Hey, What's Happening to My Money?
The stock market is kind of sputtering right now and real estate is on the verge of tanking while interest rates are on the launching pad counting down for take-off, all while the dollar stands on a precipice ready to dive headlong into the abyss.
How do your finances work? Has the value of your home grown 2 to 3-fold over the past 15 years, allowing you to take out huge home equity loans to finance your spending sprees? How's your 401k and other investments fairing - they've climbed pretty nicely over the last 3 years. Do you get great bargains on furniture, clothes, and electronics, all goods manufactured abroad? Do you lease your Nissan? Like to go out to nice restaurants, take vacations at fancy resorts, throwing money at service people mixing drinks, cooking meals, waiting tables and carrying bags?
Well the day of reckoning is nigh. Each year 6% of our economy goes out the door (net) to foreigners - mostly foreign governments, who finance our profligate ways. There are all kinds of ways this will resolve itself - the dollar will crash, leaving imports (i.e., everything we buy) far more expensive. Interest rates will go up, making those home equity loans unaffordable. Home values will depreciate, resulting in defaults and foreclosures. And of course the combination of the newly impoverished American consumer and foreigners disinclined to invest in American business will crash our equity markets.
Won't a falling dollar boost exports? Perhaps, but I fear years of a declining manufacturing base might have left the U.S. economy unable to respond effectively. You can't just flick a switch and revive shut-down factories overnight. No doubt China and the other exporting nations do not want to see us fall apart as we are such an important market for them, so I don't really expect an armageddon, but we shouldn't expect continued double digit growth in our investments - or any significant positive growth, for that matter - over the long haul. Given the trend of increasing income inequality over the last few decades, it is highly likely that the vast majority of Americans will experience steady and noticeable declines in their standard of living in the coming years.
Some dramatic technological advances could possibly turn the tide - perhaps in energy (e.g. battery technology) or aerospace or bioengineering. The self-replicating machines Greg Cochran predicts would no doubt render all this moot, but that's a number of decades away. On the other hand, demographics are against us, as minorities - who have shown intractable performance shortfalls - will constitute a far greater proportion of the future workforce than they do currently, while our leaders from both parties have shown pretty much zero concern over any of these matters, making it unlikely the kinds of hard decisions (consumption taxes, savings incentives, tough trade policy, etc.) that need to be taken now will ever get implemented. But should levels of immigration from Central America continue at the current pace or even increase, we are surely doomed (absent Dr. Cochran's miracle cure). - though our exports may go up as a result as we will by then officially be a third-world nation.
Read this paper by Martin Feldstein discussing these issues as well as this shorter (and harsher) VDare piece by Paul Craig Roberts from the other day. While in tone worlds apart, they're really saying the same thing.
How do your finances work? Has the value of your home grown 2 to 3-fold over the past 15 years, allowing you to take out huge home equity loans to finance your spending sprees? How's your 401k and other investments fairing - they've climbed pretty nicely over the last 3 years. Do you get great bargains on furniture, clothes, and electronics, all goods manufactured abroad? Do you lease your Nissan? Like to go out to nice restaurants, take vacations at fancy resorts, throwing money at service people mixing drinks, cooking meals, waiting tables and carrying bags?
Well the day of reckoning is nigh. Each year 6% of our economy goes out the door (net) to foreigners - mostly foreign governments, who finance our profligate ways. There are all kinds of ways this will resolve itself - the dollar will crash, leaving imports (i.e., everything we buy) far more expensive. Interest rates will go up, making those home equity loans unaffordable. Home values will depreciate, resulting in defaults and foreclosures. And of course the combination of the newly impoverished American consumer and foreigners disinclined to invest in American business will crash our equity markets.
Won't a falling dollar boost exports? Perhaps, but I fear years of a declining manufacturing base might have left the U.S. economy unable to respond effectively. You can't just flick a switch and revive shut-down factories overnight. No doubt China and the other exporting nations do not want to see us fall apart as we are such an important market for them, so I don't really expect an armageddon, but we shouldn't expect continued double digit growth in our investments - or any significant positive growth, for that matter - over the long haul. Given the trend of increasing income inequality over the last few decades, it is highly likely that the vast majority of Americans will experience steady and noticeable declines in their standard of living in the coming years.
Some dramatic technological advances could possibly turn the tide - perhaps in energy (e.g. battery technology) or aerospace or bioengineering. The self-replicating machines Greg Cochran predicts would no doubt render all this moot, but that's a number of decades away. On the other hand, demographics are against us, as minorities - who have shown intractable performance shortfalls - will constitute a far greater proportion of the future workforce than they do currently, while our leaders from both parties have shown pretty much zero concern over any of these matters, making it unlikely the kinds of hard decisions (consumption taxes, savings incentives, tough trade policy, etc.) that need to be taken now will ever get implemented. But should levels of immigration from Central America continue at the current pace or even increase, we are surely doomed (absent Dr. Cochran's miracle cure). - though our exports may go up as a result as we will by then officially be a third-world nation.
Read this paper by Martin Feldstein discussing these issues as well as this shorter (and harsher) VDare piece by Paul Craig Roberts from the other day. While in tone worlds apart, they're really saying the same thing.
posted by ziel | 6/26/2007 11:07:00 PM
5 Comments:
Annuity sales will skyrocket as people lay off the risk on insurance companies. Insurance is the "plastics" of the new century.
Zeil wrote:
"as minorities - who have shown intractable performance shortfalls - will constitute a far greater proportion of the future workforce than they do currently, while our leaders from both parties have shown pretty much zero concern over any of these matters...."
Zeil,
If you had ever been a supervisor in a modern factory, you know this to be painfully true in generality. Although there are plenty of good, hardworking black men and women, there is that hardcore 10 or 15% of them that simply try to get away with doing as little as possible, each and every day they are there. They know "the rules" and know they can file suit and claim discrimination to get their jobs back. Companies have to literally work around these people and get others in the work force to pull double-duty and do some of these folks work for them, while they literally goof off or even sleep. Its a drain on our competitiveness. If we could simply fire whoever deserved to be fired without regard to race or sex, the fear of job loss would have many of these people magically become "competent" and do their jobs like anyone else. The effect on morale of others isn't good of course, however the "rest" seem to lamnet it but understand that they are the one's who keep the business going, bless their hearts. China, for insntace, would not have this problem.
Thats exciting stuff regarding newer battery technologies and electric cars. Im all for that happening. We need to get off oil, yesterday.
Anonymous:
I have worked as a supervisor in an industrial setting, and what you say about that 10-15% of black workers is absolutely true. And yes, that certainly does put us at a huge disadvantage with China, on top off all the others we must contend with. And I suspect it is affirmative action, more than anything, that has driven the growth of the independent contractor/ consultant economy of the last decade, as it is easier to get around EEO laws when using non-employees.
Since this money is coming largely from foreign central banks, doing dollar support to keep their export manufactures growing or stable, no dramatic turns from that source should be expected.
Per capita growth, minus the increase in dollar support, of the last seven years, has been at a level which
should be called stagnation.
Most productivity growth has been
confined to those who process the inflow
of dollar support from those foreign central banks. There is little reason to invest in higher productivity methods when
you have no end of labor coming in from abroad at the same or lower wages.
We are witnessing the fall of Rome.
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