhere, typically overseas.

3) In most cases, foreign corporations are careful to reserve the most advanced manufacturing activities for their workers at home. Their assembly plants in the United States are "snap-together" operations which provide the United States with little in the way of valuable new technologies or production know-how.

4) Many insourcing operations use unfair tactics to drive US competitors out of business and thereby inflict untold damage on the overall American economy. The opportunity for such tactics arises in many cases because the home markets in which foreign corporations are based are heavily protected. Such corporations use their huge profits in their sheltered home markets to fund their expansion in the United States. They can afford to sell to US consumers at cost or even below it. In the long run they win a huge share of the American market and, in the fullness of time, after their American competitors have been driven to the wall, they can hope to recoup their losses by dramatically raising their American prices. The unbalanced nature of insourcing is particularly apparent in the car industry. For example, although the Japanese auto market is second only to the US in overall size, imported goods account for only 10 percent of the country's auto consumption (measuring both complete cars and the key inputs used in making them) compared to probably more than 70 percent for the United States. US auto exports to Japan account for less than 1 percent of total Japanese auto consumption.

5) Many insourcing operations benefit from huge subsidies offered by state and local governments. Benefits include not only big tax breaks but funding for training. The net effect of these subsidies is to drive existing domestic producers out of business.

6) We are beholden to the whims of other nations for key products. Thanks to the insourcing trend, many key industrial subsectors, such as the manufacture of advanced materials and high-tech components for the United States defense industry, are now between 50 and 90 percent owned by foreign corporations.

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Q. Real GDP has grown on average by 3.1 percent a year over the last 20 years. The trade deficit is still only 6 percent of our GDP. How can anything be wrong with our economy?

A. The methods we use to calculate our GDP growth are a matter of great controversy among the world's economic analysts. Just as the accounting of Enron differs from that of General Electric, the procedures our leaders use to calculate America's economic growth are different from those used in Germany, Switzerland, or Japan. If we used the more conservative accounting methods of most other advanced nations, our growth would not look so good. American workers instinctively know this because they are acutely aware that living standards for ordinary Americans have not improved much in thirty years.

In any case, more and more of the country is becoming owned and controlled by foreign interests. Critical chokepoint industries are being taken over, and our government is ever more beholden to foreign lenders.

The cumulative trade deficit (that is the extent to which total imports have exceeded exports) amounted to $4.6 trillion in current dollars over the last 20 years and this is equal to $5.4 trillion after adjusting for inflation. The average annual growth rate in real dollars for the trade deficit has been 24 percent over the past 10 years. Even if we take our government's calculations of GDP growth at face value, this means our trade deficit increased nearly seven times faster than our GDP.

Since more and more of our consumer spending goes to imported goods, the higher our GDP goes, the higher our trade deficit goes. In the ten years to 2005, for instance, the trade deficit went from just 1 percent of our GDP to more than 6 percent. This deterioration reflects in part the fact that the share of our GDP that goes to consumer spending has increased from 67 percent to 70 percent.

The US is already losing more than $700 billion a year to foreign countries through its trade deficit and the trend worsens by the year. Many people argue that even though the trade deficit is large in dollar terms, it is small compared to the overall American economy. But this is a dangerously misleading argument.

A more meaningful way to understand the trade deficit is by comparison with America's total national assets. The net worth of American households has increased from $28 trillion to $52 trillion in the last ten years, representing a gain of $24 trillion. This sounds tremendous but even so, at $3.6 trillion over that period, the trade deficits represented fully 15 percent of the gain. It should be pointed out moreover that much of the increase in household net worth came from unrealized gains in real estate and stocks. To say the least such gains are windfalls and they are unlikely to be matched in the next ten years. Indeed we may never be able to realize them.

A much more meaningful comparison is with America's rate of economic growth. The cumulative year-to-year growth in GDP in current dollars excluding foreign trade came to $5.7 trillion over the past 10 years. By comparison the trade deficits totaled $3.6 trillion - 63% of the cumulative GDP growth excluding foreign trade.

These trends show no sign of abating and are hardly even mentioned by politicians or the media. Our trade deficit last year was a record 6% percent of GDP and increased 16% over 2004. By comparison, our overall economy grew by a mere 3.5 percent in real (inflation-adjusted) dollars. After taking out net gains in residential real estate and adjusting for inflation, the growth in net worth in 2005 was merely the 24th highest of the last 50 years. Moreover households lost net worth in three of the last 10 years (the three years following the "dot-com" collapse that began in 2000). In 2005, the gains in financial assets were well below median percentage gains over the past 50 years, while the increases in liabilities were well above their median. Personal savings as a percentage of disposable personal income was actually negative in 2005 for the first time since the great depression.

