THE ECONOMIC FUTURE OF THE USA

Economics Economics Questions
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Why does anybody believe that the US government will be able to continuously borrow enough of the US dollars (that US citizens paid foreigners to make the imported US consumer goods that we consumed) back from China, India, Pakistan, Brazil and the other foreign industrial nations to pay US medical doctors, nurses, hospitals, clinics, laboratories and medical technicians with these borrowed US dollars to provide government bureaucrat payrolls, free medical care for all US citizens, for job stimulation spending to temporarily pay unemployed US citizens for digging holes today and then re-filling the same holes tomorrow, construct pork barrel projects, free educations, subsidized housing, humanities, art, music, writing poems, all sorts of make-work schemes, entertainment, wars, social entitlements, welfare, healthcare, environmental clean-ups, and/or similar things that do not contribute positively to our negative foreign trade balance.

I hope that our US government does not make Communist China and/or any of the other industrialized nations mad, because they might not loan our US government any more US dollars to pay for our US government expenses.

But wait a minute, these industrialized nations do not loan the US dollars that US citizens paid for the imported products that US citizens consumed back to the US government, these industrialized nations buy freshly printed paper US bonds at Federal Reserve Auctions (at a discounts less than face value and/or present worth) in return for the US dollars that they earned buy making and selling consumer goods to US citizens.

But wait another minute, these freshly printed paper US Bonds and other security instruments that the US government printed on fresh paper and then sold to people in industrialized nations HAVE ABSOLUTELY NO VALUE, except that they are redeemable for title to privately owned businesses, factories, casinos, hotels, farms, land, ports, breweries, refineries, forests, ports, breweries, refineries, and other privately owned assets located in the USA that were created by previous US generations instead of redeeming these US dollars with Gold from Ft. Knox. The US Government only has $11B of gold left in reserve at Ft. Knox according to the AP Dec. 21, 2009, 3:44PM.

After the industrial foreign entities have redeemed their freshly printed paper US Bonds for title to everything of value in the USA, these foreign industrial entities will not buy any more of these freshly printed paper US Bonds, or they will only pay a tiny fraction of a penny on the dollar for these freshly printed paper US Bonds. This will cause the US dollar to lose all of its purchasing power, and then your life savings in US dollars might only last you a few weeks, and your paycheck might only buy one loaf of bread!

If the USA could re-industrialize, make the things that we consume, export some of the things that we manufacture, then the USA would not have to borrow US Dollars back from the industrialized nations for US government expenses, but re-accumulate the gold reserves in the US treasury at Ft. Knox, pay off the US bonds that we printed, and also have the resources to expand Government to provide Healthcare Benefits, Unemployment Benefits, and other benefits with the income taxes provides by fuller employment with the industrial manufacturing jobs that the USA would re-create. We probably do not have any technology base available even if the USA did decide to re-industrialize to reduce or eliminate unemployment.

Over the past few decades, both political parties of the US government has decided to destroy our manufacturing capability with “Free Trade” legislation and also destroy the US manufacturing capability and destroy the database of technically oriented people that won WWII and created the economic power that the USA enjoyed for a few decades after WWII. Maybe we can no longer re-industrialize without the human technical database that we destroyed.

Both political parties of the US government have created our current non-producing lifestyles by allowing the trading of US located private assets (that were created by past generations) to pay for our imported products and imported commodities that we consumed, with the resulting massive US factory closings and the massive US job and title to US assets paid to foreign countries. This is instead of US citizens being employed to manufacture the things that US citizens consume. The US future is bleak, unless we change our educational, environmental and foreign trade priorities.

The US government is also going to have to start printing and selling these freshly printed US T-Bills, US Bonds, and other currencies to foreign industrial manufacturers FASTER AND FASTER AND SELLING THESE WORTYHLESS FINANCIAL INSTRUMENTS AT GREATER AND GREATER DISCOUNTS FROM FACE VALUE to get enough foreign held US dollars (that will be declining in purchasing power) back from foreign manufacturers in sufficient quantity to pay for the growing US government expenses that are in excess of our US federal government tax collections.

US citizens have elected congressmen that spend our hard earned inheritance for imported products instead of ourselves working to produce the things that we consume. This is sort-of like selling our body parts to keep from working!

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Okay, if you want people to read your posts;

  1. In general, avoid run on sentences.

  2. Indenting paragraphs makes your posts much easier to read.

  3. Avoid all caps.

  4. In general, if you begin a sentence with “why” ,“how”, “who”. or “what”, the sentence needs to end in a question mark.

Now to your post. I am not sure what it is you are advocating. I agree that the U.S is in a pickle. In fact, things look pretty dire. I don’t think we have necessarily lost our capability to be industrialized though. The problem seems to be, as Peter Schiff has described it, that our economy is based on a artificially supported service industry.

