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View Diary: Deficit is shrinking at its fastest rate since WW2 (12 comments)

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  •  Booming economy or high inflation don't seem to (1+ / 0-)
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    be a problem any time soon.

    •  soon? (2+ / 0-)
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      skillet, carver

      Because the US dollar is the world reserve currency it takes longer for money printing to have an impact. But talking to folks who do business in China ... you can kiss ultra cheap Chinese crap goodbye ... in other words the continual drop in prices we have seen the last decade is likely done and the next move will be higher (wages there are going up in the 15-20% a year range and this eventually gets passed on).

      And .. without reasonable growth the deficit can not come down fast enough to offset the impact of SS and interest costs.

      Ultimately the key problem is that almost nothing has been done to actually reform the economy .. the approach seems to be to try to get back to where we were (which was unsustainable). Instead we need real reform with real tax cuts (cut the defense tax, the heath care insurance tax, the drug war tax, the financial vampire tax  ... all things that tax the ability of the economy to grow in a sustainable way)

      Those who make peaceful revolution impossible will make violent revolution inevitable. - JFK

      by taonow on Thu Nov 22, 2012 at 04:47:05 AM PST

      [ Parent ]

      •  Oh, wow. (0+ / 0-)

        Talk about dinosaur economics.  Let's start with one thing: the China Trade, as it has been since the settlement of the Americas, is dead.  You can kiss buying things in China for a fraction of their value goodbye.  The US and Great Britain are no longer able to impose trade terms by gunboat.  The Chinese populace is no longer starving and willing to work at slave wages for pittance.  The Chinese government is no longer so weak vis-a-vis international corporations that it must perforce give them whatever they ask for.  And put on an equal footing, the Chinese are shrewd bargainers who will use every bit of leverage they have to make trade terms to their own profit.

        US-China trade passed the point where it was profitable for the US as a whole several years ago and has already become a net loss.  Individuals at the tops of American merchant and finance hierarchies are still making money, but they're now taking their slice from a pie that belongs to the Chinese.  Because of this, damping down trade with China will actually produce a net structural benefit for the US, especially if that decrease comes from monetary issues that also render US currency less desirable in low-wage nations such as Viet Nam, Burma, and Indonesia.  Add in the increasing cost of transportation, and manufacturing will need to move back to America, closer to its end markets.

        This will cause wages to rise.  We obviously disagree on the value of rising wages.  Classic economists see rising wages as falling profits, and as they identify with the financiers whose purpose is to extract excess value from labor, they see this as Bad.  However, 90% or more of the population are wage-earners, and therefore for them, higher wages are better.  Yes, higher wages will lead to higher prices.  But with higher wages, workers will be able to afford higher prices, whereas with low wages, they have been less able to afford LOW prices, subsisting instead on credit (which has also lined the pockets of the financial class to the detriment of workers).

        High wages are very, very good for everyone except the Mitt Romneys of the world who wander woefully looking for a "decent servant" at the vanishingly low prices they are willing to pay.  In addition, a tightening of the labor market may put an end to the ridiculous excesses of corporate intrusion into workers' lives.  Finally, a reduction in corporate profits provides less cash to purchase political and judicial favors.

        Meanwhile, higher wages pay for -- guess what? Social Security and Medicare, which are financed by payroll taxes.  Yes, let's reduce trade with China and increase taxes on the financial sector and its wealthiest executives!  Higher wages -- in both absolute and proportional terms -- are exactly what this economy needs.

        •  not sure (0+ / 0-)

          Not sure where we disagree.

          Yes, China will suffer more than the US in the coming trade rebalancing (just as the US suffered more than the UK in the 1930's), as the one with the trade surplus has more to lose. The US will benefit from work moving back to the US.

          But ... there are major structural problems in the US economy that will inhibit growth going forward (something that will be very costly)... and these have not been addressed. These include over expenditures on defense (waste), health care (incredibly inefficient), and legal bills. All of these act as taxes (drags) on the efficiency of the economy. Without working on these any growth will be limited.

          Those who make peaceful revolution impossible will make violent revolution inevitable. - JFK

          by taonow on Thu Nov 22, 2012 at 12:01:56 PM PST

          [ Parent ]

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