Economic Solutions

Major Economic Concerns Facing the United States

The United States is facing economic disaster on a scale few nations have ever experienced. Most
people are unaware of the easily observable signs of this emerging crisis. While we persist in our
superpower mentality, we have quietly become a second-class country in many respects.
We no longer manufacture what we need to sustain ourselves, we import much more than we
export, and we are selling off our assets and taking on massive debts to sustain a standard of
living we can no longer afford. Not only is this not the way America became a superpower but it is a
sure way to lose this status.
We are failing even to acknowledge predatory foreign trade practices undermining US industry.
Instead we encourage US manufacturers to design, engineer, and produce in third world markets
like Mexico and China.
Reversing the Trend: Some Suggestions for Action
Access to our markets must be conditioned on a strategic analysis of our own national needs first
and foremost. As things stand, we have handed our sovereign rights to our domestic markets to
international bodies like the World Trade Organization and are committed to disastrous one-way
free trade agreements such as Value Added Tax regulations and NAFTA. We are in a dramatically
different position from emerging low-wage markets. They have everything to gain, and we have
everything to lose. Our policies should carefully protect our wealth and resources rather than simply
provide the lowest consumer cost regardless of the impact on our industries and our workers.
Promoting open markets and economic growth abroad will not alone rebalance Americas trade
accounts and domestic industrial collapse. Our industries have been so disarmed and dismantled
that we now lack the knowledge, capacity, and investment capital to facilitate self-sustaining
production. Dramatic new direction is required.
Key Solutions
Drastic action is needed to restore our economic and financial independence and we must begin
immediately to rebuild our industries. The first essential is that our government should ensure that it
is once again profitable to produce most goods and services in American factories employing
American workers.
We must establish policies that prevent other countries from doing to us what they would never let
us do to them. Specifically,
We must halt the sale of key assets to foreign entities.
We must also close opportunities for foreign corporations to compete unfairly against our home
industries.
We should move immediately to curb our out-of-control spending on unnecessary programs and
initiatives that are being financed by foreign debt.
We should institute policies to cut back our consumption, and particularly consumption of imported
products.
We should look to the way other nations have established industrial superiority over us and try to
copy their best policies.
We should not allow individuals and companies to profit by selling out the Unites States.
No plan to revive our economic and industrial self-sufficiency will be pain-free. Because our
industrial decline has already gone so far it has been proceeding rapidly for more than 30 years
already restoring our industry to world-leading standards of competitiveness will require serious
restrictions on trade and investment flows. Despite indisputable evidence that current policies have
proved grossly inadequate or even counterproductive in the past, our leaders remain committed to a
business-as-usual strategy that is doomed to failure.
The stimulation for new policies must come directly from the broad American public. Voters must use
all reasonable methods to pressure elected officials. Without direct and immediate action, there will
soon be little left to save.
Defense
Our industries, assets, resources, and companies need to be protected from foreign countries and
corporations seeking to gain control of key industrial processes and technologies. This would include
preventing the sale of strategic US domestic companies to foreign companies and
eliminating offshore outsourcing except in extreme circumstances.
Fair Trade
Our trade treaties should protect our country from predatory foreign countries and companies
seeking to weaken or destroy American industry. To that end, tariffs should be erected where
needed and where practical. Experience has shown that it is futile to expect other countries to adopt
our policies on, for instance, fair and free competition.
What we can do is control the impact of their policies on our economy. The most obvious tool we
have is tariffs on their exports. No doubt our tariffs would set off retaliation abroad. We would also
have to accept that demand for US debt would decrease. But in the long run, these negatives would
be much more than offset by positive effects as American entrepreneurs and industrial executives
enjoyed a massive incentive to renew our industrial base.
Domestic Industry Competitiveness
In addition to establishing protection for our industry and country, we should properly align our
companies with the national interest by changing the incentive system within which they operate.
The tax structure should be changed to encourage industrial revival, particularly in industries which
have been hit worst by unfair foreign competition. One simple but highly effective measure would be
to shorten the depreciation schedules on capital investment and research spending.