Service Industries aren’t bad inherently, it is just a matter of balance, to much production of consumer goods would be just as bad by definition.

It seems like you are advocating protectionism. I am not sure about that.

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Dear Hairnet:

Thank you for your advice.

I am advocating protectionism and/or anything else that will correct the International Trade Deficit, before it destroys the US economy.

We need to re-industrialize to re-employ the US work force, and lessen the outflow of private wealth to foreign countries to pay for imported consumer products.

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Gerald,

You will likely not find one person on this forum that agrees with you. Why? Because protectionism does not work. It will only lead to poverty and war.

If you do not believe me then buy and read the following book. It’s about Protectionism & Mercantilism in Europe. Such policies require and leads to totalitarian government.

Omnipotent Government

If you don’t have the time to educate yourself with this book then the following is a shorter book that covers some of the topics on why gov’t intervention fails.

Planned Chaos

We have had a lot of gov’t intervention for the last 40 years and it has lead to the Crony Capitalism that has failed us today. Today’s depression is a result of gov’t intervention. The most obvious policies that have failed are the Federal Reserve’s monetary policy (which manipulated the interest rates and created the housing bubble) and also the gov’ts guaranteeing the debts of organizations like Fannie/Freddie - while politicians encouraged bankers to lower their lending standards while guaranteeing those bad loans with our tax dollars.

The USA has lost her manufacturing sector because of the Federal Reserve’s central economic planning & intervention of money & credit. It is also the taxes, unions and regulations that has discouraged American manufacturing - and has driven that investment capital overseas. It is intervention that has destroyed much of the American manufacturing sector.

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It is precisely the protectionism which is driving up the costs, and pushing the industry out of the country. Yes american’s get paid too much, you fear a loss of income, but what you fail to account is that a high quality of living need not be artificially expensive.

The cost of doing business in america must fall, the only way to allow that is by letting go of the majority of our protectionist policies. They create artificial supply restrictions, and huge barriesr to entry for all competing firms. It is us the consumer and our high cost of living which has been the victem here. The more protection we put in place, the more expensive it will be to work here, the more restriction there will be on supply and so on and so forth.

The cause of all this mess is the protectionism. This is all shown economically. Also to correct your trade deficit issue, get rid of the Fed and any other coercive mechanism to produce money from nothing. Problem solved.

This reminds me of…

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We’ve sold our seed corn and are discouraged from further sowing since the government steals a significant chunk of our harvest and forces us to accept payment in funny money.

Solution lies not with a government but without one.

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Wages for American manufacturing workers that are already at the free market level do not necessarily have to fall. Free market wages can rise as more capital is invested in manufacturing and improving worker productivity. Unions cannot force up wages to be higher than the free market level without creating unemployment and forcing up costs elsewhere in the economy - making other businesses less competitive internationally and also requiring protection. Workers wages can only go up by an increase in capital investment, which increases worker productivity.

If China can make blue jeans that provide the best value for the price, let them make them. Americans need to focus on making the things here that we can do best. Let foreigners do what they do best. But gov’t needs to get out of our way. Not in our way. That includes gov’t not borrowing trillions of dollars, taking that money and capital from the private sector, spending it on their plans. Let us keep our money and our capital. Let us invest to produce the things that consumers here and abroad want to buy. Gov’t has no clue what that is, but entrepreneurs have an idea - they bet the farm on it nearly every day.

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I think one two things will happen no matter what:

1)America will no longer be able to consume more than what it produces

2)America’s world economic power share will decline, but will remain vital.

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Dear bbnet:

You have got it right!

The US government is selling freshly printed paper US bonds that is being exchanged for our seed corn, instead of gold!

Real wealth and real monetary value is created and/or acquired ONLY when the members of a family (or a nation, tribe, city-state, etc.) plant, grow and/or harvest something of commercial value from the earth, extract something of commercial value from the earth, provide professional services (medical, legal, dental, engineering, architecture, accounting, land surveying, technology, etc.) to others outside of that family, and/or manufactures or constructs something of commercial value that is consumable (or permanently useful for income or rent) and then sells, leases or rents these items and/or services to parties outside of their family, in return for a net transfer of gold, currency or commodities from other parties outside of their family into their own family.

The members of that family can reflect their real wealth with the accumulation of grain, gold, cattle, jewels, land, buildings, commodities and/or other marketable products for reserve use in times of emergency and/or also to raise the standard of living for the members of that family.

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Dear bbnet:

Did the Biblical Jacob squander his wealth and assets unwisely and then became hungry when a famine occurred?

