What is the state of the American economy right now in September 2014?



The trade deficit in manufactured goods is a very important economic indicator.  

If the trade deficit is $702 billion, as it was in 2013, it means that we had to send out a net amount of $702 billion to foreign countries to pay for imported manufactured goods.  That is a lot of wealth to send out of our country, never to be seen again. 

This amount is about $2,200.00 for each and every man, woman, and child in America.  

Here is a complete list of trade deficit figures, in billions of dollars, since 2005: 

2005  $783

2006  $837

2007  $821

2008  $833  The year of the crash.

2009  $510  First full year after the crash.

2010  $649

2011  $741

2012  $742

2013  $702  Latest full year available. 

The figures are trending down over the last few years.  Do these figures indicate that we are importing less and exporting more?

Export and import figures

I also looked at actual export and import figures, separately, not combined into "trade deficit".

I looked at 2007 and 2013.  I took into account the increase in population from 2007 to 2013.

Per person, exports of manufactured goods increased by a factor of 1.3 from 2007 to 2013.

Per person, imports of manufactured goods increased by a factor of 1.1 from 2007 to 2013.

These results provide some encouragement.  Exports are increasing faster than imports.

Note that these results are based on a comparison between 2007 and 2013.  No attention is given to the intermediate years.

We would have to see a further improvement for the full year 2014, and for 2015, before we can draw a firm conclusion.  

Trade with China

The above figures include all foreign countries we deal with.  Here are the figures for China only.

China trade deficit in billions of dollars : 

2011 $296

2012 $315

2013 $318

2014 $329 estimate for 2014  

Our trade deficit with China is increasing. 

Total manufacturing output in the United States

I looked at total manufacturing for 2nd quarter 2007, before the crash, and I also looked at 2nd quarter 2014.  I brought population into the picture, so we can look at total manufacturing per person. 

For 2014, manufacturing output for 2nd quarter was 94% of the figure for 2nd quarter 2007.  So we have not caught up with where we were in 2007.  

We started sending our manufacturing away in the 1960s.  Manufacturing in 2007 was well below manufacturing levels in the 1970s and 1980s.  So today in America we are nowhere near where we should be in terms of manufacturing.

The only way to improve the employment situation, and improve the economy generally, is to reduce importation of manufactured goods, and increase domestic manufacturing.

I say that we have to sit down with our foreign suppliers, China, Mexico, Japan, and many others, and negotiate reductions in manufactured goods shipped to the United States.  We have to explain to these countries that if there is no voluntary reduction, our purchasing power will go down, forcing a reduction in imports, just like there was in 2009. 

In other words, we have to explain to our foreign suppliers that there is the strong possibility that they will kill the goose that lays the golden eggs.  (The goose is of course America and the golden eggs are the huge amounts of money we send out to foreign countries to pay for imported goods.)

There is a strong precedent that we can rely on in negotiations with our foreign suppliers.  China announced in 2006 a long-term plan to become self-sufficient in all manufactured goods.  So China intends to be no longer a trader.  Everything will be one-way only. Is America supposed to be a dumb bunny, continuing to buy from China, while China eliminates even the relatively small current purchases from us?

How get the message out?

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The value of American exports of manufactured goods is approximately $1.4 trillion per year.  This statistic sounds good and it is good.

But the fly in the ointment is that the value of imports of manufactured goods is approximately $2.0 trillion per year.

Our whole problem of huge unemployment and failing economy is caused by imports not in balance with exports.  Our imports are greater than exports by $0.6 trillion per year, or in other words $600 billion per year.


Can it be as simple as that?

Yes, if we reduce total imports of manufactured goods by 30%, (30% of $2.0 trillion), and increase domestic manufacturing to provide the goods no longer imported, our country and our economy will be on track to recovery.

By eliminating the sending of a net $600 billion to foreign countries every year, we eliminate a huge foreign expenditure, a huge hemorrhage impoverishing our country.  This amount works out to $1900 per year for each and every American man, woman, and child.

$600 billion kept in our country every year, rather than sending it to foreign countries, could put six million Americans back to work on a continuous basis, in terms of wages and manufacturing equipment.  The multiplier effect of manufacturing would put additional Americans back to work.

People would be paying taxes, rather than requiring welfare payments.  Result: reduction in government deficits, something everybody wants.

I am not advocating isolationism.  I am not advocating a firewall around the USA.  I am all in favor of international trade, if it is balanced trade instead of the uncontrolled wild-west trade situation we have now.

Balanced trade means that exports are approximately equal to imports.  Ideally if we export $1.4 trillion worth of manufactured goods per year, then we would allow import of $1.4 trillion worth of manufactured goods per year.


How achieve a 30% cut in total import value?