As suggested by our growing GDP, we continue to build net worth, but actual figures show we are not creating much of meaning. Popular media continues to publish the sanitized headlines of government statistics news without any real investigation. By contrast, the facts in this document and the concerns of a growing minority of well-informed citizens demonstrate that there is cause for tremendous alarm - and as we would say, an immediate nationwide decree calling for resolution to the present US economic crisis.

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Summary: The United States' current account deficit and foreign debt are not dire threats to its global position, as would-be Cassandras warn. U.S. power is firmly grounded on economic superiority and financial stability that will not end soon.

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The U.S. dollar will remain dominant in global trade, payments, and capital flows, based as it is in a country with safe, well-regulated financial markets. Provided U.S. firms maintain their entrepreneurial edge--and despite much anxiety, there is little reason to expect otherwise--global asset managers will continue to want to hold portfolios rich in U.S. corporate stocks and bonds. Although foreign private demand for U.S. assets will fluctuate--witness the slowdown in purchases that precipitated the decline in the U.S. dollar in 2002 and 2003--rapid growth of world financial wealth will allow the proportion of U.S. assets held by foreigners to increase.

For foreign central banks (as well as commercial financial institutions), U.S. Treasury bonds, government-supported agency bonds, and deposits in highly rated banks will remain, for the foreseeable future, the chief sources of liquid reserve assets. Many analysts have pointed to the euro as a threat to the dollar's status as the world's central reserve currency. But the continuing strength of the U.S. economy relative to the European Union's and the structure of European capital markets make such a prospect highly unlikely. On the basis of likely demographic and productivity growth differentials, Adam Posen of the Institute for International Economics estimates that the U.S. economy will be at least 20 percent larger than that of the EU in 2020. The United States will maintain its 22 percent share of world output, but Europe's share will, in the absence of serious structural reforms, shrink by 3 to 5 percent. Moreover, European government bond markets, although larger than the U.S. Treasury market, are divided among five large countries and a host of smaller ones, greatly reducing liquidity, and European corporate bond and equity markets are smaller than their U.S. counterparts. With Asian capital markets still in their infancy, it will be a very long time before the pre-eminence of the dollar and U.S. capital markets is challenged.

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Levey and Brown make three basic arguments. First, they claim that foreign central banks will probably continue to finance U.S. deficits. Second, they predict that even if foreign central banks do pull back at some point, private investors will step in. And finally, they assume that even if this financing does not materialize, a dollar crash would hurt Europe and Japan more than it would hurt the United States. Unfortunately, there is a good chance that all of these assumptions will prove false. Foreign central banks may well stop financing growing U.S. deficits, private equity investors might not take their place, and the resulting adjustment process would prove quite painful for the United States.

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THE KINDNESS OF STRANGERS

The falling dollar also reduces the value of foreign investments in the United States. Eventually, foreign creditors are likely to demand higher interest rates to offset the risk of further decreases. Over the past few years, the United States has found a novel way out of this dilemma: rather than selling its debt to private investors who care about the risk of financial losses, it has sold dollar debt at low rates to foreign central banks. The extent of U.S. dependence on only ten or so central banks, most of them in Asia, is stunning: in 2004, foreign central banks probably increased their dollar reserves by almost $500 billion, providing much of the financing the United States needed to run a $665 billion current account deficit. These banks are not buying dollar-denominated bonds because they are attracted to U.S. economic strength, the high returns offered in the United States, or the liquidity of U.S. markets; they are buying them because they fear U.S. weakness. If foreign central banks stopped buying dollar-denominated bonds, the dollar would fall dramatically against their currencies, U.S. interest rates would rapidly rise, and the U.S. economy would slow.

Foreign central banks have financed the United States to keep their export sectors -- heavily dependent on U.S. consumer spending -- humming. But they now must weigh the benefits of providing the United States with such "vendor financing" against the rising costs of keeping the current system going.

