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Trade Wars Final Nail in Coffin
Tuesday, July 13, 2010 – by
Staff Report
The vanishing American consumer and the coming trade war ... With American consumers pulling back, these other economies have also been slowing down. This means Obama won't easily find the export markets they need to create enough jobs to make up for the vanishing American consumer. President Barack Obama speaks about exports, jobs, and the economy, Wednesday, July 7, 2010, in the East Room of the White House in Washington. President Obama has vowed to double U.S. exports within the next five years. That's because exports are critical for rebooting the American economy. It's clear American consumers can't get the economy going on their own. They can't restart the jobs machine. They've run out of money and credit. It's not just that one out of four Americans is unemployed or underemployed (working part-time, overqualified, or at a lower wage than before). More significantly, the Great Recession burst the housing bubble that had let American consumers turn their homes into ATMs. Now the cash machines are closed. So the Administration figures foreign consumers will have to fill the gap. – Robert Reich's Blog/CS Monitor
Dominant Social Theme: It will get even worse for the West.
Free-Market Analysis: This is an interesting analysis because there hasn't been much discussion of trade wars lately. In the 1980s and 1990s, when the first wave of anti-Keynesian thinking was becoming popular, it was daringly revisionist to point out that the government initiated trade wars had aggravated and perhaps even caused the Great Depression. The Smoot-Hawley Tariff Act of 1930 became Exhibit A.
In retrospect, blaming the Great Depression on tariffs was a soft-libertarian solution. What do we mean by soft libertarian? We mean that proponents could make government the culprit without delving deeply into the real causes of the Great Depression. In a sense, trotting out the trade war explanation for the 1930's Depression is analogous to emphasizing tax cuts during the Reagan years as a means to create a healthy economy. As has been pointed out previously in these modest pages, the emphasis on tax cuts in a sense precluded an examination of other ways to cultivate a free-market economy, including most importantly spending cuts.
It is a kind of mini-meme, a sub-dominant social theme. "Trade wars turn recessions into depressions." From our point it is, in fact, a distraction. Trade wars and tariffs may aggravate a financial downturn, but there can be no doubt that financial crises are caused by the West's mercantilist central banks and the general distortions that they inflict on the economy. Here is some more from the article:
Last week I attended a conference with global business executives. When I asked them where they expected to find new customers to replace Americans who are pulling back, they all said China and India and quoted me the same number: 800 million new middle-class consumers from these and other fast-developing countries over the next decade.
Yes, but. As of now China and India are still relying on net exports to fuel their growth. Even if you think their middle classes will eventually become so big and rich they can buy everything these nations will be able to produce, that doesn't mean they'll also buy what the rest of the world produces.
Yes, global companies will do wonderfully well. General Motors is well on the way to selling more cars in China than it does in the U.S. But American workers won't get the jobs, and nor will workers in Europe, Japan, or the rest of the world. GM makes the cars it sells to Chinese consumers in China.
Meanwhile, the productive capacities of China and India will continue to grow: More workers, more factories, more high-tech equipment, more offices. The buying power of their middle classes will have to expand rapidly just to catch up with what these nations will be able to produce.
This means Obama and others won't easily find the export markets they need to create enough jobs to make up for the vanishing American consumer. When the world's productive capacities exceed the buying power of the world's consumers, every government wants to increase exports and discourage imports. That spells trade war.
It certainly sounds grim. But from our humble perspective, it puts the emphasis right where Reich – a socialist, leveling kind of economist and Democratic bureaucrat – wants it to be, with government. The trade explanation of financial downturns leads logically government activism. Government becomes the fount of economic growth. Let government negotiate "free-market" trade treaties and all will be well. Let the wrong types get into government, or let government not prove wise enough, and the free-market will be comprised. This also leads, by the way, to an emphasis on managed trade treaties that are presented as enhancing free-trade, when in fact they are not.
Using the color of government, mercantilist central banks inflate, printing money until the economy is so distorted that stock markets crash and many ventures are revealed as ruinous rather than profitable. People have been tricked. Now they are bankrupt. The economy takes a very long time to recover after one of these busts in the modern era because government is never content to allow the biggest private-market entities to go under as they should.
