As a regular subscriber to
John Williams', Shadow Government Statistics, A monthly economic report based in reality, I can tell you I was a little shocked when, I read the following, as John is not usually so strong in his words:
Shadow Government Statistics, is a paid subscription monthly newsletter
Record Trade Deficit Eliminates 8.8 Million U.S. Jobs
2.3 million Lost to Communist China, 1.4 Million Lost to NAFTA
Like a coin inexorably spiraling into the collection pit of one of those throw-away-your-quarter games that populate U.S. shopping malls and grocery stores, the U.S. economy and financial system completed several more downward spirals in 2005, approaching the eventual financial abyss.
This is a long diary, please recommend as this is important sutff that must be addressed, America herself depends on it!
More after the fold, please be prepared the news is not good!
Into the financial abyss we are heading, I cannot for the life of me understand why our elected Representatives are not treating this with the seriousness it deserves, an economic failure will be far more damaging to the wellbeing of Americans and the world than any terrorist attack. In fact the economic destruction of the American economy is the ultimate terrorist attack, and it is being perpetuated by the very people we have elected to represent us in the running of this country.
This is enormously important folks, the US economy is on a path toward total financial destruction that will take decades to resolve if not ever, the federal deficit along with the trade deficit are a direct result of serious structural imbalances that will eventually wreak economic havoc across the world.
More from this months edition of Shadow Government Stats:
While there are special circumstances that explain some of the current negative monthly numbers, and housing starts and the purchasing managers surveys gained, the U.S. economy is suffering an extraordinary structural change. This circumstance will tend to persist in generating consistent negative results in the less-manipulated economic series. The structural change is defined by the dual deficit catastrophes: the federal deficit and trade deficit. The U.S. trade deficit is a direct result of the shift of the U.S. manufacturing offshore. As a result, neither the U.S. government nor U.S. households are able to make ends meet. The resulting uncontrollable federal deficit, combined with the intractable trade deficit, doom the viability of the U.S. dollar and promise economic and financial market disruptions on an enormous scale.
With full trade and other key 2005 data now in hand, the balance of the opening comments will focus on these deficits of economic destruction.
Do people not realize how serious this, does no one realize that our current economic policy amounts to nothing more than making enormous amounts of money, creating enormous amounts of credit through fractional reserve banking and basically giving that money away so people can continue a pathological pattern of ever increasing consumption?
Does no one realize that this cycle is burning itself out as the consumer market for credit becomes ever more and more desperate to find more people who are more willing to continue to go deeper and deeper into debt? Do we not understand that we are scraping the bottom for these consumers by finding less and less qualified people to lend money to so that they can continue to purchase more and more goods from China?
I can now get free money almost anywhere, I can get interest only loans, I can get "zero down payment" loans, I can buy a car for no payments and no interest for a year, I can buy furniture the same way, Stereos, home appliances the same way, I can get loans against my DAMN TAX REFUNDS, I can get loans against MY NEXT PAYCHECK. People without jobs can get free money, the sub-prime loan market is the only real loan market left that is able to lend any more money, and they are quickly running out of consumers for credit!
More from this months edition of Shadow Government Stats:
Last week, Treasury Secretary John Snow asked Congress to pass a new debt ceiling so the U.S. could borrow beyond its current $8.18 trillion dollar limit. The fact that the reported February 28th gross federal debt level of $8.27 trillion (see the Deficit section) did not count as an event of default is due to the legalities and niceties of the cash games the Treasury Secretary has played within the federal system. Borrowing from trust funds to make day-to-day expenses would land a private-sector executive in jail, but such is not the fate of Mr. Snow. Instead, the Administration and Congress will play the politics of default brinkmanship, up until the last minute, and the debt ceiling once more will be extended. The talked about $781 billion extension is not likely to last a year before the cycle of nonsense begins anew.
The fiscal crisis deepens, everywhere there is borrowing and more borrowing, the American economy has run out of any option other than borrowing there is simply nothing we can do as there is nothing we make anymore that anyone wants to buy from us.
More from this months edition of Shadow Government Stats:
Both parties in Washington are ignoring the dire nature of the nation's fiscal crisis, with annual GAAP deficits expanding at a pace that defies any remedy and promises an eventual massive breakdown of the financial system.
When Ronald Reagan expanded the federal deficit and pummeled the U.S. dollar, the world did not come to an end. Out of the resulting sense of relief was born a group of Washington insiders who were convinced that the budget and trade deficits "don't matter." Much of government policy since has been run on that basis, working political strategies in two-year shifts from one election to the next. This shortsightedness has left the country unable to control its fiscal balances and faced with an ever-growing trade deficit that cannot be fixed easily.
Why in the hell are they ignoring this? Damn them!, I wish each and every senator and congressperson would take this as seriously as is warranted, the future of America depends on this, but they all act like they could give a damn and go on playing their little political games.
Budget deficits and trade deficits don't fucking matter in their world, this is absurd and insane, how in the fuck did we ever let these idiots run our country?