Now, foreign central banks with large dollar holdings are facing the prospect of huge losses as a result of the dollar's decline. A 20 percent increase in the value of the yuan against the dollar would reduce the value of China's roughly $450 billion in dollar reserves by about $100 billion -- 6 percent of China's GDP. In four years, if nothing changes, Chinese dollar reserves could reach $1.4 trillion, raising the costs of a falling dollar to $300 billion -- some 12 percent of China's GDP. In short, the longer China continues to finance U.S. deficits, the larger its ultimate losses.

More important, the current arrangement increasingly risks creating domestic financial trouble. Growing reserves naturally lead to growth in the money supply, raising the risk of inflation. In order to avert this risk, central banks must resort to a process called "sterilization": selling local-currency bonds to reduce the amount of cash in circulation. But this process is expensive, especially if local interest rates are higher than dollar interest rates. Chinese domestic interest rates are low, so China does not face this problem. But it does face another: rapid monetary growth has contributed to a boom in bank credit, excessive investment growth, and a real estate bubble. Thus far, China has used price controls to keep prices from rising, but such controls, which cause deep distortions in the economy, cannot keep the lid on inflation forever. Eventually, rising domestic prices will erode China's competitiveness even if it keeps its currency pegged at its current level. China is likely to let its currency appreciate rather than accept socially and politically destabilizing inflation.

Let's face it: most Asian central banks view financing the U.S. deficit as a burden, one that they would rather not shoulder. A recent survey of central banks (which did not include the People's Bank of China or the Bank of Japan) indicated that most want to scale back their dollar purchases, and some smaller central banks are already adding more euros and yen to their portfolios. In March, a former manager of China's currency reserves questioned China's current development strategy, asking why it should seek out foreign investors looking for a 15 percent return on their investment only to have the central bank lend these funds back to the United States at 4 percent. China will conclude that rapid accumulation of dollar reserves no longer serves its interests sooner than optimists think.

Many claim that Asian central banks have to hold on to their dollars -- and the U.S. bonds that they have bought with their dollars -- because a selloff would drive the market for dollars lower and thus be self-defeating. This argument, however, misses a key point: foreign central banks do not need to dump their existing stocks of U.S. dollars to cause financial distress in the United States; they only need to slow their new purchases of dollar debt. If central banks decide that $2.5 trillion in dollar reserves is enough, the result will be a sharp fall in the dollar and a sharp rise in U.S. interest rates.

Levey and Brown further argue that even if foreign central banks scale back their financing, there is little to worry about, since the United States is on the verge of a new information technology (IT) revolution that will attract a new wave of investment from abroad. Alas, there is little evidence to suggest this pleasant scenario will come to pass. In both 2003 and 2004, equity investors took more than $150 billion out of the United States: U.S. direct investment abroad exceeded foreign direct investment in the United States, and U.S. purchases of foreign stocks exceeded foreign purchases of U.S. stocks. High equity inflows are more likely to come because a further fall in the dollar makes U.S. assets fire-sale cheap than because of a scramble to get in on another IT boom.

Other countries do of course depend on U.S. spending to make up for a lack of demand inside their own economies. But the United States cannot take comfort in the fact that the necessary "adjustment" will be painful abroad. If a falling dollar slows German, Japanese, or even Chinese growth, it will become even harder for the United States to reduce its trade deficit by exporting more -- a key part of any "soft landing" scenario.

And even if the United States has relatively little to fear from a falling dollar, it has much to fear from an increase in interest rates. If central banks ever cut back on their dollar purchases, private investors abroad would likely demand much higher interest rates. They would have to be compensated for the risk of buying a dollar that may fall even more. Given how leveraged the U.S. economy has become, with large domestic and external debts, any large rise in interest rates would do significant damage.

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Levey and Brown are right that so far, the world's appetite for U.S. credit has bolstered the U.S. ability to be a global hegemon "on the cheap." The United States exports enough to pay for only two-thirds of its imports; after recent tax cuts, the U.S. government collects enough non-Social Security revenue to cover only two-thirds of its non-Social Security spending. Foreigners made up the difference last year, buying enough U.S. Treasuries to fund the entire budget deficit. But without access to this easy financing from foreign central banks, the U.S. government and the U.S. electorate will have to make the kinds of unpleasant choices they have thus far avoided: among guns, butter, pork, tax cuts, and low interest rates.