Again there is a very simple approach.  For each country we trade with, we allow imports of manufactured goods only up to the level of that country's purchases from us in the previous year. This arrangement would be phased in over three years.

In this way we achieve balanced trade with each country, thus achieving balanced trade in our total international trade in manufactured goods.  We no longer suffer a $600 billion per year hemorrhage going out to foreign countries.

Again, my proposal does not involve barring all imports.  My proposal is only to bar imports above the level of our exports.


Doesn't sound all that drastic, does it?

A reviewer has said that my 30% proposal "converts a huge amorphous issue into a simple, understandable, and actionable issue".

If we look at the export/import situation country by country, everything looks straightforward until we get to China.  In 2011, the value of imports of manufactured goods from China was 3.79 times greater than the value of our exports to China.  From this number we see that we would have to eliminate 73.6% of Chinese imports to achieve balanced trade with China.

This large number, 73.6%, is very dramatic and demonstrates the domination of our economy by China.

Any serious consideration of a reduction of 73.6% in Chinese imports into the U.S. would create fury in the Chinese government.  Who knows what they would do in response.  Certainly the first step would be a gigantic additional lobbying effort.

I have learned that six hard-working members of the House of Representatives, led by Representative Brad Sherman of California, in 2011 sponsored bill H.R. 2909, entitled "Emergency China Trade Act".  According to Congressional Research Service Report RL33536, the bill "would terminate China's normal trade relations status and would direct the President to negotiate a new trade agreement with China in order to achieve a balance of trade in four years".

To my knowledge this wonderful bill went into various committees and is still stuck there.


One little problem

Representative Sherman's bill has one problem.   A limit on imports from China into the U.S. could easily be circumvented by transferring production from China to Bangladesh, Vietnam, or other country.  My proposal is better because it places an individual limit on each country we deal with.

Another issue is that we need measures to ensure that statements on manufactured items as to country of origin are truthful.


The good old bottom line

The simple fact is that the only way to get Americans back to work, save the American economy, and save America, is to reduce imports from foreign countries down to approximate equality with our exports.

Yet due to censorship this is the one issue that is not mentioned and is not allowed to be mentioned.  I wish I knew how to break the censorship and get this practical proposal out in the open for all Americans to see and consider!  


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America enslaved to China

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When America started sending manufacturing jobs away in the early 1960s, 50 years ago, I predicted the huge unemployment we see today, in manufacturing and in many other employment areas.

What I didn't predict, and what no one predicted, was that China, the most aggressive source of our imported goods, would ultimately be able to control American government policy, that we would be enslaved to China.

Every day we see TV advertisements for new medications, accompanied by long lists of side effects, including death of the patient.   The insane idea of sending manufacturing away to foreign countries also has side effects, including enslavement to China and death of the American economy.

The fact is that today China owns a major portion of the American economy.  Why aren't the two presidential candidates proposing major moves to increase manufacturing in America?  Simple answer: The two candidates and 99% of the other politicians in Washington are operating within constraints set by China, or within constraints set by American lobby groups working with China.

Control of the American economy by China is increasing every day.  The net money we send to China,  over three-quarters of a billion dollars per day, is used by China to come right back and buy up our economy.

Do 312 million Americans really want to be slaves of China?  I doubt it!

I have proposed a simple and practical plan in which America would break the chains of enslavement to China, in which America would regain control of its destiny, by reducing imports of manufactured goods down to approximate balance with our exports.

The concept of total value of our imports each year, approximately equal to the total value of our exports, for each country we deal with, is plain common sense. It is fair and reasonable.  This plan adheres to the true meaning of the word "trade".  This plan highlights our continuing belief in free trade, but balanced free trade.

Many people have have expressed strong support for my ideas.

Other people have strongly criticized me and have told me to "wake up" and see the "real problems":

• "unions"
• "big government in our lives and in our pockets"
• "lack of qualified workers"
• additional manufacturing would not create a lot of employment
• inadequate education system

I have to say, with regret, that these people are completely wrong.  The issues these people raise are non-issues or at best very minor issues.  These people are like O. J. Simpson looking for the "real killer".

I agree that there are too many government regulations on manufacturing, too much red tape in setting up new manufacturing facilities, and too high taxes on companies doing manufacturing in America (business tax and corporate income tax).  But fixing up these issues won't have a strong effect unless we have in place a program/policy of greatly reducing imports of manufactured goods.

Robert Reich recently tweeted that President Obama needs "a strong economic plan" in order to win re-election.  The only "strong economic plan" that either presidential candidate could put forward that would be effective is to greatly reduce imports of manufactured goods.  Yet Robert Reich himself is aligned with China, so his tweet is hypocritical.