Did Jacob sacrifice all of his cattle to his god? Or sell his wealth and assets for food & wine to have a bunch of parties?

When the Jacob’s family faced starvation, Jacob supposedly took his family to Egypt where there was grain stored and hoarded by the greedy Egyptians to insure the survival of Egyptians during times of drought and famine.

Jacob and his descendants probably submitted themselves to be slaves of the Egyptians in return for food and shelter. Is the US government repeating these actions?

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Dear wolfman:

US dollars only have value because they can be redeemed for existing assets located in the USA such as hotels, casinos, factories, forests, businesses, etc., instead of gold.

Some sources estimate that the title to 25% of privately owned US located assets with recorded deeds and/or titles are now listed as foreign owned (http://economyincrisis.org/articles/show/1072) and this percentage is increasing rapidly.

When all of our desirable assets are foreign owned, foreigners will not buy any more of our freshly printed US paper bonds and our US government will not be able to raise any more money to pay for the various US government operations.

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As I understand it from Peter Schiff’s works, the problem is that we cannot export enough of our services. If we could, then we would just trade our services for the Chinese goods, and all would be well.

But we cannot export our services. Proof: we are not doing it. Every day the trade deficit increases by a billion dollars at the least.

So how are we paying for all the things we are importing? We aren’t.

Or, to be more precise, the private sector is buying Chinese stuff and paying for it with paper money. One day the Chinese will bring the paper here, and buy up the whole country. We will all be Chinese serfs, living on their land, working in their factories.

Or we could refuse to let them in. In any case, they won’t send us their goodies anymore, and we don’t have the factories or the business environment [low taxes, low regulations, low union power] to make our own.

Now if we were making physical things, we could trade with the Chinese and not have to give them the paper money that will allow them to buy the country out from under us. And if/when they stop trading with us, we at least have our own things to use.

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Dear Gerald Spencer,

You raise alot of good valid points, all of which are easily explained economically. Most of which are caused by protectionism. So w hy do you advocate protectionism/Fascism?

Or correct me if I am misunderstood sorry.

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Dear filc:

The US dollar has value only because it can be redeemed for title to US located assets that were created by previous generations of US citizens instead of gold from Ft. Knox.

As US citizens buy foreign made products the importers/retailers send a large portion of their purchase money in US dollars to foreign businesses that manufacture the things that US citizens imported and consumed.

This causes a continuous flow of US dollars to foreign businesses in industrialized nations.

Foreign held US dollars only return to the USA to purchase (be redeemed for) title to existing items of value in the US such as real estate, instead of gold. Foreigners also purchase freshly printed US paper bonds (at less than face value or present worth at FED auctions) from our US government as they raise (borrow) US dollars to pay for the various US government operations that are in excess of tax revenues.

These existing US located wealth and assets are finite, and the industrial nations will stop “loaning back” the US government more and more of their US dollars after the foreigners own most all of the existing wealth and assets that are located in the USA that was created when the USA was an industrial nation.

Foreign manufacturers, governments and individuals will stop accepting our US dollars for payment when the US dollar can no longer be redeemed for any thing of value.

We must correct the Foreign Trade Balance before US citizens find their situations hopeless as unemployment increases and after the US dollar loses its redeeming (purchasing) value. Government checks, paychecks, US dollars will then not buy much of anything, and your paycheck might not even buy (or be redeemed for) one loaf of bread.

Riots and insurrections are predictable, ala the French Revolution and the Russian Revolution, when the people find their situations economically hopeless. Mass unemployment will foster mass civil unrest, crime, anger, riots, revolution, starvation, etc.

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Dear Smiling Dave:

You understand correctly!

The foreign buying of the USA has been going on for years. Some sources estimate that the title to 25% of privately owned US located assets with recorded deeds and/or titles are now listed as foreign owned (http://economyincrisis.org/articles/show/1072) and this percentage is increasing rapidly, as I stated before.

Our payments for foreign oil, manufactured assembly parts, and foreign raw material suppliers are essentially paid for with title to privately owned US located assets.

What will we do when we have no more assets of value to sell to the foreigners in return for the things that we consume? I do not believe that they will work for free.

Real wealth and real monetary value is created and/or acquired ONLY when the members of a family (or a nation, tribe, city-state, etc.) plant, grow and/or harvest something of commercial value from the earth, extract something of commercial value from the earth, provide professional services (medical, legal, dental, engineering, architecture, accounting, land surveying, technology, etc.) to others outside of that family, and/or manufactures or constructs something of commercial value that is consumable (or permanently useful for income or rent) and then sells, leases or rents these items and/or services to parties outside of their family, in return for a net transfer of gold, currency or commodities from other parties outside of their family into their own family.

