America's Coming Garage Sale

[Purveyor]

For years, Americans have reveled in profligate, load-up-the-back-of-the-SUV-at-Target excess, much of it paid for by credit cards, home equity or other loans. The binge has produced some supposedly healthy economic growth and provided everyone lots of nice stuff. But now debt collectors from around the world are knocking. That's why today's turmoil in U.S. financial markets will end in a massive transfer of wealth from America to the rest of the globe.

The housing bust, the subprime catastrophe, the Bear Stearns evaporation, and the tanking markets have already dented household wealth. But this is just the beginning. These events are only the trigger to a larger problem that affects America's standing in the global economy.

That problem is America's vast, unsustainable trade deficit with the rest of the world. The deficit has created stuffed storehouses of dollars and dollar-based securities at many of America's most important trading partners. The dollar reserves are especially large in Asia, where export-oriented countries like China and Japan have run large trade surpluses with the U.S. The Bush Administration has attempted to pin the blame for the trade deficit on "unfair" practices by foreign countries. Special abuse was reserved for China. Bush has maintained that Beijing's manipulation of its currency, the yuan, made Chinese-produced goods exceptionally cheap and as a result they have flooded the U.S. market.

This argument is nonsense and always has been. Since China ended its currency peg in mid-2005, the yuan has risen 17% against the dollar and hit an all-time high last week. But the trade deficit with China hasn't budged. The real cause of the trade deficit is that Americans spend too much and save too little. That's true for both the government, with its mammoth budget deficits, and the average consumer. American household debt reached $13.8 trillion at the end of 2007, or more than double the amount in 1999. This debt-financed consumption has led to a level of imports well beyond the nation's ability to pay for them. Americans have no one to blame but themselves.

---eoe---

http://www.time.com/time/magazine/article/0,9171,1725094,00.html

[Crazy Dave]

1. And it's always "the Chinese fault"

You ever notice that whenever the politicians and their disciples talk about our worsening economy and weak dollar versus China's double digit growth in both areas?

[Winterblues]

6. Well sometimes it is "Clinton's Fault"

Between Clinton and China though all problems are created..Republicans would do so very well if not for those two...Honest...:shrug:

[rockymountaindem]

2. That last paragraph is the typical right-wing line

Perhaps the Yuan has risen 17%, but people were saying it was undervalued by at least 40% before they removed the peg. So what, now it's only undervalued by 23%? No wonder nothing's changed. Furthermore, saying it's always been a nonsense argument is totally false. Instead, they blame the *whole* problem on overspending which, while it is a major issue, is not the only one. This is just Henry Luce's magazine trying once again to take the blame away from Chinese currency manipulation and, what do they accuse us of all the time...? Oh yes; blame America first.

[Crazy Dave]

3. America does more than it's share of blaming and demonizing other countries

Blame Latin American immigrants for taking jobs that are here in America, blame India and it's people for all the tech. jobs going there, blame China and it's people for all the manufacturing jobs going there, etc.

[dmallind]

4. Not to mention economic illiteracy or mendacity

The quoted paragraph almost outright states and certainly strongly implies that the yuan is now free to move in value against the dollar, whereas in reality the range it is allowed to trade in is exceptionally narrow. The yuan is not, and is unlikely to be for several years, a freely floating currency.

Meanhwile we have those savvy saving export-minded Japanese, who underwent a recession longer than the US has suffered for many decades just a few years ago caused in large measure by excessive frugality, and who export only about 2/3 as much as the US (China exports only about 6% more than the US).

[rockymountaindem]

7. Good points

I'd rather be in the position we're in than having the crippling decade-long (even more than that now) deflation that the Japanese have had.

[ThomWV]

5. I have been told that Japan finances more of our debt than China does.

[ordinaryaveragegirl]

8. One word: Overconsumption.

(Warning: rant ahead!) :rant:

Stuff, and lots of it. Sure, the Wallyworlds and Bullseyes of the world are partly to blame, for making all of this stuff accessible to everyone. But the people of this country have for so long been mired in their desire to "keep up with the Joneses" that they've dug themselves into a deep chasm. Everything from designer purses to expensive cars to gadgets to McMansions. Now that the economy is swirling down the toilet, they realize that they couldn't "afford" as much as they thought, because the "easy money" was really borrowed money that came at a steep price. And it knows no income level. A few blocks away from me, there is a $450K house (which is a NICE house here) which is sitting in foreclosure. And there are many more. The money hungry banks and CC companies, and their predatory lending practices are partly to blame. As are the consumers who took the bait without reading the fine print. As for the stimulus money and the bogus tax breaks...well, those are a big farce too. The freespending ways of Chimp and Co. aren't helping either, because what money they're blowing is either going to all the wrong places, or is too little too late. For a single person struggling to pay the rent, or the family trying to keep food on the table, that's just not enough. This nation lives beyond its means, and has for too long. We all need to step back and take a look at the self-destructive behavior that has led to all of this. It's time to prioritize what's really important in life. Happiness isn't something that comes in a box, a label, or four wheels. It's about investing in ourselves and our communities. We can't changed what's happened. But we can change what will happen.