Instead, government prints more and more money, hoping to salvage the larger entities, and this in turn leads to yet another false recovery until the economy is finally so tortured it falls into a five or ten years "economic crisis." That's what is going on now. It has nothing much to do with a "trade war" either looming or consummated. The problem is the way that money is created in a fiat-money environment. The focus on tariffs and trade wars removes the emphasis from the deeper, underlying problem, which is lack of circulating gold and silver and the resultant phony circulation of delinked paper money.
The "trade war" meme is another seamless propaganda gambit. It puts the onus on government and shifts the responsibility from the market to government bureaucrats who must "get it right" else the "free-market" itself suffers. In fact, the trade war theme is joined at the hip with the immigration problem that is much in the news these days.
Both trade wars and immigration issues could be solved, theoretically, anyway, by placing private property fully in private hands. If property was mostly or wholly private, people and business could trade with whom they wanted to trade with and work with whom they wanted. But because so much is in public hands, and because the rhetoric has been skewed to generate yet more public involvement, private solutions are difficult to envision and even harder to implement. Government is always and inevitably involved.
Conclusion: No doubt, we shall read more about an incipient trade war as the Great Recession drags on. Such ephemera will likely incite portions of the electorate to be angry with countries such as China – which is having many of its own problems by the way. (Thus, it may be political practical for Chinese leaders to blame America as regards trade.) Certainly, there will be more discussions about incipient, cultural, American racism if this scenario were to unfold. Much breast-beating may ensue. All of this will help obscure the real issues having to do with the fundamental flaws of modern money and the destructiveness of modern Western finance.
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Posted by Eddie on 7/13/2010 8:10:42 AM
Daily Bell, the logic in your commentary is flawless.
All these crises are more opportunity for the banks to extort more and the government to rescue us from more terrible fates and make ethnic groups and terrorists into lightning rods to deflect the peoples anger and frustration.
Posted by John Acord on 7/13/2010 8:14:12 AM
I compliment the Bell in clearly refuting the faux explanation of the Great Depression rising out of the Smoot Hawley Act of 1930. There is no statistical or factual basis for this all encompassing and disingenuous explanation for a problem clearly originating with the reparations imposed on Germany under Versailles and the clumsy money creation of the Federal Reserve and its sister institutions in the UK and Europe, especially the failed efforts to restore the British Pound as the world's reserve currency.
Coupled with the bumbling policies of the technocrat turned Republican politician Hoover followed by the buffoon Roosevelt we are fortunate to have ever emerged from this economic abyss. Had it not been for the war, the assassination of Huey Long may well have plunged the USA into Civil War, whose outcome, I believe, would have been the elimination of the power elites once and for all, at least in North America.
Instead, the PE's were able to engineer a world conflict to save and protect their power. Since then they have waged a war on American Populism, which today is best represented by the Tea Party, which they, Fox News and the Club for Growth are good examples, are busy preempting and disabling by infusing doctrines of free trade, opposition to job creating incentives, acceptance of "legal" immigration, ad nauseam.
American Populists must first stand for tax incentives for all business, elimination of dependence on imports from Asia, repudiation of the federal debt, withdrawal of US armed forces from all theaters, adoption of alternative energy technologies, and deportation of all illegals and professing Muslims.
Posted by Suleiman on 7/13/2010 10:50:31 AM
"there can be no doubt that financial crises are caused by the West's mercantilist central banks and the general distortions that they inflict on the economy."
Wonderful. And then you cut to a commercial.
"People have been tricked. Now they are bankrupt." Several long, tedious paragraphs later.
Precis is a literary form pounded into every sixth form student. Study it.
Reply from the Daily Bell:
The tedious paragraphs you refer to are further quotes from the article ...
Posted by Duane Bass on 7/13/2010 10:59:16 AM
It seems that the only thing this current Fauxbama administration is adept at exporting is BS! And it really stinks. . .
NO NWO!
Get the US out of the UN , and the UN out of the US. . .
Posted by Bill Ross on 7/13/2010 11:54:21 AM
Start with: We live in an action precedes consequence REALITY. Nothing is real unless it can be objectively expressed in terms of action leading to consequence within the context of applicable natural law (negatively affect the survival of people and they will defend themselves, etc).
Elites and their intellectual sycophants are continuously creating FALSE answers (lies) to the questions:
a) What actions under what environmental control (rules) results in the consequence of peace and prosperity (civilization)?
b) What actions under what environmental control (rules) results in the consequence of social / economic collapse (Greatest DEPRESSION) and general trend to war and conflict?
