Thread: Will trade deficit trigger depression

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MONEYNETDAILY
Will trade deficit trigger depression?
Economists: It's de-industrializing America, leading nation toward 2nd-rate power status

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Posted: April 09, 2008
12:45 am Eastern

© 2008 WorldNetDaily




WASHINGTON – America is selling its birthright not for a mess of pottage, but for a mess of Chinese junk, and the resulting "unsustainable" trade deficit is leading "to the collapse of the dollar, depression and conversion of the United States to a second-rate power," says a new book written by three generations of a family of economists.

"Not only will the United States feel the pain, but other countries will as well," write Raymond, Howard and Jesse Richman in "Trading Away Our Future." "Because other countries are dependent upon the U.S. dollar as a reserve currency and because they are dependent on exports to the United States to sustain their own economies, the eventual collapse of the dollar could wreak havoc on the economies of the whole world."

While some other economists have claimed there is no danger from a trade deficit that has reached nearly $60 billion, and some have even suggested they represent a blessing for Americans, the authors strongly disagree.

"A basic principle of economics is that there is no free lunch," they write. "Those who think that the Chinese, Japanese, Saudis, et al, are giving the United States a free lunch when they sell more than they buy are engaged in short term thinking that ignores huge long term costs."

The book is released at a time when more Americans are searching for answers about the stumbling state of the economy – with the dollar declining, foreclosures rising and credit tightening.

The Richmans tie the growing trade deficit to the "de-industrialization" of America.

"The financial flows that sustained these deficits did not go to expand the U.S. capital stock – they mostly financed consumption of foreign goods," they explain. "Japan and China and other Pacific Rim nations stole industry after industry from the United States. America's manufacturing investment declined so much that by 2004 and 2005, net investment in American manufacturing actually went into negative territory, meaning that U.S. manufacturers were not even investing enough to replace wearing out machinery and plants. The U.S. manufacturing workforce declined steadily, so that by 2007 over a fifth of the U.S. manufacturing jobs that would have existed given balanced trade had been lost. Those losing their manufacturing jobs often took less skilled jobs in the service sector, causing media wages to stagnate. In 2007, the United States was in a much weaker position to compete in world markets and the dollar had nowhere to go but down."

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It's not just a lack of foresight by American policy makers that has created the problem, the authors write. It is also a conscious policy of some foreign countries to practice neo-mercantilism – with the U.S. as the target.

"Beginning in the late 1990s, China copied the policy that had converted Japan from a weak and backward economy to a world powerhouse," they say. "In recent years, more and more countries have been joining the bandwagon, with the United States as their primary target. They have been accumulating dollar assets in order to manipulate currency values and preserve the conditions that produce trade surpluses for them and trade deficits for us."

Adding to the problem, the authors write, was the emergence of a blind ideological commitment across the American political spectrum to "free trade" that really wasn't free at all.

"As advocates of free markets, we generally approve of relying on the free play of market forces to provide the highest level of welfare for Americans," they write. "But we discovered that free trade, normally beneficial, had become an ideology blinding the United States establishment from seeing key causes of the trade deficits and their disastrous consequences. The trade deficits are sustained by government policies, both U.S. government tax policies and foreign government mercantilist policies, not by the free play of market forces."

The authors believe the situation can still be reversed, preserving American dominance of the world economy.

"If not, then resolutely non-democratic China will dominate," they say. "The world's future is in the balance."

http://wnd.com/index.php?fa=PAGE.view&pageId=61121

Great Article. Moving to Other Topics

This writer is late to the party, the recession has already started.

Originally Posted by Bowman

This writer is late to the party, the recession has already started.

Thanks Bowman! I was going to say the same thing but you beat me to it!

Will trade deficit trigger depression

Yep, I'm pretty depressed about it.