Al-USA

What Rebalancing of Chinese and American Consumption?

Derryl wrote:
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To revive the consumption levels that ultimately drive economic production a nation needs a large portion of its population earning enough money so that they can save what they feel is prudent and still consume enough to absorb their nation's productive capacity.
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Well said by writer Derry above. If I may extend it further, what we have here is, fundamentally, a crisis of capitalism, or, a crisis of over-production.

This is obvious to the serious strategists of capital, and it should be also obvious to you, the "little" investor and predominant reader, so that you're not taken up and swept away by all the propaganda talk of "green shoots", or Chinese growth, etc....

The policies and practices that led to the present crisis can be traced back to the coming to power of Margaret Thatcher in Britain in 1979 and the election of Ronald Reagan in 1980. Their dual victories led to a repudiation of the managed capitalism advocated by John Maynard Keynes and the introduction of the free-market “fundamentalism” of Milton Friedman.

However, this change itself occurred as a response by powerful sections of the ruling class in Britain and the United States to an already far-advanced crisis of the capitalist system. If you recall, or care to reference, as far back as 1967, there were growing indications that the mechanisms devised by Keynes to stabilize and rebuild capitalism in the aftermath of World War II were breaking down.

The system of dollar-gold convertibility adopted at the Bretton Woods Conference of 1944, came under increasing pressure and eventually broke down as a result of three inter-related factors:

1) The first was the gradual erosion in the course of the 1950s and 1960s of the dominant economic position that the United States had enjoyed in the aftermath of the Second World War.

2) The second was a general decline in the rate of profit in the mid-1960s that placed considerable pressure on American, European and Japanese corporations and intensified global competitive pressures.

3) Finally, the militancy of the working class, throughout the world, frustrated efforts by the capitalist class to find a way out of the crisis through reduction in wages and benefits of the working class. What is now called "restructuring".

The three factors above, or advanced crisis of the capitalist system, were eventually resolved by three events that signaled the beginning of a successful counter-offensive by the ruling class against the previous decades' concessions won by the masses of the working/middle class. This also planted the "seeds" which directly lead to the present crisis of over-production now some 30 years later.

1) The counter-offensive began with the appointment by President Carter, a Democrat, of Paul Volcker as chairman of the Federal Reserve. Volcker immediately set about to break the back of working class militancy by raising interest rates to unprecedented levels, thus provoking a severe recession and driving up unemployment.

2) The second event was the announcement by Chrysler that it would shut down a major production facility in Detroit, the famous Dodge Main plant in Hamtramck that employed several thousand workers. This decision was accepted by the UAW bureaucracy by deciding to grant Chrysler major concessions on wages and work rules. Thus began a pattern of union-management "collaboration" that cleared the way for subsequent attacks on the jobs, wages, working conditions, and benefits of all sections of the American working/middle class.

3) Finally, Reagans' accession to the presidency in January 1981 accelerated and intensified the war on the working/middle class that Carter had begun in 1979 with the appointment of Paul Volcker. The defining event of the Reagan presidency—the firing of 11,000 striking air traffic controllers, members of PATCO—sent a signal to all corporations that strike-breaking and union-busting was legitimate and would enjoy the support of the government.

However, Reagan’s destruction of PATCO would not have succeeded had he not received the support of the AFL-CIO bureaucracy, which opposed any action in defense of the victimized air traffic controllers. In the years that followed, the AFL-CIO bureaucracy sanctioned a wave of government and corporate strikebreaking following the pattern of union-management "collaboration"

In practice, the alliance of the trade union bureaucracy with the Democratic Party kept the mass movement within the confines of capitalist politics and capitalist economics. This provided the ruling class with an opportunity to reverse its retreats of the previous decades and go on the offensive. In summary, under conditions in which social conflict is suppressed, by the destruction of the labor movement in the USA, wealth accumulation increases rapidly along with the level of social inequality which has now led us to the present crisis of over-production and another still unfolding, in my opinion, Greater Depression...

Get your shorts ready because fortunes will once again, be made on the downside.

Ramping Up China's Domestic Consumption: What's Taking So Long?