Formulating and correctly answering these questions are crucial to answering the general question of:
"What factors determine whether mankind chooses to reach for the stars, on a path to excellence OR, chooses to wallow in the mud, as savages, preying on each other, on a path to species extinction?"
I strongly suggest we cease the false finger pointing (blame shifting), to find scapegoats for our common woes and look instead at the choices we are making and, who is coercing them. Then, we can turn as one, in common interest and decisively deal with those who vex and prey on us.
Its that simple. THINK about it:
Click to View Link />
Or, if that is insufficient, the most intellectually important heretec of them all, Charles Darwin and evolution also warned us: Survival EQUALS adaptation to environment EQUALS ability to CHOOSE correctly EQUALS freedom:
Click to View Link />
To reply to this article specifically. The question is asked: who is to produce and, who is to consume to get us out of this mess? The fact that this question even has to be asked makes the assumption that the regulatory regimes of various places is fixed and unquestionable and therefore, it is a matter of guessing which environment will have the consequence of economic success. This is completely absurd and assumes that "we, the people" are too stupid to objectively question and answer the impediments to our survival and mount a proportional defense.
Our ancestors did this, as we must. The result was the "rule of law", now rationalized away by glib predators on the bench and infesting the apparatus of state and all of our social / economic institutions:
Click to View Link />
THEY won't fix the economy for the simple reason that THEIR survival depends on consuming the resources THEY steal under the false pretext that it is "necessary" to implement their doomed to fail "solutions", to problems which THEY, THEMSELVES have created. Foolish us, allowing a monopoly on problem definition, allowable solutions, resources and who gets to implement the "solutions".
All it takes is for true law to do an accurate accounting of who did what and assign consequences, good (property rights, keep your honest contributions) or bad (costs, be deprived of your illicit spoils, reparations). This is ALL the law is, a reality accountant, insuring that consequences fall to those who do the action.
Posted by Pat Fields on 7/13/2010 6:45:14 PM
If I surmise the 'plan' correctly, the 'dollar' will soon be diminished to a resultant real value of one cent, making American products 'economically competitive' in the markets as long as 'wages' are kept at current nominal levels.
The depreciation of the currency is certainly on track toward that end with the unprecented mountains of new issue being created and the suppression of wage pressure is in progress with the open door policy toward destitute South and Central Americans in enactment as we discuss our observations here.
Posted by Amal3113 on 7/13/2010 7:58:10 PM
I am half Indian (not half native american). I am 1/4 Cherokee, 1/8 Delaware, and 1/8 Seneca.
There was a chief who once said something like this: They made us many promises. The promises were never kept, except one. They promised us that they would take our land, and the took it.
That of course is paraphrased, but I am reminded in your comment about private ownership of all properties (isn't it in fact in the constitution that there shall be no government ownership of lands? I will have to check my pocket constitution, which is in my purse.). I am a memeber of the Cherokee Nation of Oklahoma. We are (supposedly) a sovereign nation. Or are we?
They took our land, took our sovereignty in 1908 (sovereignty was restored by Nixon to all tribes in I think 1972 or 73, I can't remember back that far anymore) and in return gave each tribal member 640 acres and made them American citizens. Very quickly the government then allowed whites to move on to the remaining land and allowed them to purchase the land from us at a price so low that it is now incomprehensible.
You may say to yourself, well, they were just stupid, drunk Indians. Not so. Our people did not understand the ways of the white people. We had always been removed from our own lands to lands great distances from the whites, until it could happen no more. Within the tribe there were laws in our own constitutions that allowed for severe punishment to people dishonoring in anyway someone else within the tribe.
My family had no idea in the world what their land was worth, and $640 sounded like a million would to us. I give you this information by way of saying what I know that you all already know and that is that the government lies.
I recently asked my chief in an email if we were sovereign, then were we actually members of the Cherokee Nation or are we members of the United States of America? In other words are we actually sovereign. Part of the reason I asked is due to my own property rights within the tribe, and partly because I had gone to visit my sister at the Cherokee Hospital. When I got there the only thing that I saw were people in Army uniforms. So, are we the Cherokee Nation of Oklahoma a sovereign nation with our own property rights? Or are we a part of the United States Government (we do fall under the BIA) or are we actual a part of something separate.
