White House Economic Conference Misreads Current Economic Conditions

The White House Conference on the Economy was held December 15-16 to highlight domestic priorities for the second term of President George W. Bush. Areas of concern were clearly marked out: tax reform, lower health care costs, tort relief, job creation, and privatization of Social Security. Unfortunately, little of substance was discussed. Instead, the closed, invitation-only event was a celebration of the Bush administration’s first term accomplishments (and the president’s re-election) and a listing of principles that it wants to govern the wide range of changes that the White House hopes to push through the 109th Congress.

Vice President Dick Cheney opened the conference by touting the low unemployment, low inflation, and high growth rates of the last year. The economy was entering a recession in 2000, and took another hit from the 2001 terrorist attacks. The Bush response has been to pour huge amounts of stimulus into the economy. As Cheney noted, there have been four tax cuts in four years and the Federal Reserve took interest rates down to zero in real terms. There has also been an upsurge in Federal spending.

The question is whether the economy has returned to self-sustained growth or is merely lurching forward under these stimulants. The Bush Administration clearly believes that the business cycle is back on the upswing. But structural problems, such as the record trade deficits (estimated to hit $635 billion this year) that have pounded industry, do not appear on administration radar screens.

Martin Feldstein, who ran the Council of Economic Advisors under President Ronald Reagan, stated that weakness is now “all gone” from the economy. There is no need to worry about current conditions, so policy can now shift to long-term objectives. Feldstein’s priorities are to boost domestic savings and “most important” to reform Social Security. The two are related. Allowing younger workers to invest part of their Social Security contributions into private investment funds would generate capital as opposed to the current “pay as you go” system where SS revenue gets “raided” to fund general government spending.

Feldstein made a very strange argument, however, relating capital formation to trade. He said that if the United States could generate more capital at home, it would be less dependent on foreign capital – then it could cut the trade deficit. This is the backward reasoning often heard by those who see the problem of the trade imbalance but cannot bear to rethink their devotion to “free trade” theory. In their minds, it is the inflow of foreign capital that creates the trade deficit rather than the other way around. This makes the trade deficit a result, not a cause, and thus removes it from the scope of policy.

Such newspeak defies logic. It is the trade deficit that has to be financed, and the trade deficit that sends hundreds of billions of dollars abroad that have to be recycled back to the U.S. economy. The trade deficit is the cause of the nation’s looming financial difficulties and any solution must be aimed at eliminating it.

Later, Feldstein seemed to have righted himself when he argued that Europe and Japan needed to boost their domestic demand to replace their dependence on exports so as to reduce the U.S. deficit. But how does Washington convince foreign powers to change policies that have been so beneficial to them? Twenty years of pleading has accomplished nothing. American leaders need to enact policies that place the control of the nation’s destiny in American hands. We cannot control what others do, but we can control what we do—and we had better start.

Brian Wesbury, a private sector economist who is also an adviser to the Federal Reserve Bank of Chicago, claimed that because U.S. exports have been rising, we are competitive in world markets. But he made no mention of imports or the trade balance. This is like saying we should be proud of the Washington Redskins football team because they scored 17 points last week—but without mentioning that the Philadelphia Eagles scored 20 points and won the game.

The October trade deficit set a one-month record of $55.5 billion. Exports were up $600 million, but imports were up $5.1 billion, or nearly nine times as much. With imports overall running more than 50% ahead of exports, the notion that the United States can export its way out of the trade deficit is unrealistic. Where are American producers going to find new, accessible markets worth $635 billion that they can capture in the face of foreign rivals? There is only one place – the American market that has been lost to imports.

But there was no policy discussion at the conference aimed at taking back lost markets, either at home or abroad. Instead, whenever anything trade related came up, it was always an unintended consequence of other topics. Trade was not a designated topic at the conference, but the trade problem looms so large that even those who wish to ignore it can’t.

One tactic is to mislead the audience. Kevin B. Rollins, CEO and President of Dell, gave a stunning performance. He proclaimed that all the Dell computers sold in the United States were “made” in the United States. “We don’t outsource our computers,” he said, turning towards the audience and raising his voice. But Dell does outsource most everything that goes into its computers. Dell computers are assembled in Austin, Texas, but from some 4,500 parts sourced from hundreds of suppliers scattered around the world, from Malaysia to Korea but clustered especially in Taiwan and China.

