The Global Economy Faces Its Fatal Flaw

http://www.usatoday.com/money/economy/2009-02-13-geithner-g7-meeting_N.htm

This linked article reports on the same upcoming G7 meeting in Rome that I posted on yesterday.  (See “Protectionism Had Nothing to Do with The Great Depression.”)  But it boils down the whole global economic collapse with one key observation: 

Germany is warning against protectionism as a knee-jerk reaction to the crisis. Such measures would be devastating to the German economy, which is powered by exports —

This is precisely the problem with the global economy as it’s structured.  Not only is Germany utterly dependent on exports, but so too is every overpopulated nation on earth, including Japan, Korea, China, Taiwan, Israel, Malaysia, Switzerland, Denmark, Mexico, Ireland and a whole host of others.  All of these are overwhelmingly dependent on the U.S. to absorb these exports, resulting in a huge transfer of wealth from the U.S. to the rest of the world.  The U.S. has literally been bankrupted in the process.  Any attempt to restore the global economy without fixing this trade imbalance is doomed to failure.

Why are these nations so dependent on exports?  It’s because their over-crowding has badly eroded their ability to consume products.  Low per capita consumption coupled with high per capita output (or productivity) inevitably means that they have an enormous over-capacity of labor. 

For the United States, there is only one solution to our economic collapse and that is the restoration of a balance of trade, regardless of what it takes:  import quotas, tariffs or whatever.  For these other overpopulated nations, the short-term picture is grim, and their only hope for the long term is to adopt policies designed to dramatically reduce their populations. 

All will deny this truth and fight in vain to revive the corpse of their dearly departed economic model of growth and free trade.  All will be for naught.  The only question is how bad things will have to get before they face reality, if they face it at all.

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2 Responses to The Global Economy Faces Its Fatal Flaw

  1. Robert says:

    Pete,

    I think the odds of these nations facing the issue of overpopulation and trade are very slim. I also think the odds of our nation facing it are also slim, hopefully I’m wrong. One other note, I sent radio host Lars Larson my copy of your book and he said he would take a look, perhaps it will enlighten him!

    • Pete Murphy says:

      Robert, you’re correct, of course. “Facing” may not have been the best choice of words. The point I was trying to make was that the global economy is being confronted by its fatal flaw.

      Thanks very much for taking the initiative to send a book to Lars. Please see my separate E-mail to you on this subject.

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