The members of that family can reflect their real wealth and financial security with the accumulation of grain, gold, cattle, jewels, land, buildings, (slaves and indentured servants in some Asian countries), commodities and/or other marketable products for reserve use in times of emergency and/or also to raise the standard of living for the members of that family.

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The French and Russian revolution had an organized leadership committed to a violent revolution. No such thing exists for America.

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All very true. The question is what can we do about it?

Let’s consider an extreme example to bring out the problem with tariffs and the like. Consider Mr a, who brings home a weekly paycheck of $200. Say the Mexicans use slave labor and will sell us a loaf of bread for a penny. So that Mr A can buy a loaf for a penny, and has plenty of money left over to buy other things too. Plenty of industries can compete for Mr A’s many dollars, and they all thrive.

To correct the trade balance we make it illegal to buy Mexican bread. The local baker charges $200.00 a loaf. We have no choice but to buy from him. He gets all Mr A’s money. Result: Mr A has a loaf of bread, and that’s it. All the other companies that make anything else suffer greatly.

Not only that, but the Mexicans, outraged at our tariff, make it illegal to for their citizens to buy anything made in the USA. Result: All our industries suffer hugely.

We go to war with Mexico for their impertinence. All the raw materials that had been used to make useful stuff is now turned into a giant bomb and tossed from a big jet plane onto Mexico and destroyed. American economy is now totally in the toilet.

SO what is the answer?

We allow any country to sell us whatever it wants, so that our citizenry gets things as cheap as possible. Being thrifty, they put their money into savings banks which pay huge interest rates to draw customers, because there are huge profits to be made lending money to businesses starved for capital so they can build factories. Especially since the gov’t will have been forced to repeal all their red tape crappy regualtions designed to stifle new industries. And also because the govt has lowered taxes, freeing up money, and cut spending, freeing up resources, thus making it possible to make a buck here. Naturally, union laws are all repealed, making it totally voluntary to belong or negotiate with a union, thus bringing wages to realistic levels. The minimum wage is abolished, allowing more people to get jobs.

Or, we could have the riots.

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Dear Smiling Dave:

We do export some of our entertainment services, but not much else anymore!

Some US academic “economic experts” think that the USA can become a “post-industrial” society of “knowledge workers” consisting of software developers, data analysts, technicians, editors, scientists, lab technicians, teachers, doctors, nurses, architects, accountants, engineers, inventors, lawyers, poets, musicians, historians, philosophers, etc, and still somehow generate sufficient wealth exporting these services to generate payment to foreigners for them to continue to manufacture the food, shelter, clothing and other things that US citizens consume.

How can US citizens expect foreigners to pay for (buy) the services of these “US knowledge workers” if their home grown local “knowledge workers” are equal to, or maybe technically superior to, our “US knowledge workers”, especially if their home grown local “knowledge workers” will work for less US dollars than US citizens?

I do not think that any foreign individual or foreign country would ever purchase any of the services of any US educated graduate with a liberal arts, MBA, history, philosophy, English, foreign language, economics, musical, artist, social worker, government, political scientist or any of the other similar degree at any price because their services are not practically useful to foreigners.

Maybe in the future the USA could produce better “knowledge workers”, but only if US citizens totally overhauled and changed our educational system to emphasize science, engineering, technical education and other fields of knowledge that foreigners might purchase from US “knowledge workers”.

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Dear Smiling Dave:

After the American revolution, the USA instituted extremely high import tariffs to encourage the industrialization of the USA, and it was successful in establishing a positive balance of trade, accumulating Gold reserves, creating a manufacturing base, creating a technical data base, and making the USA independent from England for technology.

We must create a positive balance of trade by any means possible. If not, we will destroy the purchasing power of the US dollar.

Without import tariffs, most all products will continue to be available for less US dollars if they are manufactured in foreign countries where labor and environmental costs are. The US labor force has no future without high import tariffs to prohibit foreign imported products, except to revolt and overthrow the US government.

Without high import tariffs, US workers must compete with foreign workers at or below foreign wage scales for employment in the USA. Most USA citizens do not want to work for wages that the same job in a foreign country would pay.

We must also eliminate our federal government borrowing to pay expenses, because it will destroy the US Economy.

After the American Revolution there were probably many shopkeepers that imported goods from England and they probably objected to having to deal in more expensive US manufactured goods.

The US importers and retailers of foreign manufactured imported retail products will probably object strenuously when and if the US Government prohibits them from importing the foreign manufactured products that they sell to US consumers.

Until the USA can re-industrialize and correct our foreign trade deficit, and eliminate our federal government borrowing to pay for government expenses, maybe we cannot afford to have free trade because it will continue to destroy the US economy.

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