More from this months edition of Shadow Government Stats:
One offshoot of these policies is the rapidly expanding net-debtor status of the United States within the global community. Quarterly, the Federal Reserve Board publishes its "Flow of Funds Account of the United States." Doug Gillespie is one of few individuals who can take those voluminous tables and reduce them to meaningful numbers in a useful form.
Following last week's release of the 2005 numbers, he noted that "As recently as the mid-1980s, the United States was a net creditor nation. As of the end of 2005, however, the US was in the hole to others to the tune of more than $5.8 trillion. And this numbing figure continues to expand at an alarming rate!"
Full details of Doug's analysis, including details of those asset classes held by foreign investors that are subject to easy liquidation, are available in his piece "More Horrifying Foreign Investment Numbers from the Latest Fed Flow-of-Funds Data."
5.8 trillion in debt to foreigners alone, this comes to $41,428 for each working person in the United States in debt alone to foreigners.
More from this months edition of Shadow Government Stats:
Also published recently were the full trade data for 2005. The following section first examines the cost of the trade deficit to today's economy, and then looks at how well imbedded the U.S. trade deficit position has become in the global marketplace. While this does not mean the trade deficit is beyond solution -- unlike the federal fiscal deficit -- any significant improvement will take decades and will rely upon individual companies involved in global trade.
Based on fourth-quarter GDP, net exports and employment data, the U.S. trade deficit has cost 8.8 million jobs over time, with 800,000 jobs lost in 2005, alone. The following several paragraphs explain how the preceding numbers were estimated.
Before inflation adjustment, the fourth-quarter GDP was reported at a seasonally-adjusted $12,760.4 billion. That GDP was generated by an average seasonally-adjusted employment level of 142,672,000 workers (this is from the Labor Department's household survey, since the payroll survey excludes farm payrolls), which works out to $89,439 of GDP per employed individual.
The trade deficit is a direct, dollar-for-dollar subtraction from the GDP. For the fourth-quarter GDP, the net export trade component subtracted an annualized $788.8 billion from GDP economic activity. If that deficit were zero, and the $788.8 billion had been produced domestically instead of being lost to foreign production, such would have meant an added 8.819 million jobs in the U.S. economy ($788,800,000,000 / $89,439).
Similar calculations for fourth-quarter 2004 show an $11,995.2 billion GDP versus employment of 140,092, average GDP/employed individual of $85,338. Against fourth-quarter 2004 net exports of $685.4 billion, that indicates lost employment 8.032 million jobs, and roughly an 800,000 jobs loss in 2005, alone, from the deteriorating trade circumstance.
And were supposed to be happy about this? Are these folks insane?
Additionally, as I noted the other day in this comment in This diary that our situation is even more diare because we currently owe as a nation, nearly 40 trillion dollars. That comes to nearly 400,000 for every working person in this country!
More from this months edition of Shadow Government Stats:
the U.S. trade deficits with its two largest trading partners in terms of trade shortfall: Communist China and NAFTA (Canada and Mexico combined). The North American Free Trade Agreement (NAFTA) went into effect on January 1, 1994, and the related U.S. trade deficit has expanded ever since. In the cases of both China and NAFTA, countries not at full employment and with lower wages than in the United States have seen what once was manufactured in the United States shift to their own countries.
Using the ratios calculated above, the current deficits with China and NAFTA, respectively, have cost the U.S. economy roughly 2.3 million and 1.4 million jobs.
Of some note, growth in these deficits is starting to turn exponential, which means that it is just a matter of time before the current economic financial system faces a crisis of extraordinary proportions. The problems with U.S. trade, however, go far beyond China and NAFTA and are solidly imbedded in the economies of many major U.S. trading partners.
Well ho fucking hum, exponetial growth and crisis of extraordinary proportions!, John must have forgotten his exclamation point on that, the question I have, and please if there is any representative in the house who is willing to answer, please tell us WHY ARE YOU DESTROYING THE AMERICAN ECONOMY
John Continues:
(and I'll end the quotes of this months edition here, I urge everyone to consider getting a trial subscription from Gillespie Research and see how you like it, ask about a trial of both Doug's material and John's)
Back in the 1960s and 1970s, when the United States ran regular trade surpluses, there were two markets for global manufacturers, the United States and the rest of the world. Before beginning my economic consulting business, in the late-1960s and 1970s, I was active in a family company in the import and export trade, primarily importing a major consumer product to the United States from West Germany. The following comments reflect my perspectives, though overly simplified, from then up to present.
In the days of surplus, with the exception of food producers and companies such as Boeing and IBM, too few U.S. manufacturers ignored or did not take global markets seriously. More than adequate sales volume could be generated at home without undertaking the trouble of learning the languages and customs of potential foreign buyers, or having to produce low volume special products that met the particular needs of foreign markets.
In contrast, European manufacturers had to sell beyond their borders in order to gain economic scale. Where the rest of the world never did quite catch on to U.S. consumers' addiction to disposable products, such as automobiles that became stylishly obsolete in three years, European manufacturers often had to provide a higher quality manufactured product for their customers than was available from U.S. manufacturers. Asian manufacturing at the time generally was noted for its low cost as well as generally low quality.
