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Do Not Go Gentle into the Post-American Era

Posted on 10 April 2011 by Editor

Originally posted 2009-12-30 22:28:10. Republished by Blog Post Promoter

by Margaret Goodwin
Government is Not Your Daddy
December 27, 2009

When the U.S. was a developing nation, we expended our efforts and capital in developing the infrastructure for industry. Our government provided incentives for the development and extraction of natural resources to be used as raw materials to build, not just products, but a thriving national economy. — And that’s exactly what China and other developing nations are doing today.

But, today, the U.S. is doing the opposite. Increasingly, over the past several decades, our government has been restricting the extraction of natural resources and dismantling the infrastructure for industry. Overregulation, combined with exorbitant and ever-increasing union demands, has succeeded in driving much of our industry offshore. If we want to recover our economy, we need to reverse that trend.

The recently published White House Plan to Revitalize Manufacturing, which focuses on federal funding for “green” technology R&D, is not likely to have a significant impact on our national productivity. This administration is thoroughly beholden to the unions and environmental lobbies. In true Chicago style, this administration has used the stimulus package to pay off political debts and, from every indication, will continue the trend of dismantling the economy in favor of political correctness and payback.

Every nation has a historical trajectory. This nation has apparently passed its apogee, and is now in decline. We no longer have the drive to overcome. We’ve become complacent and, instead of striving for ever greater industrial innovation and economic strength, we are focused myopically on the niceties that developing nations cannot afford to consider.

The problem is, there’s no such thing as stasis. A nation, a corporation, a species, an individual, must either advance or decline. That’s nature. And, as we sink into complacency, whining effetely about our declining economy, there will be others advancing to take our place as the dominant world power, industrially, economically, and (eventually) militarily. That’s a historical inevitability. The same pattern can be observed throughout nature and the history of civilizations. The only question is when.

At this point, we could still reverse that trend by, once again, becoming a developing nation ourselves — one can always develop further, if one is motivated to keep striving — but we, as a nation, lack that motivation. We’re apparently content to rest on our laurels as we sink into national senescence while other countries, like China, rise up on the international horizon. The world is always changing. It’s the nature of all things. The only question is, will we, as a nation, go gentle into that good night? Or will we rage, rage against the dying of the light?   (Apologies to Dylan Thomas.)

Unfortunately, I believe I know the answer to that rhetorical question. History is being written even as we go about our daily lives. You can see it in our relations with other nations, as we make concessions that cede our sovereignty in so many minor ways. Stepping back and observing from a historical perspective, we see a once-great nation, that no longer has the will to sustain its rank as the leader of the free world, stepping aside and leaving the field open to whoever will step up and take its place. Sadly, there’s no way to choose our successor. Once we step aside, we can only watch and hope for the best. And if we don’t like the way the world is shaping up in the post-American era, we will just have to suffer the consequences.

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Margaret Goodwin writes for the Government is Not Your Daddy blog.
Published with the author’s permission

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Germany’s Exports Spell Doom for the Eurozone

Posted on 10 April 2011 by Editor

Originally posted 2010-08-23 12:17:49. Republished by Blog Post Promoter

ExportsGerman export growth – the fastest in 20 years – gave recent cause for celebration. Nonetheless, the eurozone will not survive.

Remember the eurozone’s big crisis? The one that everyone thought had blown over?

Well, it isn’t over. Like a multi-act play, it’s simply been in a period of "intermission." And the next act is going to be much, much worse than the first. In due time, the eurozone will disintegrate. And Germany will be the cause.

This may seem a strange assertion, because recently we’ve heard cheery news from Europe – and from Germany in particular. Just over a week ago, Germany reported its fastest economic growth in 20 years. At 2.2% quarter over quarter, that’s a blistering annualized growth rate of almost 9%.

We are used to emerging market powerhouses like China and India growing that fast… but staid old Deutschland? Wow.

As usual, though, the headlines don’t tell the whole story. The Panglossian optimists, ever determined to look on the sunny side of everything, have as usual gotten the key elements wrong. To understand why – and to explain why the eurozone is still headed for a crack-up – let’s begin with Greece.