It's true, Chinese domestic consumption will never happen, not in a level to replace the consumption lost by the masses of USA or Europe simply because of the per capital argument already mentioned above.

Recall that the masses of the USA enjoyed relative prosperity, and increased incomes, only as a result of successful widespread unionization after the dominance of USA industry with victory of the democratic capitalists vs. the fascists (non-democratic capitalists) of WWII.

Of course, the period after WWII was dominated by the Cold War, with the democratic capitalists of the Western powers vs. the anti-capitalists of the USSR which provided fertile ground for continued successful unionization on the capitalists home ground b/c, to be honest, the Western capitalists were scared to "death" that the masses would, heaven forbid, look towards the anti-capitalists' economies as any proper economic model to aspire to.

It was only under the favorable conditions explained above that the masses were able to achieve and maintain relative prosperity. However, with the decline of the anti-capitalist competitors, the Warsaw Pact countries, the capitalists of the Western democracies were less compelled to allow a greater portion of their profits towards boosting labors' wages so, starting at about 1974 or so, with the opening up of China, the race was on to increase profits at the expense of masses of the working/middle class.

This is always the case, in fact, it is the definition of capitalism, but it intensified by orders of magnitude with the introduction of first, the billion plus workers in China , and later, the hundreds of millions of workers of the collapsed USSR, all paid at "slave" level wages, relative to the working/middle classes of the Western democracies such that, only by the introduction of massive debt was the illusion of wealth able to be maintained for the masses of the Western democracies and allowing economic "game" to continue...

Until now, or rather 2007, where the maximum extent of credit had been met, and in fact, surpassed, since as recently as 2007 the savings of the American consumer were negative, so, the "game was up". The conditions which favored the masses relative prosperity in the Western democracies don't exist in China, so, I see no forces which can compel a similar relative prosperity among Chinese workers, in a scale which would replace, to any appreciable level, that which was lost by the American working/middle class starting with the 1974-1975 opening up of China, and later the collapsed USSR. In other words, it has now come full circle, and the crisis of capitalism, a crisis of over-production, has no fundamental solution, within the limits of the profit system...

If you made it this far, thanks for reading.

China: Beginning of the End or End of the Beginning?

Excellent article. Now, I'm just curious, how did China and India get to be over 1 billion human souls? Almost half of the world population is in those 2 areas... Amazing.

More Terrible Trade Numbers from China

Great article. Thanks for taking the time to write it. I was already leaning towards protectionism, but this "seals the deal". Nothing more needs to be said...

Did 2008's $677 Billion Trade Deficit Cause the Recession?

Good article by the author and good comments by many of the comment writers.

However, the most important thing is not being discussed, in my opinion. It seems to me that we are "seeing the trees but missing the forest". Take off your capitalist centric "blinders" for a minute, and consider that our economy was about 70% consumer driven. As such, the quote below from Economist Robert Reich makes alot of sense as to how we got to the present recession/depression:

robertreich.blogspot.c...

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What's going on? Let me explain as clearly as I can.