Meanwhile capital gains taxes should be increased to discourage short-term thinking and reduce the
incentive for entrepreneurs to cash out.
Suggested Solutions to Americas Economic Problems
The following suggestions should be considered as part of a new plan to recover American industry
and economic health:
Appoint an economic minister, a major cabinet post, to develop an industrial policy that would:
1. Create conditions to make manufacturing competitive and profitable through tax changes and
subsidies where needed
2. Protect our economy from foreign predatory practices
3. Create an industrial research and development division similar to government sponsored
National Institute of Health(NIH) in medicine or the Apollo project.
Or, copy Japans very successful system conducted by their Ministry of International Trade &
Industry (MITI) that focuses on needs and development procedures for their new and existing
industries.
Change the tax structure for select industries that are vital to strategic American interests steel,
transportation, cement and others.
Control the balance of trade deficit. The majority of this money leaves our economy and never
returns. The money that does return is the means through which foreign companies are able to
accumulate funds to purchase our best companies.
Amend or get out of our agreement with the WTO. It places our domestic trade laws in the hands of
an undemocratic organization whose decisions have been consistently and unfairly adjudicated.
Eliminate the foreign Value Added Tax (VAT) discrepancy. It unjustifiably subsidizes foreign
exports to us, while simultaneously penalizing our exports to them.
Amend or get out of NAFTA. It incentivizes our companies to move productive facilities out of our
country.
We must analyze every international trade deal by considering if it benefits America; currently most
deals do not.
Use tariffs selectively to prevent the loss of strategic and endangered industries.
Curtail subsidies foreign owned companies receive from state governments and discourage
technology transfer and outsourcing manufacturing that results in the loss of industries.
Prevent the sale of strategic companies or institutions to foreign ownership.
Faster depreciation on capital equipment investment it will lessen the need to outsource
manufacturing.
Free trade has been a disaster. It must be replaced with intelligent trade that prevents foreign
predatory practices and better serves U.S. interests.
OTHER THINGS TO CONSIDER:
We must strive to become competitive; otherwise America must exist on imports with more debt,
American owned companies have lost their edge and, on balance, are not as productive or as
protective as many other foreign companies. This must be corrected.
It must be profitable to manufacture in America otherwise domestic companies will outsource their
manufacturing.
America is losing a major economics war by relinquishing management and control of the economy
through effects of our balance of trade deficit, outsourcing, subsidized insourcing and foreign tax
benefits.
Consider the consequences of losing whole industries such as publishing, autos, movies, steel,
electronics, clothing and how it impacts
national security
and living standards.
We need to analyze and correct:
1. Negative effects of WTO rules and decisions regarding their impact on our economy.
2. Violations of WTO rules practiced by other countries to our detriment
3. Restrictions imposed by foreign governments on American exporting companies.
The Evolving Global Economic
Crisis
by JACK RASMUS
Much like a perfect storm at sea is the consequence of three converging bad weather
fronts, three significant global economic trends have begun to intensify and converge in
recent months: (1) a slowing of the China economy and a parallel growing financial
instability in its shadow banking system; (2) a collapse in emerging markets currencies
(India, Brazil, Turkey, South Africa, Indonesia, etc.) and their economic slowdown; (3) a
continued drift toward deflation in the Eurozone economies, led by growing problems in
Italy and economic stagnation now spreading to France, the Eurozones second largest
economy. The problems in these three critical areas of the global economy, moreover,
have begun to feed off of each other.
Despite tens of trillions of dollars injected into the global economy since 2008 by central
banks in the US, UK, Europe, and, most recently Japan, real job creating investment is
slowing everywhere globally. The massive liquidity (money) injections by central banks
have either flowed into global financial markets speculation (stocks, bonds, derivatives,
futures, options, foreign exchange, funds and financial instruments of various kinds),
hoarded as cash on bank and non-bank corporate balance sheets, hidden away in dozens
of offshore tax shelters from Cayman islands to the Seychelles, or invested in emerging
markets like China, India, Brazil, Indonesia, Turkey, and elsewhere.
