Link to NumbersUSA Added

November 30, 2007

I have added a link on the right side of the page that will take you to NumbersUSA, a web site dedicated to immigration reform, but reform that goes far beyond the debate about illegal immigration.  Here you’ll find a very thorough, rational, non-xenophobic treatise on the need to dramatically reduce immigration in order to stem our growing problem with over-population, one of the key recommendations of my book.  Check it out and tell your friends about the site!

Pete

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New Link to the Economic Policy Institute

November 30, 2007

I have added a new link on the right hand side of this page which will take you to the Economic Policy Institute, a “… nonprofit, nonpartisan think tank that seeks to broaden the public debate about strategies to achieve a prosperous and fair economy.” 

I especially recommend their latest briefing paper, titled Globalization and American Wages.

It’s refreshing to find a think tank that is nonpartisan and is not paid by corporate interests to be a free trade cheerleader.  Check it out and become a subscriber!


China Ends Subsidies. Will It Help?

November 30, 2007

In Five Short Blasts, I made the point that it’s imperative that the U.S. take actions that are within our control to make a difference in the trade deficit, and not rely on the promises of other countries.  Here’s a perfect example:

http://www.usatoday.com/money/economy/trade/2007-11-29-china-tariffs_N.htm

It’s reliance on these kinds of promises that has kept our trade deficit soaring for over three decades.  Everyone gets excited that a major concession has been made and that now we’ll be able to restore some balance to the trade picture.  It won’t happen!  Such concessions don’t address the root cause of the trade imbalance – the huge disparity in population density between the U.S. and China.  I’ve seen this happen at least a hundred times in the last thirty years and our deficit only gets worse.  The Chinese are probably rolling in the aisles with laughter at the naivete of our trade negotiators.

Pete


Sell-Off of American Assets to Finance the Trade Deficit

November 28, 2007

Here’s just one small example of how American assets are sold off to finance the trade deficit:

http://money.cnn.com/2007/11/27/markets/sovereign_funds/index.htm?section=money_mostpopular

Abu Dhabi’s state investment fund has come to Citigroup’s “rescue” with an infusion of $7.5 billion for which, in return, Abu Dhabi acquires 4.9% ownership of Citigroup (on top of whatever ownership they already have).  Everyone is happy that another rug has been found under which the trade deficit problem can be swept.  No one questions what will happen when there are no more American assets to sell off.  

The relationship between this deal and the trade deficit may not be apparent, but it works like this.  (1) Americans spend money on foreign goods.  (2) The flow of dollars into and out of the U.S. has to balance.  Therefore, there must be a corresponding inflow of cash from foreign countries to finance the trade deficit.  (3)  Those countries then invest the dollars they’ve received for their exports in stocks and bonds in the U.S.  In this case, Abu Dhabi chose to buy part of Citigroup.

The relationship can be viewed from another more subtle perspective.  (1) With the loss of manufacturing jobs, worker compensation and household finances have been in a 3-decades-long decline.  (2) The average American family now finds that it must resort to loan terms it can’t really afford in order to purchase an average home.  (3)  Such families then default on the loans.  The banks then run short on cash and have to raise money.  (4) Foreign entities then step in with money and obtain partial ownership in return. 

No one asks the question “What happens when America has nothing left to sell?”  No one knows, but it’s conceivable that, at that point, the global economy will grind to a halt.  Certainly, as that point is approached, it will become ever more difficult for institutions to find financing because American assets will become more worthless and foreign investors will want higher returns.  It kind of sounds like the “credit crunch” and the falling dollar situation that we find ourselves in right now, doesn’t it?

The only long-term solution to this situation is that America must find a way to balance trade.  A tariff structure indexed to population density is the only way to accomplish that.

Pete


Trade Deficit Blamed for Sinking Dollar

November 13, 2007

Here’s a link to a great article by a senior editor at Fortune magazine:  http://money.cnn.com/magazines/fortune/fortune_archive/2007/11/26/101232904/index.htm?section=money_mostpopular

He correctly blames our enormous trade deficit for the sinking dollar.  Unfortunately, he offers no solutions other than to suggest that “we’ve been living beyond our means.”  He implies that we should just save our money and stop buying things.  Unfortunately, that doesn’t target the real problem because we stop buying American-made products as well as imports, doing even more damage to the economy. 

Eventually people will come to understand that tariffs are the only way to restore a balance of trade and that a tariff structure indexed to population density provides the rationale for doing it and the means to do it without adverse consequences from our beneficial trade partners. 

Pete


September Trade Deficit – lots of bad news, little good news

November 11, 2007

The September trade deficit was released Friday.  Another $56.5 billion given away in the form of trade welfare, to be financed by a further sell-off of American assets.  That’s an annual rate of $678 billion.  Imagine what could be done with that money here in the U.S.!  That’s an extra $2,260 for every man, woman and child in the U.S. – an extra $9,040 for every family of four.! 

