How the Savings Crisis Led to the Port Crisis

[kpete]

How the Savings Crisis Led to the Port Crisis
by: Bonddad
February 25, 2006 at 06:28:04 America/Los_Angeles

Notwithstanding the understandable concerns over matters of national security in a post 9/11 world, there is a very simple and extremely powerful macro point that is being overlooked in this debate: America no longer has the internal wherewithal to fund the rapid growth of its economy. Suffering from the greatest domestic saving shortfall in modern history, the US is increasingly dependent on surplus foreign saving to fill the void. The net national saving rate -- the combined saving of individuals, businesses, and the government sector after adjusting for depreciation -- fell into negative territory to the tune of -1.3% of national income in late 2005. That means America doesn’t save enough even to cover the replacement of its worn-out capital stock. This is a first for the US in the modern post-World War II era -- and I believe a first for any hegemonic power over a much longer sweep of world history.

Faced with a shortfall of domestic saving, countries basically have two choices -- to curtail economic growth or borrow from the rest of the world. The first option just doesn’t cut it in the land of abundance. America, in general, and its consumers, in particular, treat rapid economic growth as an entitlement. That leaves the US with little choice other than to pursue the second option -- drawing heavily on the pool of surplus global saving as the means to fund economic growth. Once the US started consuming beyond its means, it left itself beholden to external funding and production. And that’s how China and Dubai have entered America’s macro equation.

http://www.myleftwing.com/showDiary.do?diaryId=6313

[teryang]

1. Simplistic and misleading

This export of capital by the leading American corporations has been facilitated by the legal structure they have erected in Washington to benefit themselves and their super rich shareholders at the expense of the average American.

Free trade agreements and the shifting of the tax burden of corporations and corporate rich to working Americans are major factors in the so called declining savings rate. The corporations make use of the infrastructure and markets that American consumers pay for with their tax dollars, while shifting their profits, production and capital overseas to cheap labor markets with little industry regulation.

The resultant fall in job opportunities and wages is compensated for by the central banks lowering of interest rates to ridiculously low levels to produce bubbles in the financial sector which grew rapidly to fill the void left by a collapsing industrial infrastructure at home.

Speculating in the financial markets and the building of condos and homes with debt financing is supposed to replace our disappearing industrial sector. This is financed by free "low interest" loans, which make it impossible for any surviving savers which may exist to get a fair return on their savings.

The economic policies enacted by elected representatives on behalf of the gilded corporate rich have penalized savers for many years now. Corporations are saving, overseas. They are building industry overseas. They are doing it with wholly or majority owned subsidiaries which book their profits overseas, legally to avoid US taxation, when they sell in the US. The percent of government revenues paid by corporations has declined steadily for years while the burden for individual tax payers particularly the struggling middle class has expanded.

US workers and taxpayers who have been getting screwed by these policies for three decades are now being told they don't "save enough!" How ridiculous.

Think of how well off the economy would be right now, if the extremely low interest rates didn't allow the explosion in housing prices. Without that equity to borrow on, the US economy would have already collapsed.

This shifting from industry and enterprise to "finances" inside a major hegemonic power with resultant export of capital and industry and the incident decline associated with it has happened before in Spain, the Netherlands, and England.

If one views these events in historical context, as Kevin Phillips does in Wealth and Democracy, one realizes that the culprits are laws and international agreements sanctioning the inequitable distribution of wealth and income, and the corrupting influence of gilded corporate elites, who falsely tout the benefits of so called free trade.

By the way, war accelerates the decline by dissappating capital in two ways. Wasting capital on items that do not produce wealth but only destruction, and accelerating the waste of capital overseas, resulting in higher inflation and less capital investment for productive purposes at home.
For example, the Korean and Vietnam wars led to the economic emergence of Japan while the American auto and electronics industries fell into ruin.

Go figure. Americans don't save enough. The majority of the country is against the trillion dollar waste overseas on Iraq. Who is responsible for that? People who don't save?

Read Wealth and Democracy by Kevin Phillips to see the entire historical and political context of the current ruin of the Republic.

[Mme. Defarge]

2. Great rebuttal!

Thanks for the book recommendation.

[applegrove]

3. Yes thanks for that. Interesting points.

[Leopolds Ghost]

4. "Shifting from industry to "finances" has happened before in Spain, etc."

Indeed, that's exactly what happened to the Spanish Empire in the 1500s. The Conquistadores were legendary for their "macho" attitude towards work and productive enterprise at home, preferring to go abroad for wealth. This resulted in the rapine of an entire continent's worth of gold (in many areas, the easily-accessible gold wealth of the former Spanish Empire is tapped out). Instead of investing it at home (much less for the betterment of its subjects!) the Spanish Empire used ALL THAT GOLD to enrich its European enemies by spending lavishly on luxury goods -- mostly made in other parts of Europe, of course. Not knowing how to purchase goods in return for bill of trade, ALL THAT GOLD went to enrich the future European Empires, especially France and England (cemented by the Spanish failure to invade England under Elizabeth).

This had the side effect of instigating the decline and decrepitude of the Ottoman and Chinese empires by creating a massive trade imbalance (Europe suddenly had much more gold than anybody else...) and messing up the centuries-old trade routes that used to run along the Silk Road.

The Ottomans and Chinese (and the Spaniards) responded much the same way America has done recently, first attempting to shut off foreign trade entirely (precipitating depression and accelerating technology gap) and then admitting all manner of foriegn corporations onto their soil to employ people at cheap wages while outsourcing high-value-added manufacturing jobs to the emerging foreign powers.

Only Japan, during the Meiji era, was lucky enough to break this cycle of economic dependency and demonstrate that the Europeans did not have some natural racial or cultural superiority by virtue of empire (though they also proved in WWII that they could be just as barbaric as the Europeans by virtue of the knowledge gained.)