On the basis of fundamental, unarguable principles of economics, the only way to save America is to reduce imports down to a level of approximate equality with exports.

Reaching this objective would have interrelated positive effects:

• Eliminate the lethal net cash outflow of nearly $600 billion per year to foreign countries to pay them to do our manufacturing for us
• End of sending net money to China that they can play with and use to enslave us
• Create conditions for a large increase in manufacturing, putting millions of Americans back to work in manufacturing and in many other employment areas
• Great increase in tax revenue from newly employed workers and newly operating factories in America, thus reducing government deficits

Bottom line:  The only way to avoid enslavement to China, and the only way to save America, is to greatly reduce imports of manufactured goods, down to approximate equality with exports.

If anyone has a better idea on how to accomplish the objective of greatly reducing imports, let's hear it and discuss it.

But it is nonsense to say that the "real problem" is something other than a lethally high level of imports in relation to exports. 

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Every American has to decide

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July 18, 2012.   Federal Reserve Chairman Bernanke "warns that economic recovery is weak".

Obvious!  How could recovery be anything but "weak" while the economy is hemorrhaging out to foreign countries nearly $600 billion per year to pay them to do our manufacturing for us.  This amount, $600 billion, is real wealth going out of our pockets at the rate of over $1800 per year for each and every American man, woman, and child.

If a ship hits a rock and water is pouring in, is the ship going to show "recovery" from the accident while water continues to pour in?  No, of course not.  The inflow of water first has to be stopped, to allow "recovery".  Every eight-year-old knows this.

Similarly in the case of our economy, the outflow of $600 billion per year first has to be stopped, to allow "recovery".

This figure of $600 billion per year is found in official reports from two different U.S. government agencies.  Does Bernanke read these reports?  Does Bernanke understand the significance of the data presented?  Do Obama and Mitt read and understand these reports?  Are any politicians in Washington, other than a very few, aware of these reports and their significance?

It is really weird when high officials, such as Bernanke or Obama, in charge of everything, issue statements "warning" about the economy.  They have the power to fix the problem, rather than stand around like an outsider, issuing "warnings".

Similarly in the case of a politician who "warns" that there is a long road ahead in a war situation, with many sacrifices to come. If the politician knows this, then why did the politician start the war in the first place?  Or if the politician inherited the war, as in the case of Obama, why doesn't the politician get us out of the war immediately, rather than drag on with a daily toll of brave soldiers lost for no reason.

UK politician Nigel Farage recently made a speech to EU officials concerning the huge financial problems of the Euro system.  He said "we need to recognize that a terrible mistake has been made" in setting up the Euro.

In our good old USA we need Obama and Mitt and all other politicians to stand up and say "we need to recognize that a terrible mistake has been made" in sending or allowing the sending of manufacturing jobs away.  We need to restrict imports so that exports and imports of manufactured goods are approximately equal.  In this way we can eliminate the lethal hemorrhage of the $600 billion per year trade imbalance, and allow our economy to recover.


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There is only one way to save America, and that is to very substantially reduce imports of manufactured goods.


Every American has to look into his or her own heart and decide:


Am I in favor of action to reduce imports and save America? 

Or, am I in favor of the existing complete inaction, and the continuing decline of America?


Forthright action

What would be the result if there is forthright action to reduce imports?  Our present net hemorrhage of nearly $600 billion per year going out to foreign countries would be eliminated.  Money spent on American-made goods in stores would stay in USA and keep working in USA.  Americans would be back at work, in manufacturing and in many other types of employment.  Unemployment costs and welfare costs would go down, and tax revenue would go up.

An economy works on psychology and expectations.  Every time an unemployed worker finds employment a bright light goes on, spreading to other people.  Confidence and hope replace despair.  Young people will have an incentive to stay in school and learn, because there will be a definite chance of jobs available on graduation.


The flip-side:
Continuing complete inaction

Complete inaction has been the policy of Obama.  I am very much afraid that complete inaction will continue regardless of who is our next president.

What will be the result if complete inaction continues?  America continues to hemorrhage a net $600 billion per year out to foreign countries to pay them to do our manufacturing for us.  Money spent in stores goes straight to China or other foreign countries.  China continues to use our money to buy up chunks of our economy.  Chinese control of U.S. government policy continues to grow.  Government deficits increase, leading to more layoffs.  The negative atmosphere itself causes more layoffs.  Just as good news is contagious, despair is contagious.

Dispirited young people in towns and cities that are falling apart will turn in ever higher numbers to crime and drugs.   There will be social dislocation and riots in the streets similar to what has been seen recently in Greece.  In fact, America will become Greece, with impossible foreign debt and impossible hemorrhage of money out of America to pay interest on foreign debt, and to pay foreign countries to do our manufacturing for us.


