America's Superpower Status Coming to an End

Newsmax.com ^ | 3/1/05 | Paul Craig Roberts

[beyond the sea]

The U.S. economy is headed toward crisis, and the political leadership of the country – if it can be called leadership – is preoccupied with nonexistent weapons of mass destruction in the Middle East.

The U.S. economy is failing. The afflictions are serious. They could be fatal even if diagnosed and treated. America is losing the purchasing power of its currency and its ability to create middle-class jobs. Story Continues Below

The dollar's sharp decline and projections of continuing trade and budgetary red ink are undermining the dollar's role as reserve currency. A number of central banks have announced that they will be diversifying their currency holdings and will not be buying dollars at the same rate as in the past. This will put more pressure on the dollar. At some point, the flight will begin. Instead of buying fewer dollars, central banks will sell dollars, hoping to get out before the dollar hits bottom.

Suddenly, the advantage of being the reserve currency becomes a nightmare, as the world's accumulations of dollars are brought to market. An enormous supply and weak demand mean a very low exchange rate for the once almighty U.S. dollar.

Overnight, those cheap goods in Wal-Mart, which are the no-think economist's facile justification for Wal-Mart's decimation of communities, small businesses and employment, shoot up in price.

[Southack]

"Our higher tech manufacturing is the one that is being outsourced and the one we cannot aford to let leave."

You'll find that our nano-technology, robots, and rocket motors are all made right here in the U.S.

Boeing makes its new Delta IV rocket engines here in Alabama, for instance. MicroSoft seems to be making quite a bit of software here in the U.S., too. Texas Instruments makes quite a few chips here, as does Intel, Motorola, AMD, and IBM.

Just because all of your trinkets at your local Wal-Mart say "Made In China, Taiwan, or India" doesn't mean that economic fundamentals have been outsourced.

Food. Lumber. Bricks. Wire. Cement. Coal. Homes. Aircraft. Rockets. Paper. It's all 100% made here in the U.S.

Some 30% of the world's manufacturing is right here in the U.S...you just aren't seeing the forest for the trees of trinkets on your local store shelves...though even there you'll see plenty of Made in USA statements at your local grocery store.

We're also pretty good about making electricity and phone calls and internet connections, as well as providing lots of valuable services such as healthcare, and we're competitive in several other areas such as oil and steel and plastics (especially PVC).

I haven't seen any foreign military hardware to upset our global domination, either.

[Androcles]

Out of curiosity, what about the minor critical components? I remember Shintaro Ishihara in "the Japan that can say 'No'" claimed that Japan and TAiwan controlled superconductor and computer chip manufacture nearly totally (ANd that all was offshore from US) and he argued that that meant that America was always dependent on them for anything more recent than whatever goods had been purchased/stockpiled. He insisted that meant that a lot of the best US systems would be helpless without further supplies of such critical items...

No idea how accurate this is now (or was then, for that matter). Any idea?

[Southack]

"Her 50-85K job will jump borders when it can be done in India by somone for $50 day or less. It's coming."

You'll be paying $16,000 to $28,000 per year for any English-speaking college graduate from India, less if you want someone over there who didn't finish school.

Frankly, you can hire all of the uneducated labor that you want on Indian Reservations (here in the USA!) for $6 an hour (i.e. $12,000 per year), instead of going to India itself.

But cheap labor isn't the answer to very many problems, certainly not for long. Most such jobs are quickly overtaken by technology. Witness newspaper vending machines on streetcorners even in places like Beijing...such machines obsolete even the cheapest of human labor. Ditto for Coke machines on street corners and offices everywhere.

Now painting robots color our cars instead of human painters, with better quality, faster, and at lower cost (and no labor strikes). Welding robots have replaced human welders on a plethora of assembly lines, too.

...So how does a China or an India or a Nigeria or an Indonesia compete against free labor from robots? You don't see them banning Coke machines and forcing companies to hire kids to sell drinks on street corners...yet they are rapidly coming up on the point in time where cheap labor looks expensive compared to free robot work.

Automated manufacturing processes are the ideal, after all. How do you beat an ideal?! How do you compete against it?!

[Southack]

" I remember Shintaro Ishihara in "the Japan that can say 'No'" claimed that Japan and TAiwan controlled superconductor and computer chip manufacture nearly totally (ANd that all was offshore from US)"

There's not much in the way of superconductor manufacturing...that's a pretty specialized, limited field that's still in the experimental stages.

Japan and Taiwan and South Korea *did* make enormous investments in memory chips...only to see their fixed investments depreciate rapidly as new new designs and manufacturing facilities rapdily drove down production costs.

But Japan never even once came close to leading the world with a fast new consumer CPU (though they did build some award-winning single-issue research super-computers) or digital signal processors (DSPs are the core of many products such as cell phones).

Japan could and did once say "No," but the U.S. went on as always because that word had no effect on us.

[Androcles]

Much obliged. Very interesting...

[Toddsterpatriot]

This is especially true now that the US makes a much smaller percentage of its own goods than in the past.

I don't suppose you have any facts to back up this assertion?