Greece: Still Burning

Greece Financial Crisis Strike
Image courtesy of AU Herald Sun

When the Greek debt crisis hit the front pages earlier this year, the story was encapsulated in photographs. As fiscal austerity measures descended, riots broke out in the capital. "Firebombs in the streets of Athens" told the world what it need to know.

Since then, economic conditions on the ground in Greece have not improved. In fact they have grown far worse. And some believe it is only a matter of time before the whole of Greece, not just Athens, bursts into metaphorical flames of rage.

The German publication Spiegel Online openly questions whether Greece could be "Entering a Death Spiral." With brutal frankness, Spiegel writes:

The entire country is in the grip of a depression. Everything seems to be going downhill. The spiral is continuing unabated, and there is no clear way out. The worse part, however, is the fact that hardly anyone still hopes that things will improve one day.

Menelaos Givalos, a faculty member with the University of Athens, foresees "extreme social consequences" when a new wave of Greek layoffs begins in September.

Nikos Meletis, a shipbuilder quoted by Spiegel, warns that "If you take away my family’s bread I’ll take you down – the government needs to know that."

"Things are starting to simmer here," Meletis adds. "And at some point they’re going to explode."

Implying, of course, that things haven’t exploded already… which they haven’t. At least not on the scale we could see sometime in the near future.

The economic pain in Greece compares to Great Depression levels. The IMF has forecasted 14.8% unemployment in Greece by 2012, but other forecasters see unemployment as high as 20%.

Worse still, as reported by a University of Piraeus study, Greek unemployment in some areas has risen as high as 70%. Think of that – seven out of 10 men (and women) without jobs. It is perhaps no wonder that, on walking through Athens, one can find streets where a quarter of the shops are closed.

These are the fruits of forced austerity, and the straitjacket of a rigid currency union that Greece cannot abide. At the 1896 Democratic National Convention in Chicago, William Jennings Bryan made political history in declaring "you shall not crucify mankind upon a cross of gold."

Greece is now being crucified on a cross of euros.

The Odd Silence of Schumer

Now, to pick up another thread before tying them together, let us turn back to Germany.

Until recently, Germany was known as the world’s largest exporter. The dragon wrested that crown earlier this year, on reports that Chinese exports overtook German ones in 2009.

So this begs an interesting question: Why isn’t Chuck Schumer angry with Germany?

Senator Schumer, as you likely know, is the protectionist politician from New York who loves to make sport of China bashing. The esteemed senator is one of the most strident voices in Washington, calling for China to give up its state-supported export policies so that other countries can compete… and muttering dark threats when China fails to comply.

And yet, as loudly as Senator Schumer champions the "lopsided China" cause, he says nothing about the Teutonic doppelganger.

It’s a head-scratcher because, when it comes to mercantilist export policies, China and Germany are bosom buddies. Consider the following (via stats compiled by Bloomberg):

  • Exports accounted for 41% of German GDP in 2009.
  • For Japan – a major exporter – that number was only 13%.
  • For the U.S. – also a major exporter – it was a mere 11%.
  • The IMF projects China’s 2010 GDP surplus at 6.5%.
  • Germany’s surplus is projected at 5.5%.

So, in other words, Germany is somewhere between three and four times as reliant on exports as Japan and the United States, no export slouches themselves. At the same time, Germany’s surplus – a measure of the import-export gap – is almost as big as China’s.

"Anybody who believes China is a problem has to believe Germany is a problem," says economist Joseph Stiglitz.

"Germany has got to work on its domestic demand," adds PIMCO portfolio manager Andrew Bosomworth. "Not everybody can export. Somebody has to import."

In one of life’s little ironies, Germany’s aggressive export policies serve to make neighbors like Greece poorer. This is because Greece (or whomever) has little to sell Germany in return… and so German surpluses become additional deficits for lesser eurozone trading partners.

So here is the bottom line: When it comes to mercantilist trade policies, there is very little daylight between China and Germany.

They both want to export a damn sight more than they import… both are dangerously dependent on exports for economic growth… and both arguably operate to the fiscal detriment of their counterparties, who are encouraged to spend without reciprocal goods purchased in return.

Says the defiant German Chancellor, Angela Merkel: "We won’t surrender our strengths just because our exports are purchased more than those of other countries. That would be the wrong European answer to the competitiveness of our continent."