American consumers are coming to the end of their ropes and don't have the buying power they need to absorb the goods and services the U.S. economy is capable of producing. This is likely to mean fewer jobs, which will force Americans to pull in their belts even tighter, leading to still fewer jobs – the classic recipe for recession. That recession may turn into a full-fledged Depression if fiscal and monetary policies can't make up for consumers' lack of buying power. And there's reason to worry they cannot because consumers are in a permanent bind. They're deep in debt, their homes are losing value, and their paychecks are shrinking.
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Under these circumstances, the usual remedies won't work. Wall Street bailouts have no effect because housing prices continue to fall, and the Street is sitting on a giant pile of bad debt. Tax breaks for business won't generate more investment in factories or equipment because demand for their products what emerges from the factories is dropping. Temporary fixes like a stimulus package that give households a one-time cash infusion won't get consumers back to the malls because they know the assistance is temporary and their problems are permanent. They're likely to pocket the extra money instead of spending it. Additional Fed rate cuts might give consumers access to somewhat cheaper loans, but there's no going back to the easy money of a few years ago. Lenders and borrowers have been badly burned. The values of houses and other major assets are dropping even faster than interest rates can be lowered. Growing numbers of homeowners owe more on their mortgages than their homes are now worth on the market.
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We're reaping the whirlwind of many years during which Americans have spent beyond their means and most of the benefits of an expanding economy have gone to a relatively small group at the very top. Adjusted for inflation, the median wage is below where it was in 1999. The nation's median hourly wage is barely higher than it was 35 thirty-five years ago. The income of a man in his 30s is now 12 percent below that of a man his age three decades ago. The rich, meanwhile, can't keep the economy going on their own because they devote a smaller percentage of their earnings to buying things than the rest of us: After all, they're rich, and they already have most of what they want. Instead of buying, they're more likely to invest their earnings wherever around the world they can get the highest return.
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The debate over widening economic inequality of income and wealth in America usually pits fairness against growth. Conservative supply-siders contend that the people at the top not only deserve to be richly rewarded because such rewards encourage them to invest and innovate, and thereby benefit everyone else. Liberals concede that some inequality may be necessary to encourage growth but that we have long passed the point where it is either necessary or fair. But the reality we're now facing poses a different question: Can we have any growth at all when income and wealth are so unequal that most Americans can no longer buy what they produce?
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The answer is likely to be no. Go back to the years just before the Great Depression and you see the same pattern. As I've noted before, Marriner S. Eccles, who served as Franklin D. Roosevelt's Chairman of the Federal Reserve from 1934 to 1948, noted this in his memoir "Beckoning Frontiers":
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"As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped."

Is the game about to stop again?
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And there you have it. I don't know about you, but it sure does seem like the game is on the verge of sputtering out, and yes, the trade deficit is part of it, but try to see the forest for the trees.

China's in a Recession; The IMF Is in a Dreamworld

Good article.

I knew "free trade" was a scam... It only served to maximize profits at the expense, for the most part, of reduced living standards for higher paid American workers until it all fell apart.

Unfortunately, the solutions are not in the interests of the capitalist elites, so I doubt they will go willingly... French revolution maybe?

Obama's 'Buy American' Plan May Meet China's Export-Led Growth in 2009

huangthomas wrote:
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Manufacturing industries which have competitive advantage in the world market will survive by themselves with little support. Industries which require constant government subsidies to survive have no place in the United States except for those essential to national security
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With all due respect, there can be no competitive advantage when China, and other major exporters deliberately keep their currency depressed to undercut USA manufacturers.

Also, labor in most countries is at the whim of capital, much more so than in the USA, with no or trivial safely nets for the working people to speak of, in most cases. In a more level playing field, your competitive advantage argument might make sense, but, as is apparent just from the few facts I mentioned above, a level playing field is pure fiction and will remain so for the near future, at least.

Up to now, the capitalist elites have gotten away with undercutting labor at every step of the economy, first with shipping high paying mfn jobs overseas, and more recently, shipping service jobs, like high-tech, as well. This has resulted in no increase in real wages, after inflation, for "joe sixpack" and we end up where we are today: the beginning of the collapse of "joe sixpack" consumer and the dismantling of the export oriented economic global model...

Look up the plunges in mfn activily in Japan, China, and Germany, the facts are clear; please spare us the old "competitive advantage" argument first put forth 30 years ago, during the early 1980's, when the great dismantling of labor unions began... Working people in the USA need "protection", since NO other country in the world is, as of yet, willing to be the consuming engine of the planet.

Emerging Markets Ready to Re-emerge - Barron's

Barrons is wrong again: emerging markets have not only failed to re-emerge, they have plunged to all time depts, with EEM down an additional -38.9% from Sep 28, 2008 article. To date EEM is now down -65%.

The article did provide a good clue, namely listening to Barrons would have gotten you much closer to the "poor house".

My Eight Themes for 2008 Are Paying Off

It doesn't matter if he "walked the talk", in my opinion. What's important is that he seems to have the ability to ride broad trends. In my book, that's a job well done - keep it up.