As the Obama administration and the Federal Reserve have announced trillion dollar stimulus or bail-out plans one after another, I haven’t had much to say specifically about each. But this may be a good time to stop and consider these actions as a whole.
The stimulus plan itself – the one that included spending on infrastructure and renewable energy, was probably a good thing. Jobs will be created, though the number remains a question, as does whether or not it will be enough to actually stem the slide in the economy. Halting that slide is crucial, since it will be impossible to make any progress on reducing our national debt while in recession.
That leaves two other announed plans, I think, although it’s getting hard to keep track – the Fed’s plan to buy Treasuries using printed money and the government’s plan to buy up “toxic assets,” supposedly in partnership with private investors. But nearly all of the money will be ponied up by the government – in other words, the taxpayers.
The strategy is clear: re-start the debt machine, piling more debt onto consumers, and do it with government programs that pile more national debt onto future taxpayers. But this time, regulate it so that it’s good debt instead of the bad debt that collapsed the economy in the first place. There’s only one way to do all of this, and that’s to stimulate a demand for labor that’s so vigorous that it sends incomes soaring again.
Such a strategy has only one chance of success (albeit a slim one), and that requires that the trade deficit be completely eliminated, bringing six million manufacturing jobs home again. Ideally, we might even return to a trade surplus, enabling us to start paying down our debts. Otherwise, a continuing trade deficit demands that deficit spending be maintained to avoid lapsing into recession once again.
The problem is that the administration has done absolutely nothing to address the trade deficit so far that has any chance at all of being effective. It has talked of the need to reduce the trade deficit, talked of the need to renegotiate NAFTA (the North American Free Trade Agreement), talked of labeling China a currency manipulator and, I believe, has quietly put the rest of the world on notice that a trade deficit will not be tolerated much longer.
But all of this talk is a complete waste of time, as proven by over three decades of trying to talk down the trade deficit. The fact is that the nations with whom we have the largest trade deficits in manufactured goods – China, Japan, Germany, South Korea and a host of others – are all overpopulated and completely dependent on sustaining their trade surplus with the U.S. to avoid economic collapse. Even if they are sincere in their promises to stimulate domestic consumption and eliminate their dependence on exports, they’ll find it impossible to do so. In addition, regarding the trade deficit in oil, the administration’s moves to boost the production of renewable energy are quickly being overwhelmed by population growth. With each passing day, we grow more dependent on imported oil, not less.
The fact that the administration has taken this approach is not surprising and, in fact, is what I predicted. But time is marching on and we’re now two months into Obama’s administration. How long will they be patient when the monthly data shows the trade deficit resuming its upward trend, as it surely will? If they don’t act quickly (no later than the end of this year) to begin imposing tariffs, the only measure that has any chance of restoring a balance of trade, then his economic plan will fail and he will be a one-termer, to be replaced by someone completely devoted to free trade, regardless of the consequences.
This president who, if he can be believed, seems to understand the consequences of a trade deficit, may be our only chance to rescue the sickened, fallen corpse of the American economy from the global hordes of parasitic economies that are feeding on it. But to be successful, time is needed to demonstrate the benefits of a judiciously-applied dose of protectionism and the restoration of a balance of trade. Unless those benefits are realized by 2012, he’s a goner and, so too, will be any hope of salvaging America’s future.