What could be done with $600 billion per year

This is real money, real wealth, sent out of America to China and other countries.  This $600 billion per year is real, very real, not just a theoretical concept used only by economists.  Proof is that China, as one example, is rolling in money.  With this money, China has purchased over $1 trillion of U.S. Treasury securities, and large chunks of our economy.

To keep this $600 billion per year in the USA, we don't have to prohibit all imports.  We only have to cut imports of manufactured goods down to approximate balance with our exports.  It is only common sense that our imports should balance (be approximately equal to) our exports, in terms of total value of goods going in each direction.

$600 billion per year is equal to $1800 for every man, woman, and child in America.  Or, look at it as over $3000 for each and every family.

This money kept in America could pay wages and provide machinery to work with for ten million workers in manufacturing.  Think of the effect on America if we had an additional ten million people employed, rather than unemployed, and, especially, employed in manufacturing.

Every economics textbook states, or at least 50 years ago every economics textbook stated, that there is a multiplier effect of manufacturing.  For every worker in direct manufacturing of finished goods, two jobs are created in other industries.  Even if we assume only one job, that is an additional ten million people put back into the work force.

Taking account of reduced unemployment insurance payments, reduced welfare costs, and increased tax revenue, I estimate the equivalent of an additional $200 billion of tax revenue each year.

Politicians talk constantly about deficits, but they never talk about $600 billion hemorrhaging out of our country every year. It is a banned, censored, subject. Politicians don't know and don't understand that they could get an additional $200 billion in tax revenue, simply by acting to bring imports down to balance with our exports.


Who wants action and who wants complete inaction?

I estimate that 1% of Americans want continuing complete inaction, and 99% of Americans want forthright action to reduce imports and turn America around.

It is a mystery to me why the 99% are so passive.  During the Vietnam war we had million man/woman marches in Washington.  These marches were effective in ending a completely pointless war earlier than otherwise would have been the case.

Now we have somewhere between 25 and 40 million people unemployed. These people and most other Americans are very worried about the future.  Why don't we have five million man/woman marches in Washington?  Think of it.  Five million people marching in Washington, scaring our completely corrupt and paralyzed government into action.

The 1% of Americans who want continuing complete inaction are predominantly the people who have some power and control over events.  They are predominantly wealthy.  Why do the wealthy and powerful think they will be better off in a wrecked America than in a prosperous America?  These people may be wealthy and powerful but they sure can't think straight!

But part of the reason is that China exerts a lot of control on our government.  China owns a significant chunk of our economy.  China is lobbying very hard to prevent any type of controls on imports of manufactured goods.  Wealthy and powerful Americans are predominantly in a treasonous state of alignment with China.

Now consider all the charitable foundations, such as Bill Gates' foundation, and thousands of others.  If they really wanted to help America, they would lobby just as hard for cuts in imports, to enable America to get back on its feet.


Propaganda

The wealthy and powerful are supporting a propaganda campaign to try to make Americans forget how we got into our present mess, to try to divert attention away from how really simple it would be to turn things around.

The latest propaganda effort has so-called scholars writing about the Roman empire of 2000 years ago, and reviving interest in the famous book "Decline and Fall of the Roman Empire".  They are trying to prove that America is undergoing a sequel to the Roman experience, i.e., an inevitable American "Decline and Fall" that we are powerless to prevent. 


Where that propaganda goes wrong

In the Roman Empire of 2000 years ago there was also a 1% that controlled everything.

But there is a huge difference.  The outlook of the ordinary Roman Empire citizen was that you accept your situation.  The outlook of the ordinary American citizen of today is to apply intelligence and initiative to improve things.  We have instant worldwide communication.  We know what is going on.

Coming out of American intelligence and initiative we need leadership with one simple clear-cut goal and that is to greatly reduce imports.  We need leaders to organize a five-million man/woman march on Washington with this one simple clear-cut goal.

Once imports are reduced, all other goals will flow from it:  greatly reduced unemployment, greatly reduced poverty, greatly reduced homelessness, greatly improved prospects for young adults and for all Americans.

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Appendix

I often contact anti-poverty organizations to try to get them on board.  I quickly give up.  In fact I become furious with their attitude.  How is it possible they don't understand that poverty would be reduced by ending a hemorrhage of nearly $600 billion out of our country every year, and by greatly reducing unemployment?  I guess these people would also attempt to restore the interior of a house without first fixing the roof!

There is complete censorship in America.  No one is allowed to talk about reducing imports.  I believe these anti-poverty organizations are afraid they would lose their charitable status if they joined efforts to reduce imports and increase domestic manufacturing employment, and related employment. 

