Comments on: As its power declines, the U.S. pays the price Sun, 28 Jul 2013 14:34:09 +0000 hourly 1 By: GordonFBJ Wed, 27 Apr 2011 18:11:06 +0000 The US owes the money it borrowed. To duck that obligation with derivatives, inflation or other shirking method is not fair to those who have put faith in the US enough to invest in its debt. Inflation as a debt shrinking tool is also bad for retirees living on savings.

The fundamental issue for the US is productivity. Enough technology exists right now for everyone to live like royalty. Instead we are limping along trying to avoid getting flushed down the tubes, economically. Perhaps the US economy is showing signs that it is recuperating, but only in marginal terms. What we need is a quantum leap forward, and this can be achieved if we choose to align our efforts to get there.

As companies have off-shored and laid off workers, the US as a whole has shifted the jobs producing stuff to other countries, which has good and bad elements. Bad in that income once earned here is now earned elsewhere. Good in that as people in other countries earn more, they establish themselves as consumers for goods produced anywhere, theoretically including the US (if we’d just get back to making stuff everyone wants).

We have clung to obsolescent capital productivity here because we fear ponying up to buy the latest and greatest means of production or spend enough on R&D to make the next better mousetrap. And Japan, then Korea, then Viet Nam, India, China and other countries, just starting out with their industrialization, invest in the new best way to make whatever, coupled with a workforce happy to receive a tenth or less of the wages of US workers.

The US is left with fewer, lower paying, service type jobs that yield less income. And because the US economy is now smaller, it wields less power globally. It is no longer the shiny engine at the front pulling the economy.

How do we burnish the rust and decay? There are lots of high paying jobs available, but they are specialized. This requires training, but most workers are behind the eight ball because now that they have had to take lower paying jobs they have to work more yet earn less, and working more means there’s less time available for family (which is very important for social and civil stability), and even less time for training.

So first thing to do is make training cheap and readily available for the specialized jobs that will recoup the earning ability the US used to have.

Next the US needs to address the mix of goods. As people have less money now, they have fewer economic votes in their pocket to guide the economy as to what should be produced. Saving TBTF banks was far less worthwhile than simply putting that money in the general public’s hands to spend. Of course dumping infusions the size of the TARP, QE1 and QE2 directly into economic demand would lead directly to inflation if there is no preparation on the business end to be able to increase production to supply the increased demand.

So business needs to know what we would buy if we all had boatloads of money. And then they have to be given incentives to act like the demand already exists – invest in capacity, hire the (already self-trained) folks at good wages, and things will blossom. Except that what is being made now is not necessarily what people would actually buy if they had a lot of money.

So the other piece of the solution is for businesses to know this latter missing element – exactly what would we buy with lots of money? Well the only way to know for sure is to find ways for people to expose their desires. Market research has the flaw that it evaluates what people would buy based on what money they have, not what they would buy if they had a LOT more money.

What we need is a way for people to present virtually, with no actual cost, what they would buy if they did have money. Apps like Farmville are exactly the kind of virtual existence that could provide this crystal ball view into people’s real wants and desires.

And we might be surprised to find that what we want might not be just Ferraris and houses at Malibu Beach. It might be better schools for our kids, better housing with attention to energy efficiency and savings, insurance and retirement considerations, safer neighborhoods, more effective transportation.

By: joebhed Tue, 26 Apr 2011 20:51:24 +0000 I really don’t understand why Chrystia and other financial writers do not ask S&P to explain their possible downgrading of GOVUS debt.
The ratings criteria for S&P and Moodys relate to the potential and likelihood of a default(failure to pay when due) on a debt-instrument.
The GOVUS, being monetarily sovereign and issuing its debts ONLY in its own currency, cannot default on its debts except on purpose.
So there is NO potential for default.
There is a potential for a lengthy currency devaluation, a.k.a. monetary inflation, but we have seen none of that to date.
The great financialists – and I include the rating agencies in that crew – are totally responsible for the financial-economic crisis that has CAUSED the economic downturn and resulting government deficits.
Given the old adage that a good offense is your best defense – in this case – it is not surprising that S&P attempts to place blame on the government for these failings.
But that this issue is so unintelligently discussed here at Reuters does little good, and provides little hope, for an honest money solution.