The Chief replied that he would have to talk to me about it in person because it is a very complicated subject, and would I make an appointment to see him. I called the next day. This has been over a year ago, and I have heard nothing back. Which tells me that the feds actually own not only us, but our property. This is very scary.
When will they confiscate it again? You see the Indian people are a perfect example of what happens when socialism rules. Under Andrew Jackson, he made it clear that we were wards of the government, incapable of making our own decisions. Sound familiar? Now, we are the poorest ethnic group in America. Many American Incians still have no running water, no electricity, no heat nor any way to cook inside. We do not have adequate schools, nor medical facilites, and no way in the cases of the very poor to get better care. So our people die, and die young.
American Indians have a lower life expectancy than any ethnic group almost anywhere in the world other than Africa. We are socialism.
When you really want to learn about how socialism works, look at the American Indians. No wonder there are a lot of drunks in the tribes. I was lucky. I was well educated by a family who could afford it. I know how lucky I am. I see it everyday where I live in a state that has 35 Indian Tribal HQ and a very large population of Indians. More than the census tells, because many of the rural Indians are afraid of the government people still and will not allow them onto their property. Their property? I wonder. Your property can be taken just as easily as ours was.
Watch, watch very carefully for everything that is happening around you.
Reply from the Daily Bell:
Thank you for this eloquent, sad post. The story of native Americans is a brave but tragic one. And it does not seem to have improved much if at all.
Posted by Pat Fields on 7/13/2010 10:24:14 PM
Amal Cite: "Your property can be taken just as easily as ours was. Watch, watch very carefully for everything that is happening around you."
I say in great respect that despite your ancestors having arrived on this continent 20 millennia ago and mine less than 200 years ago, yet the fact is we are both Native Americans. That I descend from the tribes of the Celts, Normans and Germanians has no better bearing on my property rights than yours. I too have my full rights and title in my land diminished under government's criminal covetousness.
As a boy, my Father taught me that 'Government exists for one purpose alone ... to control ... if left to its own designs it will eventually control everything.'
We all suffer government's rapacity and I have every bit as much suspicion as you and your Peoples. This is why ALL Americans ... Red, White, Brown ... must cast off our differences and unite as American brothers and sisters to control government TOGETHER.
For all Peoples of all countries and Nations the world over ... government is our most sly and devious enemy! Only by struggling for unity among ourselves can we restore our sacred rights from their usurpations.
Posted by Bill Ross on 7/13/2010 11:10:32 PM
@Amal3113
"Which tells me that the feds actually own not only us, but our property. This is very scary. "
Correction: THINK they own us. Only if we consent. Otherwise, they find some pretext to destroy. It works only so long as the majority consents. When this is lost, they are history.
AND, apparently, own our leaders. This is why hierarchical (command / control) organization is so DANGEROUS. Subvert the leadership positions and, you control it all, despite the efforts of the lower majority to do the right thing. Dissent? So, long, out of a job and income. Non-survival. At least the Nazis were honest. Dissent and they shot you. Same result, just slower.
Whistleblower protection laws? Hah, hell will freeze over first.
Posted by William3 on 7/14/2010 12:26:06 AM
Thank you for clarifying for me the confusion I had with Robert Reich. His perspectives always seem to give free markets their due and are supportive of worker freedoms. The disguise he uses is to imply that private sector success can only happen if there's a thoughtful, caring government activity leading the way. It's a stealth collectivist position, I would agree.
Reply from the Daily Bell:
He served in the Clinton administration ...
Posted by Clayton on 7/14/2010 4:06:36 AM
Yes, the Government lies. It has lied in the Past and will always lie in the Future. It also steals and kills. It does all this with near impunity, because it is its own Judge and Jury.
The best we can hope for is that it will show reasonable restraint, occasional mercy and generosity, as well as a mindfulness that its own long run interests are not in coincident with the economic health of its subjects. Beyond this, we as grown up rational individuals who have lived in the World, most recognize that just as an Elephant is an Elephant, a Shark is a Shark, and a Crow is a Crow, a Government is a Government.
So what is a Government? Murray Rothbard answered that question succinctly and conclusively when he said that "Government is a group of people who get together and behave in a governmental manner."
Tribal society is a pre-governmental society. It is a natural society where leadership arises spontaneously from actual accomplishments and from the greatness of what value one adds to the lives of the others in the group. In tribal society the perversion of governmental behavior has not yet taken root.
