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Think if credit cards worked that way. Each month you are sent a bill. The only thing on it is your minimum payment information. There's no balance information on it at all. Can you imagine?
I'm being serious here. There's a deficit in cumulative trade deficit discussions and I can prove it. I went looking for more information on it today and it took me right to my own blog! Do I look like some sort of expert on the topic?
Google: "cumulative trade deficit"
There I am at #4 and all I did was mention it the one time. How is that even possible? (Note: This post will probably alter the results of the search thereby increasing my market share of "cumulative trade deficit" concerns!)
Spending Power vs. Trade Deficit
Is the cumulative trade deficit like the crazy aunt that nobody is supposed to talk about?
She's older now but still thinks she's fine.
Maybe she was fine when she was young, but she's not young no more.
That's us! We have a crazy aunt economy now.
So let's see what the top link was for "cumulative trade deficit". It was written by a Ph. D. MBA. Maybe he knows something we don't.
The Trade Deficit and the Fallacy of Composition
The U.S. economy will collapse. Repeat. The U.S. economy, and probably the world economy, will collapse because of the United States' exponentially-increasing trade deficit.
Keep in mind that it was written in 2005. This isn't hindsight analysis based on recent events. He predicted it. I turned bearish in 2004 and I am more bearish now than I was then. Our long-term situation continues to erode.
How can anyone in their right mind possibly think this economic model is sustainable? You think things are bad now? Just wait until we eventually lose our "free lunch". We export paper dollars and we get back cheap goods and not-so-cheap oil. As hard as it is to believe, life is actually good right now. How could we possibly ask for a better deal?
In my opinion, the eventual failing of such a model will have a huge impact on most of the world's population, from homeowners to stock investors to retired savers to the unemployed, just as the Great Depression did.
It would be easy to say that hyperinflation/stagflation is coming when looking at such a model, especially for those of us who live in the United States. I did call myself Stagflationary Mark after all. There's certainly a decent chance.
I don't think it is that simple though. This is similar to the economic model of the Great Depression. The world was built on the exponential growth of production capacity then too. When the exponential growth in demand is no longer there to meet it we could just as easily slide into an ongoing deflationary spiral.
You think China is safe? Just look at that chart. Their economy depends on exponential growth that is based on the exporting of goods in exchange for paper dollars. That's not a sign of strength. It's one of desperation. When that began to fail, they opted for a housing bubble of epic proportions to plug the hole. In my opinion, it is making the situation even more dire.
13 comments:
Now Mark, I am going to add the graphic and this post to tonights blog, but I am not sure, are coming over to the darkside????
Say it aint so!
Nature abhors a vacuum. What if its all a vacuum?
GYSC,
My favorite author is H.P. Lovecraft. Have no fear. I am always on the darkside, lol.
I recall that the people went about with pale and worried faces, and whispered warnings and prophecies which no one dared consciously repeat or acknowledge to himself that he had heard. A sense of monstrous guilt was upon the land, and out of the abysses between the stars swept chill currents that made men shiver in dark and lonely places. - H.P. Lovecraft
He was no doubt speaking of the cumulative trade deficit. ;)
The key here is that everyone is desperate. I don't think we actually get hyperinflation unless only we are desperate.
Who is the most pathetic? Who is the most desperate?
1a. We send our dollars overseas in hopes that we can convince the Chinese to send us cheap toasters in exchange?
1b. We kindly ask them to think of our dollars as slightly less valuable than they seem to think they are? We think their goods are too cheap and would like them to revalue their currency to compensate?
2a. They send their cheap Chinese toasters overseas in hopes that they can convince us to give them our precious paper dollars?
2b. They kindly tell us that they will not sell us goods at higher prices? They simply can't stand the thought of their export business collapsing?
This is one messed up global economy. We're all desperate for solutions. I'm not at all convinced that we are the most desperate though. The failing of a Chinese economic miracle story could prove deadly for those in power over there.
This is not a big deal if you consider China and the oil producers are permanently integrated into the USD trading bloc. We'll all meet in the middle someday.
Our money is their money, and mi casa es Su's.
http://en.wikipedia.org/wiki/Triffin_dilemma
Fred,
I think we will meet in the middle someday. It will be very painful but it might not be apocalyptic painful.
From my post...
"...because of the United States' exponentially-increasing trade deficit."
It could also be said...
"...because of China's exponentially-increasing trade surplus."
Times are changing though. I read that China just had its first trade deficit since 2004. That's a big unwelcome change for them. Heading into our Great Depression we were the world's manufacturer too and then our customers dried up.
You think things are bad now? Just wait until we eventually lose our "free lunch".
Stag,
That's how I see it. The propaganda deludes the sheeple into believing that things can't get any worse. I don't see how they can get any better. :(
Global depression is inevitable. The Fed and the Government cannot manage an economy. Worse still, the corruption and incompetence at the Fed/Gov't ensure that their meddling will make matters worse for the majority.
One more thought. Our massive foreign indebtedness makes our dire situation almost impossible to fix. If were simply a domestic matter, we could more easily right our ship given an honest and equitably minded leadership.
I completely agree, Mark. The global economy as it is currently constructed is not sustainable. In fact, it's deleterious to the wealth of nations.
There's an intersting book on this exact subject, titled Free Trade Doesn't Work.
http://www.amazon.com/Free-Trade-Doesnt-Work-Replace/dp/0578048205/ref=sr_1_1?ie=UTF8&s=books&qid=1275663801&sr=1-1
What "free" trade does is hollow out the economies of the contries that practice it. Thus, the decimation of our manufacturing capacity and the destruction of our middle class.
But this situation is even more dire than that, with several countries practicing mercantilism. Combine that with our growing debt problem, add rampant fraud in the financial sector and overall government incompetence, and you have all the makings of a catastrophic economic collapse.
What we are witnessing is the painful death of democratic socialism. It's been decades in the making, but the end will come quick. As Shakespeare wrote, "When troubles come, they come not single spies but in battalions."
"Heading into our Great Depression we were the world's manufacturer too and then our customers dried up."
Mark,
With China currently the world's manufacturer, do you see them rising up out of the coming collapse to take center stage, not unlike we did after the Great Depression?
Any thoughts?
Great comments everyone.
watchtower,
Personally, I have a real hard time embaracing the Chinese economic model long-term. They do too or they would not feel the need to censor their own population's thoughts.
Put another way, unlike us even during The Great Depression, I do not see China as the land of oppurtinity. I have absolutely no desire to move to China and compete directly with a billion other workers for food while simultaneously being too scared of their government to complain publicly.
I am embeeding this tonight but a preview:
Here was the last leg of the recovery after the jobs report:
http://www.youtube.com/watch?v=PEDNx-JWuis
LOL!!!!!!!!!!
GYSC,
Hahaha!!!!!
Thanks for your reply Mark.
Your answers are always rooted in common sense, which in my experience is not really that common.
This was an excellent post in my opinion.
watchtower,
Here's a bonus thought.
I was looking at portable air conditioners (our previous one died) at Costco and an Asian gentleman was too.
It was interesting to hear him say that this particular model looked pretty good BUT we should probably factor in that it is made in China.
I wonder if things like that were said about American goods heading into our Great Depression. I kind of doubt it.
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