A-ha! Competitiveness. That’s the word we were looking for. "Competitiveness" gets us closer to the heart of things – and the reason why the eurozone is still doomed.

"Not Even a Group"

Under former CEO Michael Eisner, the executive suite of the Walt Disney Company was famously dysfunctional. Upon seeking help to encourage more teamwork, one outside consultant famously reported: "the results of my research indicate that you guys are not a good team. You’re not a team at all. You’re not even a group."

That’s a fairly accurate way to assess the 16 common currency members of the eurozone. Collectively speaking, these countries are not a team. They aren’t even a group.

In one corner of the room you have Germany, fiercely cutting costs at home while pumping out exports abroad. In the opposite corner of the room you have the "Southern" European countries, who don’t export much of consequence and find themselves wallowing in debt.

Meanwhile, as the lesser members of the eurozone struggle and wheeze under the weight of an austerity regime they cannot handle, like a weak man straining under a loaded barbell, Germany is the red-faced drill instructor shouting "toughen up!"

As with overly ambitious exercise programs, severe austerity measures can be disastrous. And what could speak louder of the "separate ways" problem than Germany hitting 20-year highs of economic growth, even as the engine of that growth – unreciprocated exports – does its part in driving Greece further into depression.

The whole thing is lunacy. Currency union without political and economic union is unworkable, and the true politico-economic correlation between Germany and the PIGS is zero.

A Foolish Fantasy

The euro was always a currency built on dreams – fantasy made real, rather than an outgrowth of hard-edged objective assessment. The problems that terminally threaten the eurozone now were known well in advance, at least in theoretical terms. But it was always just "assumed" that such problems could be worked out.

The problems cannot be worked out. The euro experiment only lasted as long as it did because flush economic times allowed the weaker economies of Southern Europe to boost themselves up with cheap debt. The good vibrations lasted as long as the credit flowed freely.

But now, with tough times here again, we can see the truly irreconcilable differences between Germany and the others. The experiment will have to end.

Slovakia Says No

In a preview of what is to come, Slovakia last week voted to reject paying its allotted share of Greek bailout funds. "Slovakia’s politicians have questioned the fairness of calling on taxpayers in the euro area’s poorest state," The New York Times reported, "to aid wealthier countries that failed to control their debt."

It only makes sense, does it not? Why should dirt-poor Slovakia have to pay for richer Greece’s mistakes – especially given the bailout money will simply go down a rat hole? (Greece is still going to experience some form of default. That reality has only been delayed, not denied.)

In time, too, ordinary Germans will regain the willpower to say "nein." As George Soros has put it, Germany’s politicians may be comfortable acting as the "deep pocket" of Europe, but ordinary German citizens will not tolerate this forever – especially since German austerity measures are making life hard at home even as exports boom.

Then too there are the banks to think of – those wonderfully leveraged European banks – who only passed the joke of a "stress test" because sovereign defaults were not properly factored into the scenarios. If things get as bad as they easily could in the coming quarters, Europe’s banking system is still going to blow. When this happens, "every man for himself" will be the order of the day. And the U.S. dollar could skyrocket.

Let’s Call the Whole Thing Off

In reality, the best solution would be some kind of semi-orderly breakup of the eurozone, so that mercantilist Germany and the suffocating Southern European countries can go their separate ways. The noble idea of the euro, which never accounted for political and economic realities, should be gently consigned to the dustbin of history.

It won’t happen this way, though, because it is too late for orderly solutions, and Europe’s politicians would go through hell in such a scenario. In trying to fight the inevitable, they will get hell anyway.

The real problems of the eurozone were never actually solved, just papered over. Nor is mighty Germany’s heavy reliance on exports a sure thing in a wobbling global economy. As with China, the dangers of such a strategy could soon become clear.

Say what you will about the United States, but at least the dollar has a single country behind it (rather than 16 squabblers). As the old saying goes, "united we stand, divided we fall." The eurozone is a house divided, and the deep divisions of the 16 member countries – as made worse by Germany’s mercantilist export regime – will eventually tear it apart.

Article brought to you by Taipan Publishing Group.