Am I advocating a return to some idyllic past? No! However, I think the contrast is telling and instructive as we advance into the creation ever more complex human relationships.
Government is a negative behavioral paradigm. It is an ultimately maladaptive response to the anxieties that result from the uncertainties we encounter as we move beyond our family, friends and small communities into the larger world of macro social and economic relationships.
Government people are sick people. They not only indulge in their own spiritual self-destruction, but not being content with their own suffocation, they actively seek out the means to destroy the lives of others. They are the supreme criminals in the land. The fate that befell the Native American tribes (and prior slaves) was a foreshadow of the what was to happen to the rest of us. We all now live on a vast Tax Plantation (Reservation). Half our product, if we are lucky enough to be able to produce a product at all, is taken from us against our will and largely used for purposes we abhor.
Will mankind ever move beyond this governmental phase of his social evolution? It is my prayer that he does. But this will not occur until people have de-reified Government and adopt the Rothbardian understanding that I stated above. Then the curtain will be drawn back and we will all see that these supposedly formidable institutions, to which we have been accustomed to look to with awe and for inspiration, are nothing more than collections of frightened self-seeking bullies and incompetents, frauds and parasites.
Then, and only then, can we reject them in the depths of our hearts and be free of the influence of their moral authority. This is what I refer to as the Great Liberation. Out of it comes the end of that particular and peculiar dependency that binds us to them. It is then that we can know to render to them what is theirs (which is all they can force out of us) and reserve the rest of what we might have to render to the higher calling of our true ends and to the establishment of our dignity as human beings.
Reply from the Daily Bell:
"Tribal society is a pre-governmental society. It is a natural society where leadership arises spontaneously from actual accomplishments and from the greatness of what value one adds to the lives of the others in the group. In tribal society the perversion of governmental behavior has not yet taken root."
Most eloquent ... Though we would add that being an "elder" in tribal society was an important factor in leadership.
Posted by Clayton on 7/14/2010 4:53:24 AM
Returning to the original commentary on the Trade War theme, the real economy is dependent on people's incomes and incomes are dependent on production and value adding activities. What I see as I go about my daily life here in one of the richest parts of California is a great sense of uncertainty. There is an underlying quiet in the economy that I have never felt before. It is pervasive. House prices have fallen by 25% in my area. The last great real estate contraction in the early 1980's only saw a contraction of 20% at its worse. But interest rates on 30 year mortgages, if you could find one, were over 13.5% back then. Today, I have seen 30 fixed mortgages advertised at less then 4.5%. And, still the market is soft and continues to fall further. The paper net worth declines of households in the highest spending years demographic of 35 to 55 year olds has been huge. Incomes are down, or not rising. The State government is in the beginning of a financial death knell, with pension and employment obligations that will eventually eat all of its future tax income. Income on savings are nearly non existent. The only hope being floated is that the Chinese will buy more of our stuff and lend us more of their money. How they can do this if they raise the exchange rate on the RMB is beyond me. So, when the illogic of this crazy idea comes crashing down, the trade sabres will be rattling. But, as you point out, this is really a distraction.
I suspect that they are feverishly working a problem to which they have no solution. There is a basic self-contradiction in seeking unlimited power in a world of limited resources. The last period of time, starting in the early 1980's was not only a halcyon time for consumers and investors, but it was also a time of remarkable progress in the creation of World Government. The wind was at their back and they took full advantage of it. However, they sub came to hubris and overreaching. They got careless and made many mistakes. They must de-leverage the system or it will break down.
De-leveraging means taking losses. Someone must be the recipient of this negative event. The losses are immense and many people are going to remember for the rest of their lives the price they had to pay to make the winners whole again. The resentments are going to last lifetimes. This represents a friction going forward. The wind is not longer at their backs. This new crew of power mongers has not had to sail on this kind ocean before. They sail into a tempest and look to me to be buying time.
Due to the steep exponential nature of the self-expanding leverage in the system (compound interest on their obligations), time is becoming increasingly expensive. At a point, they may be forced to act. That is where the great mistakes of History are made. And there have been plenty of them.
This is not the Golden Years we retirees looked forward to.
Posted by Charles Pasley on 7/20/2010 9:04:56 AM
Great article!
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