By: LAMO1213 Mon, 25 Apr 2011 22:10:30 +0000 Sell sell sell.
When the buble bursts buy buy buy.
It’s the Amerikan way

By: kilosubtorra Mon, 25 Apr 2011 21:28:28 +0000 the rebalancing of trades is already in motion. I am but one consumer (multiply the effects of my actions by millions of consumers). I am buying more stuff direct from the USA because of favourable exchange rates. I am curious to see if the terms of trades will get better for the USA over time.

By: ptiffany Mon, 25 Apr 2011 17:32:00 +0000 The only surprise here is that someone thinks that our domestic economic policy is not related to our international economic standing. This has been known for decades and has been trumpted by economists and politicians alike. So, what’s the real point here?

By: 78wwy3Ht Mon, 25 Apr 2011 14:38:56 +0000 For years I’ve been trying to find a description and explanation of “U.S. Government Balance Sheet”, as used by the President, Treasury, Fed, and New York Times in their public comments.

I’ve finally realized that there is no such thing. It’s just a rhetorical figure of speech, as its practitioners and everyone else but me may have known all along.

The source of my epiphany is an old OECD web page: Glossary of Statistical Terms: Government Balance Sheet, which says “. . . in practice, very few governments prepare statements of their financial position that could be described as balance sheets”.

By: garilou Mon, 25 Apr 2011 05:29:35 +0000 The idea of paying off American debt by playing on derivatives is not a bad idea after all.
It has been said enough that the crisis was provoked by banks taking excessive risks.
The US have also taken terrible risk with TARP, thinking that saving the banks would encourage them to loan more.
How naive that was. The banks have learned.
What do they do now with the tons of cash that they sit on?
They do not risk on loans anymore, they use that cash to trade the ups and downs of the derivatives.
They can much easier “hide” revenues from trading, then income from loans, and thus pay still less taxes.
A few very good traders and lots of extra speedy computers are less expensive that all the trouble of lending.

Small investors with little experience will most likely loose a lot on the commodity markets, but experienced and clever traders could certainly bring in a lot of profits in.

So the US treasury could do the same: playing the derivative is risky? A little less that playing the lotteries.
The gains could be formidable. And the government does not pay taxes.
To trade big, you need lots of cash. The banks have it. The government can keep printing it.

And what do we know if they have not already started doing it?
Trading the currencies is a way of trading on the different countries debts and deficits, isn’t it?

By: breezinthru Sat, 23 Apr 2011 21:05:05 +0000 I don’t believe that the analysts at S&P and the other ratings agencies were so incompetent as to have missed the stark difference between a good mortgage risk and a NINA loan during the years leading up to the Collapse of 2007.

There is still good reason to, as Editor Freeland suggests, take their ratings with a grain of salt. If they weren’t incompetent, then their actions were intentional, which then makes them either manipulative, complicit and/or opportunistic.

With the federal budget deadline looming in July, foreign governments, agencies, central banks, corporations, and investors will be very closely scrutinizing America’s fiscal maladies.

It appears that agencies like S&P waited for as long as they could while America desperately tried to salvage its financial system, but they now have little choice but to begin to acknowledge reality.

By: sweeks6833 Sat, 23 Apr 2011 20:53:03 +0000 the party ain’t over. it’s just beginning 😉

By: txgadfly Sat, 23 Apr 2011 20:06:27 +0000 Time for would-be World Emperors to be ousted from US Federal Government and guardians of the American people to take over. We have had rulers who treat us as a colony rather than an independent people.

Our Government has been run solely for the convenience of tiny minority elites while the rest of us have been manipulated and gerrymandered out of any representation whatsoever. Time to look after the interests of America as a whole.

It certainly is not a time to focus less on America and more on everyone else, as this writer suggests. That is precisely how we got where we are!