The idea of overt action to greatly reduce imports may seem very radical.  Maybe people would stop contributing to an anti-poverty organization that has come out in favor of reducing imports.  But after five to ten more years of devastation of America, the idea will not seem so far out!

All western countries, United States, Australia, Canada, U.K., France, Spain, others, are suffering because so much manufacturing has been sent away.  Governments are running around in circles trying to solve the problems of debt and unemployment, but won't listen to suggestions to reduce imports and increase domestic manufacturing.

I predict in another five to ten years things will be so bad that people in authority, the 1%, will have to listen.  There will be continuous unrest, rioting in the streets, etc.  Ordinary Americans will be so poor, and the currency will be so low, that purchase of imported goods will be reduced.  The immutable laws of economics will come into action and domestic manufacturing will slowly come back without government action.

I further predict that in ten years the only people with money will be people who have received significant inheritances, or whose parents have received significant inheritances.  The ordinary working men and women of the western countries, even if they have employment, will be receiving such slim wages that they won't be able to save and leave money to their children.

Why wait for these tragic predictions to come true?  What wait for things to get so bad?  Reduce imports of manufactured goods now!  Not to zero; only down to balance with our exports.  What is wrong with this idea?  Why won't the 1% take action before America and other western countries are down below the situation of Greece today?


Reader comments (thanks to readers for comments!)

One reader appears to agree with the idea of cutting imports but comments "hard to get there without leadership".  Ed's response:  Very good point.  That is one of the weak points in my reasoning!  Where is the leadership to come from?  The Occupy movement is very good but bogged itself down with too many issues, and with the issue of occupying parks, etc.  The media happily emphasized the battles over kicking people out of parks, thus obscuring the issues Occupy was trying to raise.  Some people recently won a $200 million lottery prize.  With a fraction of that money, I am sure I could get things going!

Another reader comments:  "I agree to a point.  I think we should trade with all but I would personally much rather buy American products."  Ed's response:  In my proposal, we continue to trade with all countries we are trading with now, but we have balanced trade with each country.

Another reader also appears to agree with the need to cut imports but comments "but what is a realistic way to (cut imports)?  Would it make sense to increase our exports to the level of our imports?"

Ed's response:  This reader's excellent comment raises a lot of issues.  In my blog post above, I gloss over a number of important issues. How would it be determined which goods would come into the USA?  During a transition period, there could be shortages and other dislocations.  But America has successfully dealt with this type of issue in the past, such as during World War II.

In terms of manufactured goods, we buy four times more from China than they buy from us.  So my proposal means eliminating 75% of present imports from China.  The fury of China would know no bounds.  Maybe China would switch from its present economic war against USA (which it is winning hands down) to a real shooting war.  In any case there would be great upheaval.  I doubt very much that our exports could go up to match our imports. We can't simply create new customers!  But in a peaceful changeover, maybe our exports could go up over time as we increase our manufacturing activity and improve our efficiency.

China is only one of many countries we trade with, but China is the largest in terms of our imports, and China is the most aggressive country.  I think China is itself confused as to its objectives:

Alternative 1.  Does China want to completely destroy the American economy?

Or, alternative 2, does China want to allow some viability to continue, so that America continues to be a customer of China?

I don't think the fine-tuning needed for alternative 2 is possible.  I think that as matters stand now we are on a direct path to alternative 1.  China is killing the goose that lays the golden egg.

Politicians, commentators, and the business community are wailing about "poor store sales" in USA, pretending to not understand why sales are poor.  Obviously, sales are poor because unemployed people can't buy.  Sales are poor because employed people are getting lower wages and are constantly afraid of losing their jobs.

All the western countries, USA, Canada, UK, France, Australia, Italy, Spain, others, have the same problem.  Their economies have been damaged by severe loss of manufacturing employment.  Ideally, America would take a leadership role and work with all western countries to reduce imports and increase domestic manufacturing in those countries.  If all western countries worked together, then maybe China would be afraid to start a shooting war or take other drastic retaliatory action.

If USA and other western countries were to reduce imports, China would still have a way of keeping its manufacturing industry going.  But China would have to do what it has not yet done, and that is allow all its own citizens to benefit from its manufacturing success.

Reader @K3vinFox says that "President Obama has plenty of incentives for USA manufacturing in his jobs bill but the GOP House shot them down."  Ed's response: I don't doubt that there are useful features in the proposed bill.  I agree that good proposals are often obstructed for the sake of obstruction.  But, to save the American economy, action on a much larger scale is needed, namely reducing imports so as to eliminate our net hemorrhage of nearly $600 billion per year, in turn providing the greatest incentive of all to USA manufacturing.  Further, President Obama during the campaign in 2008 said "We have to get the jobs back from China".  Initially he had a Democratic House but he did not have the courage to act on his statement.  Four years slipped away without facing up to the problem.

