Disaster Pot Pie In The Oven
By Jim Scanlon
No, these disaster statements do not refer to hurricanes like Charlie, Frances or Ivan, which get all day, all night TV coverage, they refer to something all Americans, from Bill Gates in his mansions, to the alcoholic derelict in the gutter, love, treasure and use all day, every day --- money!
The names of the business experts who make these statements really don't matter: you've heard these warnings before. They are referring to the so called, "account deficit," or the gap in US trade and investments with the rest of the world.
During the last three month reporting period, we, the American people collectively, bought $166.2 billion more from foreigners than we sold them. This has been going on for a number of years but the trend is getting worse, that is, increasing. Our overall indebtedness is now about $4.4 trillion ($4,400,000,000,000), nearly twice what it was in the year 2000, according to the NY Times.
The head of the International Monetary Fund sort of whispers in a soft voice in the Business Section of the NY Times, that the US "would have to tackle its growing indebtedness to avoid a threat to the world economy," and adds, "some time in the future." "Others" were reported to disagree with the head of the IMF stating that the situation will not lead to a "sudden fall in the dollar" (and thereby to a global depression) but "instead quietly erode American dominance of the global economy." A strange choice really! Would "globalism" be good for Americans if America didn't dominate?
Anyone who travels to Europe knows that the value of our dollar has declined, and is now worth (buys) 30% less than three years ago when compared to the Euro, making the Euro, correspondingly, worth more. Our negative balance of trade however, is most pronounced with Japan, China and a few other Asian "Tiger" countries like South Korea and Singapore.
Quite naturally, The Times and The Wall Street Journal always quote experts who claim, counter intuitively, that the gradual devaluation of the purchasing power of the dollar is a "good thing," and that it "will have a positive effect on the trade balance by "the end of the year" or "soon" or "in the third quarter" or something like that, on and on. What they imply is that there will be more demand for cheaper US goods which, of course, assumes that there will still be anyone making goods in the US.
The "everything is OK" experts. while insisting that everything really is OK, can be counted on to come up with something like "in the long run Americans will have to save more aggressively ...[and] ... stop consuming so much beyond its means" (Something your mother would say!) Recently a spokesperson for the Bush Administration described the problem this way: "It is important that the rest of the world grow more." (Something your mother definitely wouldn't say!)
We all know that when US firms go "offshore" and relocate manufacturing outside the US where labor is less expensive, where there are fewer health and safety regulations, they make more money, and in this way, become more competitive-and this is good for the economy and the US, which is all of us. And similarly, when US firms still located here "outsource," that is, contract with corporations in foreign countries to relocate customer service call centers, computer programming, technical support, and even accounting, and other traditionally white collar services, from here to there-that too is good for the US and all of us.
And when corporations here and worldwide, merge, shed jobs, slim down and get leaner and meaner and their stock price goes up, that's good for all of us.
There is a certain amount of disagreement over the practice of "down-sourcing," that is, continuing to allow high levels of legal and illegal immigration, thereby maintaining a large pool of workers willing to work, without benefits and for less money, than the people who live here. If the workers demand, for one reason or another, more money the employer can threaten to relocate to China or Haiti or someplace like that. If you are against unrestricted immigration, you are probably unknowingly xenophobic.
Undoubtedly low cost labor is major plus for employers large and small, and therefore benefits the economy and all of us. But, since these workers are here, they can't be allowed to become disruptive, or just starve, or die sick in the streets, our local hospitals and in some cases, jails and prisons have to take care of them. These costs are not covered by the employer, but are socialized, that is, paid for by all of us. So maintaining low cost labor is good for some of us and not so good for some of us.
Ever since deregulation during the Giffer's Administration, Airlines have gotten more competitive, prices have gone down, but several large established companies got so lean they went out of business. This is known as a Darwinian "shake out," whereby the strong survive and the weak perish and are "consumed," that is, liquidated, cut up and absorbed. The employees of the remaining airlines live in fear of losing their jobs or their pensions, or both, and are now constantly giving back wages and living on less. There is disagreement as to how long this can go on.
And when the "leaner and meaner" transportation companies (not just airlines) stop stopping at the smaller communities that they previously served, some of those communities don't seem to understand that they have no right to interfere with market forces and a corporation's right and duty to be competitive. Under our system, corporations have no duty to the communities in which they "live," but only to focus on their the bottom lines and the welfare of their shareholders.
Stealing from, and otherwise defrauding shareholders, is known to occur only when "a few bad apples" manage somehow to get control of executive board rooms.
Not well known is that US corporations are setting up sham headquarters offices outside the US in places like Bermuda and the Grand Cayman Islands, to lower their US taxes. This problem could easily be solved by relieving these businesses of all taxation here so they can move their sham headquarters back. There is, after all, an influential school of thought in the US and the UK that holds that there should be no taxes on business capital or profits, but this is too complicated, and controversial, or too simple and stupid, to get into here.
Not well known also is how US firms manipulate their offshore subsidiaries to lower and avoid taxes here. For example , let us say the US Elephant and Donkey Cartel, chartered in Delaware which is in the US, establishes a subsidiary in Chad to assemble computer daughter boards at a cost of $5 each. USE&D/Chad then sells the boards to its parent company in the US for $50 which might be what it might cost to manufacture the boards here. The boards are then sold in the US for $60 each and is taxed on the $10 profit per unit, evading the $45 profit recorded in Chad but not taxed.
What is alarming, at least to the Coastal Post, is that China and Japan-they held $1.3 trillion in US treasury bonds as of June-countries that sell us the stuff we can't pay for-provide 87% of the inflow of dollars into the US to cover our debt gap. In other words, if business and government elites in one or both countries suddenly decided to stop supporting our debt, our bad habits, the dollar would decrease catastrophically. It's called "free fall" and it is costly
Think of capital "fright & flight" and Argentina 2001.
Did I forget "consumer confidence," you know, no money, no job, no confidence. It's enough to make one sick if one had health insurance.