It is far better for Washington to act now, when it can act on its own terms, than to wait until sharp falls in foreign demand for dollar debt forces it to act. The most important step, of course, is to start cutting the budget deficit rather than just talking about cutting the budget deficit. This will require reversing some recent tax cuts, not just controlling spending. Otherwise, the only way to reduce U.S. demand for foreign savings would be through a sharp decrease in private investment and consumption -- with disastrous consequences for the U.S. economy. The Bush administration has been lucky over the past few years -- the growing value of U.S.-held European assets has kept U.S. external debt from rising, and foreign central banks' willingness to buy U.S. debt has helped keep U.S. interest rates low in the face of large deficits -- but its luck could easily turn.

Arguing that deficits -- external as well as domestic -- do not matter does not make them go away. Celebrating the United States' real economic strengths while ignoring the real -- and growing -- economic vulnerabilities associated with unprecedented current account deficits is dangerous.

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Subject: "Solutions to Economic Problems. (4 Basic Solutions)" created on 05/09/07 by editor
The number one solution is to restructure our taxing structure. America has the highest corporate income tax burden in the industrialized world. We discourage saving money through the double taxation of personal savings and investments. Most European countries maintain a lower tax burden on businesses and investors. The European Value Added Tax gives European exports a competitive advantage over American goods and services. By taxing domestic consumption and exempting exports from taxation, European exporters have an unfair advantage over American manufacturers.
Indeed, switching to a Progressive National Sales Tax would slash our nation’s trade deficit by half.
Americans would increase their savings to avoid taxation. Reduced consumption translates into reduced imports. As manufacturers would be exempted from taxation, American exports would have a competitive advantage in foreign markets. Increased savings would spur domestic capital accumulation and provide American businesses with adequate and affordable capital for expanding and modernizing their businesses to take advantage of growing domestic and foreign markets.

The second solution is to reconsider our reliance on petroleum. A major share of our trade deficit is linked to our overwhelming reliance on foreign petroleum. As noted by this website’s statistics, Middle Eastern countries, Russia and Venezuela own over $100 billion worth of Treasury Bonds. As Chinese and Indian demand for petroleum continues to surge, gasoline will become more expensive for American consumers. While unleaded gasoline is selling for $3 a gallon, ethanol can be produced for $1.50 per gallon.
Ethanol, unlike petroleum, can be produced in the United States. While opening the Arctic National Wildlife Refuge could provide some relief, we simply don’t have enough domestic petroleum to meet our own long-term needs. Ethanol is an affordable, clean and domestic alternative to continued reliance on Middle Eastern resources. In addition, ethanol would revitalize American agriculture and would create hundreds of thousands of high-paying American jobs.

The third solution is to reconsider our Trade Agreements. China is undervaluing the Yuan to maintain an unfair advantage over American made goods and services. Japan is undervaluing the Yen to maintain an unfair advantage over American made goods and services. Indeed, most of Southeast Asia is artificially depreciating their currencies to make exports cheaper and imports more expensive. We should use international organizations and courts to demand Southeast Asian countries shift to floating exchange rate regimes, allowing for much needed appreciation in their respective currencies. We should consider working with the Federal Reserve Banks for the implementation of a controlled devaluation of the American Dollar to level the playing field.

The fourth solution is to stimulate scientific R&D.
America was once the global innovator of the world.
Our country invented the radio, the television, the affordable automobile, the airplane, the telephone and the world wide web. Unfortunately, we’ve lost our innovative advantage. Western Europe, Japan, Israel, Taiwan and South Korea are gaining on us. China is graduating millions of scientists and engineers each and every year. India is pumping out hundreds of thousands of new computer programmers. We need to increase public and private funding of scientific research. We need to emphasize math and science in school. We need to introduce universal higher education to make it affordable for Americans to pursue a college degree. The Roaring 20's were made possible by cheap automobiles, radios, telephones. The Booming 60's were made possible by innovations in chemistry, pharmaceuticals and defense. The Booming 90's were made possible by cell phones, broadband, computers and the internet. However, in a global economy, we can’t wait 20 to 30 years between bursts of innovation.

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FrenchSocialist said:

America is economically in big trouble and that trouble may be escalating very soon.

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America Is No Longer Independent & Self Sustaining - China & Japan Can Pull The Rug Out From Us At Any Time
Published 04/26/07 by Tom Rafter - Print Article

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FrenchSocialist said:

This site includes a list of recent acquisitions of US companies by other nations:

http://www.economyincrisis.org/acquisitions

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