Per today’s New York Times: “Chinese Pockets Filled as Americans Emptied Theirs”
December 26th, 2008
I want to thank a reader who prefers to remain unnamed for pointing out the front page New York Times article highlighting the dangers of the massive trade deficit with China. It particularly hits on how this gigantic trade imbalance allowed our government to borrow over $1,000,000,000,000 abroad to support our budget deficit without feeling the true cost.
Of course, many of have been going on about how impossible it is to sustain this situation for years, but it is nice to see respected newspapers getting on the bandwagon. My own belief is that unless these trade and budget deficit issues are dealt with immediately we face a depression, but action seems unlikely: According to today’s NYT article “…the United States is likely to be more addicted than ever to foreign creditors to finance record government spending to revive the broken economy.”
What drove us to this point? The NYT article does not go beyond discussing the “addiction”. However, the fact is Wal-Mart, Target, and the rest of the big chain stores racing to get focus only on price, no matter the many other severe costs to our society.
“But in classical economics, that trade gap could not have persisted for long without bankrupting the American economy. Except that China recycled its trade profits right back into the USA.” In short, the issue should have imploded under its own weight long ago, but thanks to China funding our consumption binge continues.
Realizing the borrowing situation, the Treasury Department has gone to extreme measures to protect its money source – not branding China a currency manipulator in spite of that being their official policy (keeping their currency weak is a huge trade advantage over our producers). Their currency has “traded” at 8.3 Yuan to the dollar since 1995, “…a level that remained fixed for a decade”. It is impossible for currencies to stay that flat unless there are hugely manipulated. For instance, the Japanese Yen has ranged between nearly 80 to 200 Yen per Dollar in roughly the same timeframe.
“It (China) holds $653 in Treasury debt, up from $459 billion a year ago.” Let me spell that out – our federal budget deficit is roughly $500 billion this year, so the $194 billion increase in the debt China owns is nearly 40% of our borrowing requirements for the year! That does not even include Freddie Mae, etc. where China also loaning us hundreds of billions.
The article was excellent, but missed addressing the destruction this relationship has done to America’s industrial base. We have lost 2 million jobs this year alone! Allowing these cheap imports to crush our own makers may have allowed the Treasury an easy place to borrow, but has cost us our future as these millions of good jobs are destroyed.
We must take whatever action necessary to get us off this “addiction” and save our country’s future.
Sincerely,
Todd Lipscomb
Founder of MadeinUSAForever.com your source for made in USA products.
Friday, December 26th, 2008 at 11:41 pmand is filed under Uncategorized.
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