Not only did the competitors of many U.S. manufacturers dominate sales outside the United States, but also their often higher-quality products began to find broad markets within the United States, irrespective of higher prices. Eventually, quality improved for the lower cost Asian products, which also led to significant market gains in the United States and the rest of the world.
Of course, much of the shift in U.S. manufacturing offshore resulted from careful long-term strategies by U.S. competitors to accomplish just that. "Long-term" here refers to decades, not to two-year election cycles or quarter-to-quarter profit reporting cycles. In the late 1970s and early 1980s, Communist China eagerly was buying up as much as it could of available "antiquated" labor-intensive plant and equipment in the United States. China had the labor needed for it.
In a tragic 1989 explosion, the USS Iowa lost one of its large guns. At that time, the U.S. no longer had the machining capabilities to replace the gun, but China did.
As U.S. manufacturers began losing domestic market share to imported goods, a number sought lower-cost production offshore. Such was intensified by the effects of free-trade agreements that tended to shift manufacturing to under-employed, lower cost labor markets, such as Mexico. These shifts have been exacerbated up to present, which brings us to 2005.
As of 2005, here is how the U.S. trade balance broke out, as reported by the Commerce Department. The "services" component of the trade balance, which usually is reported as a small surplus that offsets the merchandise trade deficit, is a just plug number guessed at by the Commerce Department. Commerce does not try to break services out by country, because it has little hard data. Accordingly, the numbers broken out by country are for products, not services, and are as valued for customs purposes.
The numbers show that the structure of the U.S. goods deficit is broadly imbedded within the economies of the vast majority of the United States' major trading partners. This deficit will be difficult to rectify, particularly for a country that is increasingly service rather than manufacturing oriented.
On a customs basis, the 2005 U.S. trade deficit was $766.8 billion, the worst ever for any country in the history of the modern world. More discouraging, however, is the intractable nature of the shortfall. Of 227 counties with identifiable trade with the United States, the U.S. is in deficit with 117 for a total shortfall of $827.1 billion, and in surplus with 110, for a total positive offset of just $60.3 billion. The ratio of aggregate dollar deficits to surpluses is 13.7-to-1!
Looking first at the trading partners that generate employment in the United States, the top 10 trade surpluses (expressed in billions of dollars) are: Netherlands (11.6), Australia (8.4), Hong Kong (7.4), United Arab Emirates (7.0), Belgium (5.6), Singapore (5.5), Panama (1.8), Jamaica (1.3), Egypt (1.1), Bahamas (1.1). The remaining $9.4 billion in surpluses are split among 100 countries.
On the darker and more-massive side of the U.S. trade picture, the top ten trade deficits among trading partners sapping employment from the United States (expressed in billions of dollars) are: Communist China (201.6), Japan (82.7), Canada (76.5), Germany (50.6), Mexico (50.1), Venezuela (27.6), Malaysia (23.3), Nigeria (22.6), Saudi Arabia (20.4), Italy (19.5). The remaining $492.2 billion in deficits is divided among 107 countries.
No end in sight folks on this until the inevitable crash occurs. This is an unsustainable pathological path of consumption that will lead to utter and total economic failure. By creating an economic system that cannot run without debt we have doomed ourselves to repeat mankind's worst economic failures, we literally must create nearly a trillion new dollars each year in order to just pay for our trade deficit, this expansion of dollars creates trillions more in required credit/debt expansion a year, as I noted in the above mentioned comment we have to take on nearly 30% (3.6 trillion) of GDP in additional debt to continue 3-4% GDP growth. We are at a dire crossroads where we literally must print up massive amounts of money each year and lend it out to less and less qualified borrowers so they can continue to drive more and more consumption to eek out less and less in the way of GDP growth.
Additionally, as I've said before, unless there are significant increases in the American jobs base as well as significant increases in pay in order to accomidate an ever incereasing debt load, then what we have borrowed to date will be taken off of tomorrows GDP growth. There is no way around the consquences that are coming our way.
I've often thought to myself that this is all the clear cut result of conservatism, the hatred toward the manufacturing unions and their desire for job security, good wages, health benefits, retirement benefits, etc, all good things that we all desire for ourselves, but things in which conservatives seem to hate. All of this is a direct result of the sell out on the American worker by US manufacturing companies, and now the only way out of the abyss is for a significant resurrection in investment in manufacturing so that America can start selling things again and competing on the world markets.
Yes this can go on a little longer folks, but for each year that passes the exponential growth in debt will continue and worsen, 1 will become 2, 2 will become 4, 4 will become 8, 8 will become 16, etc, The government will continue printing massive amounts of money and riding the political winds as long as they can. The problem is, what for each passing year of this madness, it will take significantly longer to get out of it until one day there will be no way out of it, America will become a third world country overnight.
I implore us all to do something about is before it is far far too late!
As an aside, here are a few books that I have read that spell out the dire situation, I recommend that everyone get educated and informed on this matter as soon as possible and encourage your elected officials to do the same.
Please take this seriously, America herself is at stake!