Reader  @mercury6281 says  "...you're right, (cutting imports) would definitely help.  Keeping jobs in USA, fair taxes on the 1%, additional fuel alternatives, to build USA".

A reader says he blames GOP for idle factories.  Ed's response:  I am no defender of GOP.  Jobs were sent away at a steady pace throughout the last 50 years, under BOTH Democratic and Republican administrations.  All presidents, all members of house and senate, over the last 50 years, are to blame.  At any time since the early 1960s, when jobs started going overseas, have you heard even one politician question this process (other than one or two cases during an election campaign, and promptly forgotten after the election)?  America is suffering today from 50 years of criminally negligent management of our economy and our country.

@NorCalCrush says that one problem standing in the way of increased manufacturing is training qualified workers.  Ed's response:  I suspect that claims of inability to fill millions of high-tech manufacturing jobs are not completely valid.  I suspect that employers today are  not willing to spend one cent toward training.  So of course if they take this attitude they won't be able to find workers.

No one knows how many people in USA are unemployed but want to work and are ready and able to work, but can't find jobs.  Let's say there are 40 million people unemployed, in these terms.  Surely one person out of each 40 persons could be trained for high-tech manufacturing.  So there you have one million potential manufacturing workers.  Probably out of this group of one million people there are many who already have some relevant training.

Another statistic.  About 2.5 million students graduate from high school every year.  Surely at least 10% of these students would be interested in training for high-tech manufacturing, if there was some certainty that a job would be waiting at the end of the training.  Once the pipeline is filled, employers would see a quarter million new trained workers every year.

What  is happening now is random.  Many students coming out of high school, and many older unemployed workers, go into training programs on their own initiative but really have no idea whether jobs will be available.  So a tremendous amount of money and time is wasted, and the economy of the USA does not benefit.  What is needed is a highly efficient agency (can we find any highly competent, honest people to run a highly efficient agency?) that works with employers to obtain information on employment needs projected over at least three years.  This agency also works with new high school graduates and older unemployed workers and slots them into relevant training programs, so that on completion of training there is near certainty of employment. 

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Greece

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Greece provides a relevant example for America


Greece, similar to all European countries, had a terrible time during World War II.  Immediately following World War II, the Greek people further suffered a civil war.

Today, we are on the verge, at least I hope we are on the verge, of seeing the best news to come out of Greece since the end of the civil war!

And that good news would be that the politicians and ordinary people of Greece have told the EU political and financial bodies to go jump in the lake!


Default on external debt

Withdrawing from the EU would mean that Greece defaults on all external debt.  Good!  It has to happen.  German banks and other banks should have analyzed the Greek economy thoroughly, as any lender should do with any loan application.   If they had done this, they would have found that loans should not be given to Greece.  Probably the German government and other governments virtually ordered their banks to lend to Greece.  These governments were so anxious to increase membership in the EU that they turned a blind eye to negative signals.

So it is not Greece's fault alone that those foreign loans were made.  Greece's situation is similar to the situation of Americans without adequate finances who were tricked and enticed into taking on sub-prime mortgages.

In 1982, an article I wrote was accepted for publication in a magazine covering government policy, current events, etc. The main point in my article is "don't borrow money from foreign organizations or foreign countries".  If everyone had studied my article and followed the principles presented, the western countries would not be in as serious a financial mess as they are in now.

My article applies to governments and to public or private entities such as electric power companies.  A government should borrow within its own country.  In this way, interest payments stay within the country and keep working in the country.

Also, foreign loans are dangerous because of fluctuations in exchange rate.  Iceland, Greece, and other countries have suffered from this phenomenon in recent years.

What happens if a government cannot borrow as much money as it needs from within its own country?  Such an event is a strong signal that the government is heading in the wrong direction.  Government policies including spending priorities must be changed to make it possible to avoid foreign borrowing.


Greece after EU!

What happens to Greece when it withdraws from the EU?

Greece goes back to the drachma and the drachma falls.  Then what happens?  Imported goods, manufactured goods and other goods, are too expensive to import.  Great!  Employment in Greece immediately increases as the Greek people increase manufacturing for their own needs.  Also due to the low drachma Greek exports would increase.

The already active Greek tourist industry would increase.  Even though people in other countries are also facing austerity, they still want holidays.  Low prices in Greece would be very attractive.


What are the lessons for America?

Immediately stop further sales of Treasury securities to foreign companies and foreign countries.  We can't afford the hemorrhage of interest payments going out to foreign holders of these securities.

Similar to Greece, if the American government can't borrow enough money without selling Treasury securities to foreigners, then the government has to undertake a complete overhaul of its operations. 