Stephen Friedman, Director of the National Economic Council, made the mistake of asking a question without knowing the answer in advance. He asked Jack Stack, CEO and President of SRC Holding, how much of his production was exported. Friedman clearly expected a high number to confirm the administration’s claim that small and medium sized manufacturers are heavily into world trade in a positive way. SRC Holding produces after-market auto, truck, and heavy equipment parts. Stack was been hailed by Fortune magazine as one of the ten best minds in small business. His reply to Friedman was that SRC exported only 2% of its output. He then volunteered that if SRC were to go into foreign markets, it would have to set up factories overseas rather than export from American factories. Friedman did not respond to Stack’s comment, but quickly shifted to someone else on a different topic.

Treasury Secretary John Snow talked about providing American entrepreneurs with capital and a more business-friendly tax and regulatory system. He repeated the standard Bush administration line (also a favorite of President Bill Clinton) that Americans can compete with anyone in the world, as long as there is a level playing field. President Bush sounded this same theme in his closing remarks to the conference, saying the role of government was “to create an environment in which the entrepreneurial spirit is strong and vibrant.”

But the proposals floated by the Bush administration at the conference, while positive as far as they went, fell short of what it will take to give American business what it needs to defeat foreign-based rivals.

Snow might do well to acquaint himself with the work of the first U.S. Treasury Secretary, Alexander Hamilton. The eminent historian Richard B. Morris observed in his biography of Hamilton that his “brand of conservatism meant holding to the tried and proven values of the past, but not standing still....He could scarcely be expected to allow government to stand inert while the economy stagnated or was stifled by foreign competition.” Instead, Hamilton strove to give American firms and entrepreneurs every advantage at home and abroad.

The Bush administration is still trying to play catch up, seeking ways to offset foreign advantages rather than create winning strategies for the United States. Near the close of his speech to the conference, President Bush noted that “great economies do not get weak all at once. They get slowly eaten away.” This is absolutely true, but during his watch, and that of his predecessor, one sector of the American economy after another had been eaten away by foreign rivals, often in very large bites. And the foreign appetites are still not satisfied.

Bottom Line: We are buying goods and selling investments. There is no trade imbalance.

False. You confuse currency accounts with trade. Trade is clearly and badly imbalanced if currency accounts need to be papered over with these "investments". Investments in what, a sinking ship? There is frankly, no "investment" in a T-Bill. It is DEBT...backed up by...and paid for...by the American Taxpayer. Unless the Govt. merely runs the printing presses, and inflates the currency, depreciating its value to repay the unwisely sold treasury notes. In any event, it is particularly unwise to be selling your country's "mortgage" to these particular customers:

Reprinted from NewsMax.com

War With China

Charles R. Smith
Friday, Nov. 21, 2003

Battleground America

China has declared a global war. China has openly named its foes, warning them to come into line or face terrible retribution.

China's recent threat against Taiwan is only one of many opponents that China is prepared to destroy. China openly warned Taiwan that the red state will re-unite with its long-lost brothers and sisters even if the People's Liberation Army has to kill everyone on the island.

"If the Taiwan authorities collude with all splittist forces to openly engage in pro-independence activities and challenge the mainland and the one-China principle, the use of force may become unavoidable," said Wang Zaixi, Chinese vice minister of the Taiwan Affairs Office.

According to Wang, Taiwan will "pay a high cost if they think we will not use force."

The openly belligerent warning is not expected to help global peace. Chinese efforts to shut down Taiwan include threatening to veto the U.N. peacekeeping force for Liberia unless the Liberian government ejects Taiwanese diplomats. Liberia and the U.N. caved in to Beijing's threats.

The actual threat of force is aimed not just at Taiwan but also at its two largest supporters, Japan and the United States. Yet Beijing's growing war machine will not encourage a policy change in Tokyo or Washington except toward more defense spending.

The last similar threat was made by the second in command of the PLA itself. Gen. Xiong Guangkai told Western reporters that China was prepared to vaporize Los Angeles if the U.S. backed Taiwan.

The most recent threat by Beijing will serve one purpose: It is certain to drive Taiwan's nationhood campaign and its nuclear weapons program into high gear.

