Tuesday, February 03, 2009

Disaster, Part Two

A few months back I wrote a long post about what I felt was going to happen in the economy. At this time, having been vindicated by current events, I'd like to zoom to the next year. 2010, for my predictions and why.

Currently, the new administration of President Obama, along with congress, is trying to juice the economy by pouring money into banks, hoping the banks would then loan the money out in lavish orgies, thereby bringing the economy back. There are some obvious reasons that isn't going to help. When a house of cards, or dominos starts going down, often there is little anyone can do to stop it. These banks, finally weaned off of whatever drugs they were on have shut the purse strings for very good reasons. Instead of just checking your FICA score, they are looking at job survivability. If there is a good chance you are going to face a layoff in the next year or two, they don't want a repeat of what they have just experienced. This is a classic case of cart before horse.

The Federal Government, along with most states, are running in circles, "shouting the sky is falling," but they aren't doing anything that will help. First, when faced with a crisis such as we now do, one has to go back to what caused the crash to begin with. Some will argue that it was the price of oil, the housing bubble bursting and so forth. Actually, it was none of the above.

The root cause goes back to free trade, which by now, even the most sceptable cannot claim, is free. By trying to level the world markets, the fact that other involved countries with low standards of living and cheap labor is not comparable is the point. The minute a company goes offshore for prices in the 50% range lower than could be produced, we started to fall apart.

"We'll be a service economy and our citizens will be able to buy lots of stuff they couldn't afford. We don't need manufacturing." Those economists that couldn't figure out that how a consumer can afford to buy these cheap items without incomes, didn't occur to them. "Retrain them," they said. OK, so now we have thousands of highly trained steel workers and many others, trying to find jobs flipping burgers.

That, folks was the beginning of the end, then NAFTA jumped in to cement our economic failure. We could readily absorb the Canadian difference, since our two economies are about the same. They make more money, but give most of it back in taxes. Mexico, however is a totally different story. An economy that has been in shambles for as long as I have lived and longer, cannot and will not ever be equal to where we once were.

When the market weakened, the fed lowered interest rates. liberal members of congress and the senate, cried aloud, we want a mortgage industry that can make it possible for everyone that wants to own their own home can do so. People, the only way that can happen is by lowering lending standards. Congress pushed and the greed of the mortgage industry did the rest. Bubbles that burst like the one we just encountered, happen from overheated markets building beyond demand. Interest rates were held down too low, too long, which ate up all of the demand, right when builders and developers were going balls to the wall producing housing there wasn't a need for, and were too expensive for the average middle class family to afford.

Gas prices are down, but nobody can afford to go anywhere.No job. Houses are coming down, too. Still no job. Helping small and medium size businesses seem to be the slang they are throwing around in Washington, D.C. Those are the types of poop used in an election campaign, not in solving problems. Our goverment is mostly made op of people that have never worked out in the economy, at least not recently. Don't be surprised if a government Mom holding an apple pie shows up at your door.

The only solution to this problem that won't serve to just flush more billions down the toilet, is to go back to the root cause.We need more, to redesign our basics to balance labor costs with wold prices. This is going to hurt. At the same time, we need to crank up those New England mills and stop buying cheaper than market labor to rule. I'm not talking about shutting down with total protectionism, just where the most egregious imbalances exist.

How, can we ship Iron ore from the Mesabi range across the Pacific to Japan, China and Malaysia, then after smelting the steel, fabricating it into beams ship it back to us, CHEAPER than we can do it ourselves. That used to be called dumping, or selling under market. Now it's just world trade. We need selective tariffs where such imbalances exist. Crank up U.S. Steel. If necessary, the fed if it really wants to do something right, can retrofit these factories with systems that cut the pollution of old. What we did by getting too green to fast, is shopped our economy to others so they could then pollute the area, long distance.

This country is represented, sometimes terribly, by elected officials, not self ordained sentinels of nature. The Sierra Club has done nothing worthwhile to help the economy, just to curb it, or even cause some industries to shut down.

Go back 30 years when we were the most productive nation on earth. Our government has sold us out. It's time to take it back for us, not the Asians that own most of our assets now. My next pouring forth of unsolicited opinions on the economy will deal with energy production.


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