Money going out of a country to other countries is a huge burden, much greater than any domestic expenditure.

To improve the health of the American economy, to increase jobs, and to reduce government deficits, we also have to cut other foreign expenditures:

+  eliminate our net hemorrhage of over $500 billion per year that pays foreign countries to do our manufacturing for us, while our own workers stand idle

+  cut foreign military expenditures by getting our soldiers out of war zones and back home, and by cutting our military garrisons in over 100 countries

+  prohibit further purchases of American companies by foreign governments or foreign companies, in order to stop further growth of profits going out of our country to foreign countries


Parking lot for money

Despite the fact that America is broke, a foreign country or individual who wants a safe place to park money still finds America attractive, in comparison with other countries. Even if little or no interest is paid, parking money in America still does damage.  It keeps the U.S. dollar at an artificially high level.  We need the U.S. dollar to be at its "natural" level to help cut imports and encourage exports!




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Only way to save America

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WORD COUNT FOR THIS POST: UNDER 700 !!


When asked about the damaged cherry tree, young George Washington said "I cannot tell a lie; I did it with my little hatchet."


Legend or fact, this story has been an important symbol to Americans for over 200 years.


In the last 50 years, our business and political leaders created one of the biggest voluntary disasters in world history. They sent/allowed the sending of manufacturing jobs overseas. They created a lethal competitor, China, that did not exist before, by handing China on a silver platter the jobs, the technology, and the trillions of dollars.


Huge unemployment and huge deficits in America today prove that an economy and a nation cannot survive without a high level of manufacturing activity.


The reaction of our leaders has not been "We cannot tell a lie; we made a big mistake and we must begin immediately to re-establish our former strength in manufacturing".


Instead, through servile columnists, commentators, and analysts, our leaders are telling us lies, trying to hide what really happened, like a child hiding a broken lamp or cookie jar. The lies are both childish and outrageous; the mystery is how anyone can recite them with a straight face.


Tragically, every day of lies and cover-up is another day of suffering for the unemployed, and another day of damage to our economy and to our nation.


The entirely predictable result of sending our manufacturing jobs away is an impoverished America suffering


+  a net hemorrhage of over $500 billion per year to pay foreign countries to do our manufacturing for us;


+  a hemorrhage of interest payments on trillions of dollars’ worth of U.S. Treasury securities held by foreign countries;


+ a hemorrhage of profits on substantial chunks of our economy owned by foreign companies.


How much longer can we go on in this way before we are overtaken by the complete governmental and financial chaos we see now in Greece?


If every year a family sends out much more money than it takes in, that family will be broke very soon.  A nation is no different.  Truthfully, America is already there.


We have to set aside the lies and the cover-up and take immediate action, showing the forthrightness and initiative that has always been an American characteristic.


I propose a simple and practical solution: balanced free trade in which the total value of manufactured goods imported in a year from each foreign country is limited to the total value of manufactured goods that country purchased from us in the previous year.  This policy would be implemented step-wise over three years, starting immediately.


A resolute president putting this new trade policy into effect would signal a level playing field and breathing space for domestic manufacturing. Seeing a huge opportunity, entrepreneurs would rush to ramp up or re-start existing manufacturing facilities, and create new facilities.


An immediate benefit to America would be the end of our net manufactured goods hemorrhage of over $500 billion per year.


Due to balanced free trade, giant chain stores and small stores would no longer be able to obtain enough foreign-made goods to completely fill their shelves.  They would have to carry and display American goods along with foreign goods.  Consumers could pursue the “Buy American” option, largely not available now.


Yes, to accomplish all this we would have to abrogate and refuse to abide by a raft of trade treaties and other paperwork.  The fury of China would know no bounds.  We face two choices:


+  Sacrifice America on the altar of paperwork,


Or,


+  Break the chains of paperwork and the chains of China, in order to save and rebuild America.


I know which choice I prefer!


America has 57 cities with population over 320,000, the population of Iceland.  Following the financial crash in Fall 2008, Iceland’s banks, holding extensive deposits from UK and Netherlands, were allowed to fail. Iceland has not caved in to demands from international trade bodies, UK and Netherlands for compensation. Iceland is now recovering well.


Can America be as brave as Iceland?  Yes, it can!


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Cannot tell a lie

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THIS POST IS A LONGER VERSION OF THE ABOVE MAY 13, 2012, POST.  READERS ARE REFERRED TO THE NEWER MATERIAL ABOVE!!

Childhood mess-ups

My two children are in their middle to late 40s.  In their single digits, in the rare event of a mess-up, something broken or spilled, I would say "I won't be angry but please tell me what really really happened".