The primary beneficiaries of these central bank money creation policies have been
global very high net worth investors, their financial institutions, and global corporations
in general. According to a study in 2013 by Capgemini, a global business consultancy,
Very High Net Worth Investors increased their investable wealth by $4 trillion in 2012
alone, with projected further asset growth of $4 trillion a year in the coming decade. The
primary financial institutions which invest on their behalf, what are called shadow
banks (i.e. hedge funds, private equity firms, asset management companies, and dozens
of other globally unregulated financial institutions) more than doubled their total assets
from 2008 to 2013, and now hold more than $71 trillion in investible assets globally.
This massive accrual of wealth by global finance capitalists and their institutions
occurred in speculating and investing in offshore financial and emerging market
opportunitiesmade possible in the final analysis by the trillions of dollars, pounds,
Euros, and Yen provided at little or no cost by central banks policies since 2008. That
is, until 2014.
That massive tens of trillions of dollars, diverted from the US, Europe and Japan to the
so-called Emerging Markets and China is now beginning to flow back from the
emerging markets to the west.
Consequently in turn, the locus of the global crisis that first erupted in 2008 in the U.S.,
then shifted to Europe between 2010-early 2013, is now shifting again, a third
time. Financial and economic instability is now emerging and deepening in offshore
markets and economiesand growing increasingly likely in China as well.
(The following analysis of China today is an excerpt from the authors forthcoming
article The Emerging Global Economic Perfect Storm, that will appear in the March
print issue of Z Magazine, where the Eurozone and Emerging Markets economies are
assessed as well. For the complete article, see Z Magazine or the authors
website,www.kyklosproductions.com/articles/html.)
Chinas Growing Financial and Economic Instability
Prior to the 2008 global financial crisis and recession, Chinas economy was growing at
an annual rate of 14 percent. Today that rate is 7.5 percent, with the strong possibility of
a still much slower rate of growth in 2014.
China initially slowed economically in 2008 but quickly recovered and grew more
rapidly by 2009unlike the U.S. and Europe. A massive fiscal stimulus of about 15
percent of its GDP, or 3 times the size of the comparable U.S. stimulus of 2009, was
responsible for Chinas quick recovery. That fiscal stimulus focused on government-
direct investmentin infrastructure, unlike the U.S. 2009 stimulus that largely focused
on subsidies to states and tax cuts for business and investors. In 2007-08 China also had
no shadow banking problem to speak of. So the expansionary monetary policies it
introduced, along with its stimulus, further aided its rapid recovery by 2010. Since 2012,
however, China has been encountering a growing problem with global shadow banks
that have been destabilizing its housing and local government debt markets. At the same
time, beginning in 2012, the China non-financial economy, including its manufacturing
and export sectors, has been showing distinct signs of slowing as well.
On the financial side, total debt (government and private) in China has risen from 130
percent of GDP in 2008 to 230 percent of GDP, with shadow banks share rising from 25
percent in 2008 to 90 percent of the totals by 2013. So shadow banks share of total debt
has almost quadrupled and represents nearly all the debt as share of GDP increase since
2008. Shadow banks have thus been the driving force behind Chinas growing local debt
problem and emerging financial fragility.
Much of that debt increase has been directed into a local housing bubble and an
accompanying local government debt bubble, as local governments have pushed
housing, new enterprise lending, and local infrastructure projects to the limit. Local
government debt was estimated in 2011 by China central government at $1.7 trillion. It
has grown in just 2 years to more than $5 trillion by some estimates. Much of that debt
is also short term. It is thus highly unstable, subject to unpredictable defaults, and could
spread and destabilize a broader segment of the financial system in Chinamuch like
subprime mortgages did in the U.S. before.
A run-up in private sector debt is now approaching critical proportions in China. A
major global instability event could easily erupt there, in the event of a default of a bank
or a financial product. In some ways, Chinas situation today increasingly appears like
the U.S. housing and U.S. state and local government debt markets circa 2006. China
may, in other words, be approaching its own Lehman Moment. That, in fact, almost
occurred a few months ago with financial trusts in China. Fearing a potential default by
the China Credit Trust, and its spread, investorswere bailed out at the last moment by
China central government. According to the Wall St. Journal, the event exposes the
weakness of the shadow banking system that has sprung up since 2009.