China at War With Itself

The fact remains that China is at war with itself. The democracy in Taiwan represents but one of many threats against the brutal communist regime in Beijing. The Chinese Communist party, unable to tolerate any freedom, is at war against its own people, jailing millions of political dissenters in the Lao Gai prison camps.

For example, Chinese cyber-dissident Luo Yongzhong was recently given a harsh jail sentence for subversion. Luo's crime was to post articles on the Internet "attacking the socialist system." Luo published more than 150 articles on current events, including some direct criticism of the Communist government. Lou was given three years in jail for his efforts.

The war against the Chinese people waged by the Communist Party is most evident in its campaign against the Falun Gong. Since 1999, when the party outlawed the spiritual practice, over 100,000 Falun Gong members have been sent to Lao Gai camps.

More than 500 Falun Gong members have been sentenced to prison terms of up to 18 years. Over 1,000 have been forced into mental hospitals, an act condemned by the World Psychiatric Association.

At least 800 Falun Gong members have died while in police custody. Torture and brutal treatment are the norm. Chinese government sources inside China calculate that the actual number of Falun Gong members killed by the police exceeds 1,600.

The Wall Street Journal's Ian Johnson won a Pulitzer Prize with his stories documenting Chinese government abuses, including the case of Chen Zixiu, a 58-year-old woman who was beaten and tortured to death for refusing to renounce Falun Gong.

China at War in America

The war against the Falun Gong does not end at the Chinese border. For those of you who feel safe in America, be warned: The Chinese Communist Party is at work here inside our nation.

Our Constitution is the founding principle and the core of our freedom, including the freedom of speech and freedom of religion. However, Chinese intelligence, military and political officials have already engaged in documented efforts to deny U.S. citizens their rights here inside America.

One case involves Randy Voepel, the mayor of Santee, Calif.

"I received a very strong, very intimidating letter from the Consulate of the Communist Chinese," stated Mayor Voepel during a 2002 interview.

"Dear Mayor, the purpose that I am writing to you today is to discuss with you a matter which is of great importance and grave concern to the Chinese Government and its relations with the United States," stated the letter to Mayor Voepel.

"It is our hope that your City, by proceeding from the overall friendly relations between China and United States and by taking your citizen's interests into consideration, will earnestly consider the request from the Chinese side that no recognition and support in any form should be given to the Falun Gong cult organization, including designating a 'day' or a 'week' to Falun Gong, Falun Dafa or its leader," continued the letter from the Chinese government.

"They came up with a list of things that they either didn't want us to do for the Falun Gong, or things that they wanted us to do to the Falun Gong," stated Mayor Voepel flatly.

'Chilled Me to My Bones'

"I must tell you I have no connection at all to the Falun Gong. From a mayor's viewpoint, these people are a little exercise group, and I was very surprised a national government of the stature of the Chinese People's Republic would go to the length of contacting all the mayors in California. It was just very unsettling to me. It chilled me to my bones."

Mayor Voepel is not the only U.S. official to get a harsh letter, filled with threats, from the Chinese government. New Jersey Congressman Donald Payne was asked by Chinese Embassy officials to withdraw the Falun Gong notice in the Congressional Record.

The mayors of Saratoga and Alhambra, Calif., Seattle, Baltimore and St. Louis all have been asked directly by Chinese Consulate officials to rescind proclamations given in support of Falun Gong.

In February 2001, the Chinese Consulate General of Los Angeles asked Pasadena city officials to make the Pasadena Civic Auditorium off-limits to Falun Gong practitioners.

According to the general manager, Rick Barr: "A day after they called the Pasadena Civic Auditorium, the Consulate dropped off anti-Falun Gong pamphlets. ... What I told them was [Falun Gong] has signed a contract for the auditorium and we do not discriminate based on beliefs."

While many local officials have rebuffed the communist pressure, some have given in without a fight, including the mayors of San Francisco, Seattle, Baltimore and Los Angeles – all of whom in 1999 rescinded proclamations they had issued for the Falun Gong.

China's war against the Falun Gong on U.S. soil not only runs counter to American principles, it is also illegal. The activities of the Chinese government constitute a crime against our homeland, our cherished Constitution and our sovereignty.

The Chinese war against the tiny democracy Taiwan, the Falun Gong, Tibetan monks and cyber-dissidents has begun. The war is one of tyranny against freedom. It has spilled over the vast Pacific Ocean and landed right here in Main Street, USA.

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