Bush’s psychological warfare against the citizens of the US of A has damage the collective psyche. We are fragmented. Nothing will get done until government is fixed. The sub-prime implosion has forced people to look inward, toward their local communities’ status. Bush’s meddling in the housing market has back fired. The US of A is experiencing a decline in national wealth. This decline is disproportional distributive, everybody below the rich are getting poorer while the rich are gorging themselves on backs of the middle class. People are waiting for Bush’s impeachment process. Congress has a choice of fixing the Federal Government NOW or the people will. In other words, Congress will have to address the decline in national wealth or people would flood the courts with civil law suits. Fat chance on tort reform.
The general state of the US economy can be state by the following three observations.
- Bush is robbing Peter to pay Paul and telling Peter he can not complaint because the Terrorist will win. This is best illustrated by Federal funding in the Katrina/Rita rebuilding while the auto industry is going through a contraction.
Bush is robbing Young Judy to pay Old Mary and even though Young Judy thinks this is a Ponzi Scheme (an operation intended to defraud investors in which no new wealth is produced and creditors are paid off by borrowing ever larger amounts from new investors.) Examples; Private Equity are not White Knights. They rip out the guts of the target to reduce cost, drain cash to pay themselves and saddle the company with heavy debt. Pensions do get a leaner company if they are stake-holders in private equity or private equity over pays for the target (its good for Old Mary) BUT, workers lose their jobs (Young Judy). Oil Execs are now using this tricky phrase: “Pensions are large stockholders (Old Mary)….” Young Judy’s has to dough out a larger portion of her shrinking wage to get to work (Young Judy has a 2 hour drive from the only area she can afford to live and public transport in this country is a joke).
The Communist government of China is not following free-market principles. This action has placed a floor in raw materials and commodities. Those companies that sell and ship these out of the US will be working (the liquidly buffer against the housing down turn). However, the spineless central bankers at the Bank of Japan, bowing to their exporters, have destabilized the $dollar. A few thousand jobs come at a price for society as a whole; $Dollar induced inflation which will force the Fed to increase short term interest rates.
In general, the US of A has a huge trade deficit. Anything that is paid for by the federal government will have a LOWER effect on society’s output due to the borrowing of foreign monies. Example: Agriculture is subsidized by the federal government (Surprise!! Surprise!!! This also leads to $dollar induced inflation). The US of A is no longer a net exporter. The weak $dollar, relative to other major currencies, is no longer as effective as in the past when the US of A had a strong export position. Again, only a few thousand jobs come at a price for society as a whole. I do not see the value added chain to exporting scrape metal. You get the full effect of the weak $dollar if the US of A turns the scrape metal into a final product (a much larger value added chain).
Response to first comment:
The mechanism for $Dollar induced inflation/deflation is reflective in $dollar denominated commodities. Example: 60% of our oil is imported. The US is dependent on a long logistic chain for goods. This chain has become energy intensive.
Globalization has changed labor migration. WTO thinks labor migration is key to global growth. This a valid idea if the destination country has a positive (surplus) output. The US of A has a negative output (as reflective in its current account deficit). The US work force now has a $dollar denominated value relative to other countries’ work force. One can check this by looking at job postings at your favorite job search site. Count how many posts are offering relocation pay.
An example of migrant labor force, in the US of A, can be illustrated with the signing of NAFTA. Certain construction firms took liberties as to the meaning of commodities and hired illegal aliens, mainly from Mexico. This practice was evident after Katrina/Rita by remarks Mexico’s Fox made as to the Mexicans’ contribution to the rebuilding. US firms are not treating their labor needs as in the past (this is a behavior change). Decades ago firms would have placed adds in other cities and use wages, benefits and relocation pay as a means to attract labor. If firms has determined another source is available, they will use it. Even if it means “flying a jet to another country to have it maintenance”.
It is conceivable the US of A will see a forced labor migration as in the past. Labor force migration during the depression and collapse of the steel industry (Rust Belt) are common examples. Labor will move from the auto producing states to southern Cal. (most probable due to their capital markets are still functioning) and the Gulf States (due to tens of billions of $dollars being spent on the rebuilding that will take years to accomplish and oil production). Investments have become a big problem for the US of A. Money is being attracted by private equity, hedge funds and over seas investments. Cutting taxes on capital can not over come the crucial fact that US labor is very expensive relative to developing countries such as India and China.
Another effect of globalization is reflective in the labors’ task in the US of A manufacturing process. The US work force has become final assembly. I admit this is to due to businesses having to cut a deal in other countries, but the truncated value added chain must be augmented by another process or processes to balance trade (input = output or imports = exports with respect to value added chain[s]). More input means that the value of labor has less value which is inflation unless prices are similarly reduced (preservation of purchasing power).
Note: I did not use the Federal Note. Everything is now relative in a global economy. Even within ones' country.
In general, the amount of gold, in a country’s currency, is no longer relevant in a global economy that has jettisoned the gold standard. Gold’s price increase/decrease which in turn should make the gold in the US $dollar more/less valuable, with respect to other countries’ currencies, due to the fact that gold is priced in US $dollar, no longer controls the relative price of the US $dollar. Capital and Labor are isomorphic, in topologic terms, which means that the balance of the value added chain has become the determining factor relating the relative price of countries’ currencies (if they are allowed to float). See previous post Federal Reserve and Monetary Policy: Is a Windmill Labor or Capital? for deails of the value added chain.
A Side Note: One wonders why countries hold on to gold. They do not use it in a production process, like in industry, art and in coin pressing (countries can stop making gold coins). Counties have become “Gold Cartels”.
1 comment:
Good words.
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