Growing financial instability in China in its local markets is thus a major potential
problem for China, and for the global economy as well, as both China and the world
economy begin to slow in 2014.
Early in 2013, China policymakers recognized the growing problem of shadow banks
and bubbles in its local housing and investment markets. Speculators had driven
housing prices up by more than 20 percent in its major cities by 2013, from a more or
less stable 3-5 percent annual housing market inflation rate in 2010. China leaders
therefore attempted to rein in the shadow banks in May-June 2013 by reducing credit
throughout the economy. But that provoked a serious slowdown of the rest of the
economy in the spring of 2013. Politicians then returned on the money spigot quickly
again by summer 2013 and added another mini-fiscal stimulus package to boost the
faltering economy. That stimulus targeted government spending on transport
infrastructure, on reducing costs of exports for businesses, and reducing taxes for
smaller businesses. The economy recovered in the second half of 2013.
By early 2014, the housing bubble has again appeared to gather steam, while the real
economy shows signs once again of slowing as well. In early 2014 it appears once again
that China policymakers intend to go after its shadow bank-housing bubble this spring
2014. That will most likely mean another policy-initiated slowing of the China economy,
as occurred in the spring of 2013 a year earlier. But thats not all. Overlaid on the
financial instability, and the economic slowdown that confronting that instability will
provoke, are a number of other factors contributing to still further slowing of the China
economy in 2014.
Apart from the economys recent fiscal stimulus and its overheated housing markets,
Chinas other major source of economic growth is its manufacturing sector, and
manufacturing exports in particular. And that, too, is slowing. The reasons for the
slowing in manufacturing and exports lie in both internal developments within the
Chinese economy as well as problems growing in the Euro and Emerging
market economies.
China is experiencing rising wages and a worsening exchange rate for its currency, the
Yuan. Both are raising its manufacturing costs of
production
and in turn making its exports less competitive. Rising costs of production are even leading to
an exodus of global multinational corporations from China, headed for even cheaper cost
economies like Vietnam, Thailand, and elsewhere.
The majority of Chinas exports go to Europe and to emerging markets, not just to the
U.S. And as emerging market economies slow, their demand for China manufactured
goods and exports declines. Conversely, as China itself slows economically, it reduces its
imports of commodities, semi-finished goods, and raw materials from the emerging
market world (as well as from key markets like Australia and Korea).
Similar trade-related effects exist between China and the Eurozone. China in fact is
Germanys largest source for its exports, larger even than German exports to the rest of
Europe. So if China slows, it will require fewer exports from Europe, which will slow the
already stagnant Eurozone economies even further. Similarly, as Europe stagnates, it
means less demand for China goodsand thus a further slowing of Chinas
manufacturing. In other words, Chinas internal slowdown will exacerbate stagnation
and deflation in Europe, as well as contribute to an even faster economic slowing now
underway in the emerging marketworld.
Slowing will result as well from government policies designed to structurally shift the
economy to a more consumption driven focus. That shift to consumption will begin in
earnest following the Community Partys March 2014 meeting. But consumption in
China represents only 35% percent of the economy (unlike 70 percent in the U.S.), while
China government investment is well over 40 percent of GDP. And it is not likely that
consumption can grow faster enough to offset the reduction in investment, at least not
initially.
So a long list of imminent major developments and trends in China point to a slowing of
growth in that key global economy of almost $10 trillion a year. What happens in China,
the second largest economy in the world, has and will continue to have a major negative
impact on an already slowing Emerging Markets and a chronically stagnant Eurozone.
How the U.S. economy responds to the emerging global perfect storm will prove
interesting, to say the least. But with evidence of US slowing in housing, manufacturing,
job creation, auto and other retail sales, and with real family median income in decline
and the real likelihood of further spikes in food and gasoline prices in the months
immediately ahead, the perfect storm emerging offshore do not portend well for the
still fragile US economy now in its fifth year of below average, stop-go economic
recovery.