The only good news in Friday’s report was that the deficit shrank very slightly from August’s level, due to higher exports and lower imports.  But  improving our trade balance by letting our currency steadily devalue isn’t the right approach.  We need trade policies (a tariff structure indexed to population density, specifically) to restore a balance of trade while simultaneously strengthening the dollar. 

Expect more slight improvement in the trade deficit in the coming months, but nothing much – not enough to slow the problems eating away at Americans’ finances.  Our trade “partners” simply won’t tolerate falling exports.  They’ll cut prices to maintain their market share. 

Pete


An Economist Who “Gets It” (Partly, at least)

November 9, 2007

Last night on “The Newshour with Jim Lehrer” on PBS, they did a piece about the effects that the falling dollar and the credit squeeze are having on the economy.  Included in the discussion panel was economist Kenneth Rogoff of Harvard University.  He commented about our $800 billion dollar trade deficit and observed that “… we need to export more and import less.”  It’s refreshing to hear an economist acknowledge this truth, as opposed to those who try to paper over the problems with the U.S.’ approach to globalization and trade in their free trade cheer-leading campaign.  However, I believe he’s a bit off the mark in also asserting that “… Americans have been living beyond their means for too long.”  His solution is that Americans need to save more and spend less.  While there’s some element of truth to that, this “solution” would hurt the American economy just as much as it would slow imports, by also slowing the purchase of American goods. 

What we really need is an understanding that free trade with over-populated nations is a sure-fire loser because, in return for access to our market, they can only offer us a market stunted by over-crowding.  What’s needed is a tariff structure indexed to population density. 

Pete


What is a “recession?” Are we in one? Is there one coming?

November 8, 2007

A recession is defined as two consecutive quarters of declining GDP.  Because of inflation and population growth, it rarely ever happens.  Even if the economy is stagnant, inflation (let’s assume 3%) and population growth (assume 1%) will combine to make the GDP grow at a rate of 4% per year.  A much better definition would be two consecutive quarters of GDP growth that fails to keep pace with the combined effects of inflation and population growth.  By that standard, recessions are much more frequent.  By the classical definition, we’re not in a recession but, by the standard I’ve just proposed, we probably are.  (It sure feels like it, doesn’t it?)  But sticking with the classical definition, is a recession coming?  I believe there’s a high probability of that.  All of the recent bad economic news (skyrocketing oil prices, the falling dollar and a credit squeeze) comes at a time when corporations are setting budgets and capital spending plans for next year.  Based on my experience in the corporate world, I can almost guarantee you that corporations are cutting capital spending plans and trimming budgets.  When that happens, a recession becomes a self-fulfilling prophecy.  It’s almost inevitable.  So plan accordingly!

Pete


Health Care Crisis?

November 8, 2007
There is no health care crisis. We have top-notch health care available everywhere you look. There are hospitals, clinics or medical offices at practically every major intersection. What we have is an affordability crisis – an income crisis. Wages haven’t kept pace with inflation for the past thirty years, not to mention the cost of living. (The Consumer Price Index is not a “cost of living index.”) The real problem is the falling demand for labor that our trade deficit has purchased from over-populated countries with bloated work forces desperate for work, driving down American wages. But what is the government doing? Right now, not much, except that candidates are cooking up schemes to provide government-funded health care. That funding will come from deficit spending, financed by a sell-off of American assets to foreign entities. That scheme will only work until all of our assets have been sold. At that point, the whole system will collapse around us.

Pete

 

 


Subprime Mortgage Meltdown / Credit Crisis

November 8, 2007

In Five Short Blasts, I spoke about the federal government’s penchant for working on symptoms instead of real problems. This is a good example. Too many people begin to default on their mortgages, and so what does the government do? The Federal Reserve tries to pump more liquidity into the credit markets and Congress and the White House begin to work out schemes to offer better credit terms to unqualified buyers. The symptom is that the average person can no longer afford an average house without resorting to credit terms they can‘t really afford. The real problem is that wages haven’t kept pace with the cost of housing. Certainly, the run-up in housing prices (fueled by money pouring into real estate as it fled the stock market beginning with the market crash in March, 2000) is a factor, but so too is the steady decline in wages and benefits over the past three decades.

The real underlying root cause is our trade deficit, now over $700 billion per year. We give away a huge piece of our economy and finance it by selling off American assets. For example, whatever portion of your home is financed, which for most people is almost all of it, your home is owned by your mortgage company, right? Probably not. Although you make your payments to your mortgage company, in all probability they have obtained their financing by rebundling your mortgage into some type of mortgage-backed security and selling it to some foreign entity. Where will all of this end if the government doesn’t take action to balance trade? As more American assets are sold off, their value slowly declines until they will become worthless. (Thus, the rapidly declining value of the dollar we are experiencing today.) What happens when something an investor owns reaches that point? Do you continue to pour money into operating it? No. You shut it down and abandon it. If that happens – if our foreign investors walk away – the entire global economy could collapse. We won’t have money to buy their products – shutting down their factories which will shut down their economies just as quickly – a nightmare scenario. Will it come to that? Maybe. Maybe not. Stay tuned.

Pete