We have the example of George Washington and the cherry tree.  When asked about it, young George said "I cannot tell a lie; I did it with my little hatchet."

Legend or fact, this story about George Washington has been important to Americans for over 200 years.


Adult mess-ups

In the last 50 years, our business and political "leaders" created one of the biggest mess-ups in world history.  They sent or allowed the sending of manufacturing jobs overseas.  They created a lethal competitor, China, that did not exist before, by handing China on a silver platter the jobs, the technology, and the trillions of dollars.

The status of America today, with huge unemployment and huge deficits, is proof that a nation and an economy cannot survive without a full measure of manufacturing activity.  Already in the 1970s the damage to our manufacturing sector was apparent. But our business and political "leaders" took no notice and continued the process for another 30 to 40 years until now when it has become obvious to all ordinary Americans that sending the jobs away has created our present problem.


The non-George Washington response

The reaction of our "leaders" has not been "We cannot tell a lie; we made a huge mistake and we must begin immediately to change course and re-establish our former strength in manufacturing".

Instead, our "leaders" are telling lies, to try to hide what really happened, like a child hiding a broken lamp or cookie jar.  The lies are so childish and outrageous that it is amazing that anyone can spout them with a straight face.

About a year ago I started writing about what I called "fantasy explanations" of how we got to the terrible situation we see today.  But now a whole new generation of fantasy explanations, i.e., lies, can be seen.


New crop of lies

In this new crop of lies, everything has been turned 180 degrees.  Now, instead of the FACT that sending away manufacturing jobs has severely damaged the middle class, we hear the LIE that lower quality education has done the damage.

We hear the LIE that the wrecking of the economy is due to parents not raising their children correctly.  We hear the LIE that "mollycoddling" our children is a big factor in the wrecking of our economy.

There is a whole army of analysts, writers, and commentators working night and day to come up with these new, tremendously complex, intricate lies, filled with irrelevant/trivial issues, to explain our present situation.


Real, irrefutable, facts

Our business "leaders" began in the 1960s to send our manufacturing jobs away for the short-sighted reason of trying to increase profits by using lower-cost workers.  Over the next 50 years, thousands of companies jumped on the bandwagon.

The predictable result is that our country is now hemorrhaging over $500 billion per year to pay foreign countries to do our manufacturing for us.  This money is real money that we are sending to foreign countries, with the result that our country is impoverished.

While we send away over $500 billion per year ($1.4 billion every day), our own workers sit at home in despair (if they have homes), or stand in line at unemployment and welfare offices.

This is the giant hidden cost of "low-cost" imported manufactured goods.


What our business and political leaders pretend not to know

(Or maybe they really don't know)

Manufacturing enriches the economy in which it occurs.  Finished goods that consumers want to buy and use are more valuable than the materials and supplies used in their manufacture.  Even if the goods were made 100% by robots, the enriching effect occurs.

Manufacturing creates ripple and multiplier effects:

+ Other business firms provide components, sub-assemblies, materials, and supplies to manufacturing facilities.

+ Other business firms hire designers, engineers, technicians and manufacturing workers to build, sell, install and service robotic equipment.

+ Manufacturing creates a more complex economy in which people with many types and levels of skills can find employment.  

+ A critical mass of scientific and engineering skills and knowledge is created because everything is done together: design, engineering, manufacturing, problem solving, not separated by 10,000 miles.


Present and future

President Obama has been in office for almost four years.  It is a great disappointment to everyone who supported him that he has failed to act to increase manufacturing in America.

Nevertheless, manufacturing is coming back to America, due to the immutable laws of economics.  When a wealthy country trades with a low-wage country, wages in the wealthy country go down and wages in the other country go up.  We are now at the point where overall manufacturing and operating costs in America are in many cases competitive with costs in China and other "low-wage" countries.

A recent survey of 106 large American companies found that 37% of the companies are seriously considering bringing manufacturing back to America, or have definite plans to do so. 

The  only thing missing is that we need the manufacturing to come back more quickly.  Millions of unemployed Americans are having trouble keeping bread on the table. They can't wait five or ten years.


My simple solution

My simple, fair, and reasonable solution, as stated in previous posts, is to limit the total value of imported goods coming in from each foreign country to the total value of manufactured goods that country buys from us.

The immediate and hugely beneficial result is that the $500 billion plus yearly hemorrhage is wiped out. 

Further, with this simple program in place, entrepreneurs would rush to ramp up or re-start existing domestic manufacturing facilities, and create new manufacturing facilities.

Management of giant chain stores and small stores would have to carry and display American-made goods along with Chinese goods. They would not be able to continue their apparently preferred but short-sighted method, i.e., carrying Chinese goods exclusively. 

A win-win for everyone and for America!


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