Global Financial Crisis What caused it
and how the world responded

Posted by Justine Davies on 11/04/2014
The credit crunch
The global financial crisis (GFC) or global economic crisis is commonly believed to have begun in
July 2007 with the credit crunch, when a loss of confidence by US investors in the value of sub-
prime mortgages caused a liquidity crisis. This, in turn, resulted in the US Federal Bank injecting a
large amount of capital into financial markets. By September 2008, the crisis had worsened as stock
markets around the globe crashed and became highly volatile. Consumer confidence hit rock bottom
as everyone tightened their belts in fear of what could lie ahead.

The sub-prime crisis and housing bubble
The housing market in the United States suffered greatly as many home owners who had taken out
sub-prime loansfound they were unable to meet their mortgage repayments. As the value of
homes plummeted, the borrowers found themselves with negative equity. With a large number of
borrowers defaulting on loans, banks were faced with a situation where the repossessed house and
land was worth less on todays market than the bank had loaned out originally. The banks had a
liquidity crisis on their hands, and giving and obtaining loans became increasingly difficult as the
fallout from the sub-prime lending bubble burst. This is commonly referred to as the credit crunch.
Although the housing collapse in the United States is commonly referred to as the trigger for the
global financial crisis, some experts who have examined the events over the past few years, and
indeed even politicians in the United States, may believe that the financial system was needed better
regulation to discourage unscrupulous lending.

The global financial crisis entered a new phase
The collapse of Lehman Brothers on September 14, 2008 marked the beginning of a new phase in
the global financial crisis. Governments around the world struggled to rescue giant financial
institutions as the fallout from the housing and stock market collapse worsened. Many financial
institutions continued to face serious liquidity issues. The Australian government announced the first
of its stimulus packages aimed to jump-start the slowing economy.
The U.S. government proposed a $700 billion rescue plan, which subsequently failed to pass
because some members of US Congress objected to the use of such a massive amount of
taxpayer money being spent to bail out Wall Street investment bankers (who were believed by some
to be one of the causes of the global financial crisis).
By September and October of 2008, people began investing heavily in gold, bonds and US dollar or
Euro currency as it was seen as a safer alternative to the ailing housing or stock market.
In January of 2009 US President Obama proposed federal spending of around $1 trillion in an
attempt to improve the state of the financial crisis. The Australian government also proposed another
stimulus package, pledging to give cash handouts to tax payers, and spend more money on longer-
term infrastructure projects.

Australias response to the global financial crisis the first stimulus package
Australian then-Prime Minister, Kevin Rudd, and then-Treasurer Wayne Swan delivered their first
budget in response to the global financial crisis, with the main objective being to fight inflation a
major problem in the local economy at the time.
In October 2008 the Rudd government announced that it would guarantee bank deposits. With the
economy facing a recession, an economic stimulus package worth $10.4 billion was announced.
This included payments to seniors, carers and families. The payments were made in December
2008, just in time for Christmas spending, and retailers predominantly reported strong sales.
The first home buyers grant was doubled to $14,000 for existing homes, and tripled to $21,000 for
new homes.
The automotive industry was also given a helping hand, as several major lenders had withdrawn
from the market completely, leaving banks to fill the gaps in lending.

The crisis continued a second stimulus package was announced
A second, even larger economic stimulus package was announced by the Australian government in
February 2009, with $47 billion allocated to help boost the economy. This included:
$14.7 billion for schools
$6.6 billion for 20,000 new homes
$3.9 billion to insulate 2.7 million homes
$890 million for road repairs and infrastructure
$2.7 billion in small business tax breaks
$12.7 billion for cash bonuses: $950 for every Australian taxpayer who earned less than
$80,000, to be paid out in March and April 2009
Australia in the years since the GFC began.
Many experts had commented that the Australian economy was somewhat more insulated than
other countries from the sub-prime issues surrounding the United States and Australia did not suffer
as badly as some nations. Nevertheless, we were not immune. Click hereto read an analysis of
Australia after the GFC.
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