[Toddsterpatriot]

Have it your way, hoss. Just get back to me in about 5 years and tell me how you're getting along.

Finally, a protectionist pins himself down. So, in 5 years when the country is still doing well will you finally stop your whining?

[ozzymandus]

He used to be pretty good, but the last couple of years he's gotten so involved in the paleo vs. neo conflict that he's gone off the rails. He's getting as goofy as pat buchanan.

[jb6]

I prefer to call them neocon(artists).

[nopardons]

BRAVO!

[nopardons]

FR's old.mostly now banned conspiracy theorists/gold bugs/doom&gloomers were never worth the read and none of their and the articles they posted,histrionic hyperbole ever came to fruition. On the contrary,it was all utter balderdash and codswallop,swallowed as whole clothe by the naive,the ill educated,and the paranoid.

[Jorge]

Pick out a sentence that you have a problem with in the article. I don't want it to be true, I just posted it because Paul Craig Roberts is a smart guy.

Are you kidding?

"preoccupied with nonexistent weapons of mass destruction in the Middle East"

Huh? Paul Craig is either an idiot or a liar or both.

[nopardons]

bttt

[hinckley buzzard]

The dollar's loss is relative to the euro and to a lesser degree a few other currencies. Currencies wax and wane against each other. The important attribute is buying power, which has much more to do with inflation and interest rates, than trade deficits and foreign central banks. I notice he mentions neither in this screed. All he can manage is a huff and puff against WalMart!

[Pelham]

Roberts was an architect of supply-side economics while Carter was still in office. Both the Kemp-Roth cuts of 1978 and Reaganomics bear the imprint of Roberts' work. He was far ahead of the curve then, and now is being dismissed as a dope by people who readily defend the economic policies that he had a major role in creating.

[Southack]

"He was far ahead of the curve then, and now is being dismissed as a dope by people who readily defend the economic policies that he had a major role in creating."

Roberts is a dope because he thinks, and says as much in this article for this thread, that lowering the value of the Dollar, which makes U.S. exports cheaper and foreign imports more expensive, will kill the American economy.

As if buying fewer Chinese goods is going to screw the U.S. economy! Roberts is a dope for saying that, among other such rubbish.

Not a clever man; not even close.

[ARCADIA]

Roberts is a dope because he thinks, and says as much in this article for this thread, that lowering the value of the Dollar, which makes U.S. exports cheaper and foreign imports more expensive, will kill the American economy.

Psst. We do not produce much of anything worth exporting; nor do we have the manufacturing base that we use to have. So far the decrease in the dollar's has done nothing to boost exports. Wouldn't we have seen a better current account by now? If the lower value was going to do something for us we wouls have started seeing it a year ago.

On the other hand, or investors and creditors; you know those people who actually underwrite our currency are getting skiddish over our falling currency. They are actually demanding a higher premium due to the percieved risk, and many have stopped buying dollars all together.

Your model is 40 years out of date. The only thing a falling dollar will do is make us poorer. We still have to import most of our goods, most of our energy, and a large portion of our food supply; and, we will have large cost push inflationary pressures on all of those things.

[Southack]

"We do not produce much of anything worth exporting; nor do we have the manufacturing base that we use to have."

That's laughably incorrect. Aircraft, food, software, CPU's, DSP's, lumber, paper, wire, steel, boats, military hardware...America exports it by the tons, to the tune of some 6% of our GDP (the largest GDP in the world).

[Southack]

"So far the decrease in the dollar's has done nothing to boost exports. Wouldn't we have seen a better current account by now? If the lower value was going to do something for us we wouls have started seeing it a year ago."

You'll only see it if you know where to look: at Europe. The lower Dollar is absolutely killing France and Germany's exports to the U.S. France's wine sales alone are down more than 30%.

But until the Yuan-Dollar peg is broken (which will happen this year), the trade deficit with China won't be impacted simply because technically, the Dollar hasn't fallen against the Yuan yet...and China's exports to the U.S. account for a full 1%, possibly a bit more, of the 9% of our GDP that we import each year.

Likewise, we've got to get the Indian rupee, Thai Bhat, and Japanese Yen back to a fair value versus their current devalued position versus the Dollar in order to see trade gap improvements there.

Now, as for our exports, overall they are actually up...but so too are our imports (for the moment). Break the Yuan-Dollar peg and that trade gap will come more back into line.

[Southack]

"On the other hand, or investors and creditors; you know those people who actually underwrite our currency are getting skiddish over our falling currency. They are actually demanding a higher premium due to the percieved risk, and many have stopped buying dollars all together."

You think that interest rates have gone up?! You think that foreign governments with export-based economies want to Short the Dollar so much that their own exports to the U.S. become prohibitively expensive?!

There is no doubt in my mind that you are operating under a false impression...that the Dollar's value is an American problem.

It isn't.

Keeping the Dollar over-valued is the problem of every export economy that wants the U.S. to buy their goods.

Let them instead sell Dollars and thereby make their own products too expensive for Americans to want to buy...see if the U.S. cries any big tears for them.