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As the United States finds herself stuck in the economic mud, politicians and some economists like Paul Krugman are diverting the discussion away from the Banking scams and toward China's currency manipulation.

It is true that Stephen Roach's idea of increased savings would require more stimulus as Americans refuse to spend and purchase the world's production, And the powers that be want to keep Americans on the path to spending.

But in a world of global competitiveness, it is necessary for America to deleverage to become competitive. House prices must come way down. Oil is too high as decreased demand miraculously pushes prices up. Perhaps we need to face the reality in the United States that we cannot afford to live above our means.

Taking down China will not allow Americans to live within their means. Only a decline in the high and artificial cost of living will allow Americans to live according to their means and allow wages to decline to a more competitive level.

Face it, the off balance sheet banking scam weakened America. Scamming the middle classes to feed Wall Street is not going to make America stronger. Americans need to save, and manipulated asset inflation is making that impossible. And it all benefits Wall Street, the real enemy of Main Street and the real enemy of deleveraging.

We need to worry about Fannie (FNM) and Freddie (FRE), and about artificially high house prices. How can people in California save or how can wages be world competitive if an ordinary house costs half a million dollars? These manipulations of markets here in the US must stop. There has to be a real free market here before we can have any real moral advantage in criticizing China.

I have a few ideas regarding corporate behavior to help America become more competitive. Otherwise, we will, as a pundit once said, continue to sell each other insurance while the Chinese make things.

Here are a few possible ideas that could go a ways towards making the USA more competitive:

1. Companies who export should lower their profit margins. Chairman Wen has said that some Chinese exporters make as low as three percent margin.

2. House prices must be allowed to fall to affordable levels. As said above, Fannie and Freddie easy money over many years, coupled with really easy money in the housing ponzi scam, have boosted prices to way beyond what is real. It is time for Congress and the Obama economic team to get real about housing.

3. We have downward pressures in wages, but they must decrease further in order for the US to be competitive. We cannot have investors leveraging up the price of oil, for example, when US workers must deleverage to become competitive.

4. We must break up the insolvent big banks, and in the meantime need to bypass Wall Street with the establishment of state banks.

5. Unless the cost of assets and commodities decline, it will be very difficult for the US to become competitive. It is almost as if Larry Summers and Tim Geithner think that we do not need to be competitive. But then we have the US acting as a bully, seeking to raise tariffs, which will raise the cost of living for Americans and could lead to physical war and poverty for many. I propose that there be strong rules in place to stop speculation in any commodity market.

Disclosure: No positions

Source: Forget Krurgman's China Controversy; Focus on Making U.S. More Competitive