Other Related Sources:

  • How Europe and U.S. Are Trying To Prevent a Global Currency Crisis
  • Germany’s Economy ‘To Grow By 3%’
  • Greek Crisis Refuses To Go Away
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    Delivering the Goods

    Posted on 10 April 2011 by Editor

    Originally posted 2009-09-15 21:12:40. Republished by Blog Post Promoter

    Marriner S. Eccles Federal Reserve Board Building
    Image by cliff1066 via Flickr

    by Margaret Goodwin
    Government is Not Your Daddy
    September 14, 2009

    The United States rose up from a handful of rebellious colonies to become the richest and most powerful nation in the world. Why? Because we led the world in production. For 200 years, America delivered the goods.

    But, in the 1970’s, all that suddenly changed. For the first time in history, the U.S. started having trade deficits. That means our net consumption exceeded our net production. And, every single year since 1975, our nation has consistently consumed more than it produced. It doesn’t take a rocket scientist to know that’s not sustainable.

    The depressing truth is America is no longer a world leader in production. We are trailing the pack. We are now a debtor nation, and our biggest creditor is China. — What the hell happened? And how will we ever recover? And, the more disturbing question is, what will happen to America if we don’t?

    If we ever want to restore America to its proper place in the world, the first thing we need to understand is why we no longer have a productive economy. It’s pretty simple, really. — Because we no longer produce. Why not? – If we take a good hard look at the nature of production, maybe we can figure that out. The three key elements of production are capital, labor, and raw materials.

    First, you need capital for research and development. To develop a new product that meets a real need in the marketplace takes a lot of research. It may take many years to develop. Research and development is extremely expensive, and there’s no guarantee of success. There has to be an enormous potential return on investment to justify that kind of risk.

    That kind of return on investment is what our current administration refers to as “excessive profits.” And they have this notion that “excessive profits” should be punitively taxed. When government puts a lid on the potential for return on investment, what happens? The investors take their capital and invest it someplace else, — someplace that welcomes production, and wants to build up their economy and provide employment for their population. (Unlike the United States, it would seem.)

    The second thing you need for production is raw materials. No matter what you want to produce, you need some combination of raw materials to produce it, whether wood, paper, metal, glass, fiber, or petroleum products. All raw materials come from the earth; they don’t come out of the air, or some genius’ imagination, or the printing presses at the Federal Reserve. They all come out of the ground, either through timber, mining, or agriculture.

    Here, in Southern Oregon, we live in one of the richest areas in the country, in terms of natural resources. We’re rich in timber. We’re rich in minerals. But, if this part of the country is so rich, why is it so poor? Why is unemployment so high? Because we’re not allowed to use the natural resources with which we’re abundantly blessed. Overregulation, and the endless environmental litigation it has spawned, has all but curtailed the timber and mining industries, — the very industries that provide raw materials for every sort of production on which our economy relies. And the overregulation doesn’t stop there. It’s hobbling the manufacturing industries, too.

    The third thing required for production is labor. We’ve actually got a surplus of that. Look at our unemployment numbers, nationwide. Private sector jobs are steadily declining because our industries are stymied by excessive regulation and punitive taxation. So how does our government address that issue? It tries to replace the jobs lost due to declining production by creating new jobs in the public sector.

    The trouble is those jobs do nothing to restore our national productivity. Public sector jobs and service jobs don’t create any new wealth. They just swirl money around in the economy. And, as that money swirls around, more and more of it leaks out to other countries, as we buy foreign-made products because we can’t or don’t produce enough at home.

    As the real wealth leaks out of our economy, the Fed prints up more and more new money, which only dilutes the value of the money we already have in circulation, leading to higher and higher inflation. As long as we consume more than we produce, there is no way to add real value back into our economy, and our currency will continue to lose whatever value it has. We must restore production to have a sustainable economy.

    This country was founded on the sacred principles of liberty and freedom. Not just individual freedom, but economic freedom. America became a world leader because America delivered the goods. That’s what it’s all about. That’s what it’s always been about. We have to stay solvent to preserve our liberty. If our economy fails, we’ll lose our freedom. Stifling production smothers the economy. And that’s what our government is doing.

    Contact your Congressmen and Senators and tell them we want our economy back. Government can’t solve the problem. Government is the problem. Give us back our economy, and get government out of the way!

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    Margaret Goodwin writes for the Government is Not Your Daddy blog.

    Article published with the author’s permission.

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