Changing Economy: Future

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Few off Wall Street are paying attention, but, there are fundamental structural changes taking place in our economy, that are going to require new economic models, metrics, and updated economics education if anyone is going to manage the economy well for Americans. The consumer backbone of our economy is yielding to exports and business consumption, even as the consumer's role in products and services shrinks.

This dual economy referred to in the above link, is just an overview. Poverty is rising across America as American schools and State education budgets are increasingly forced to cut back spending on education. Additionally, in many regions of the country, the number of students qualifying for free or reduced fee school meals is rising dramatically. The Census Bureau's American Community Survey, reports 38 million Americans living below federal income standard defining poverty in the last 12 months and rising. That number will surely rise even higher for the 2008 year.

Even if unemployment were not rising, which it is, millions of Americans are poorer each year due to rising inflation of food, energy, transportation, health care, and education costs at a time when wages have failed for decades to keep pace for millions of American workers. The one bright spot would be the falling cost of housing, but, credit to buy lower cost housing continues to become an ever greater hurdle for Americans. Credit is very tight for American consumers, but, very available for American assets to be purchased by foreign investors.

America is being bought at an incredible rate by foreign investors. The Carlyle Group is a case in point. But, the risk of buying American assets is also going up as investors get ever more nervous about our economy and the growing debt carried by federal and state governments. More than half of all American states are now in the red with their state budgets.

The buying up of American real estate and businesses and toll roads and a host of other profit producing assets by foreign investors with the money to lend, has a number of potential short term upside benefits in shoring up American businesses needing to sell, and long term downside risks. The rest of the world is little different than America when it comes to the mingling of the wealthy capital owners and politicians in government. And as we have witnessed here in America, when government gets too chummy with wealthy business interests, many negative things can happen to markets, consumers, and the wage earners.

The more America relies upon foreign capital to salvage itself and borrow from, the less autonomy and independence we have in making decisions for ourselves and in our own best interests. As millions of credit card customers with interest rates as high as 32% know, when you are in debt, you don't get to dictate the terms. The same will be true of America if the wholesale auction of American bankrupt business and ventures and infrastructure and real estate is not halted and pretty darn quick. It is easy to see why those in financial trouble, whether they be corporate or individual, would sell to whomever was making an offer of rescue. But, in the long run, at this expanding rate of sale of American assets, American independence and autonomy are being sold too without hardly anyone being aware of it.

A few on Wall Street are talking about the potential for a global economic depression in the future as a direct result of the ever widening wealth gap in all the major and upcoming economies in the world and a potential default of a major debtor like the United States. Just as a few folks were warning us back in 2006 about what was coming as a result of the housing markets and lack of mortgage product regulations and oversight. Seems far fetched when only a few people with good minds and education discuss calamitous potential outcomes, and so they are largely ignored until the reality sets in, which is of course, too late to take corrective action.

And then there is consumer debt also making coming into investor's risk assessments. Though the consumer contribution to gross domestic product is shrinking, it still accounts for more than 60% of all economic activity. If the consumers continue to default on mortgages, and file bankruptcy due to medical expenses far beyond their ability to pay, at an increasing rate, and wages continue to undermine consumption spending at the same time credit card companies increasingly pull back credit from consumers while raising their interest rates toward 32%, the consumer base of the American economy could unravel. And if it does, there will be little warning for most Americans.

Health care is about to become the fastest growing sector in our economy as the baby boomers retire and live many years longer with longer term medical care needs. Yet, despite this fact, nursing shortages and medical technicians and even doctors in some specialties, continue to act as an anchor on that ship going forward. If these manpower shortages are not addressed, the malpractice rates will rise dramatically, and so will health care costs, even faster than they currently are, bankrupting ever more millions of Americans as the years unfold.

Ironically, American corporations and business are doing OK in this environment. Growth for American manufacturers was flat in the last quarter, which means they are holding their own despite the serious contraction in our economy on other fronts. Largely this was a result of a strong export market.

As American businesses focus increasingly on the expanding middle classes of other nation's and their insatiable demand for middle class products and especially services, American companies will increasingly provide employment in foreign markets, and provide nation's consumers with more products produced in foreign nations and serviced by employees in those foreign markets. In other words, the American worker and consumer are likely to become less relevant to American business health and wealth.

The same naysayers who argued the current mortgage financial crisis and credit crunch could not possibly happen when I wrote about its coming, here at WatchBlog in 2006, will no doubt now try to argue that this is a short lived situation and all will be well next year. But, as then, these naysayers speak without comprehension of the changes in the fundamental structure and foundation of our economy which are taking place at this very moment.

American wages must go lower. That is because Americans are now competing with labor at half or less the cost in places like China, India, and Malaysia. It is because we are paying foreigners directly for daily consumables like oil, which amounts to a net transfer of more than a half trillion dollars overseas each and every year. Nearly 3/4 of a trillion dollars in the last fiscal year. That money is not returning to the United States to be circulated amongst workers and consumers. It is a net transfer of wealth from America to foreign nations as T. Boone Pickens rightly points out in his commercials to sell America on increasing his profits through government investments in his alternative energy industries and stocks.

And as American wages go lower, the quality of life and the opportunities available to Americans will diminish for growing numbers of citizens and their children. We have passed the point of being able to prevent this. Our task going forward to is minimize the damage and slow the rate at which American's lives are diminished financially and in terms of opportunities for our children.

These issues bear directly on who voters elect to Congress and to the White House this November. For those we elect will either be ignorant of what is happening and what is coming, or they will they address these issues and work to minimize the consequences. The thing I cannot shake from my mind is this. It is these politicians currently in office by and large, who have brought us to this point. It would be the gravest of decisions by American voters to choose to send these same politicians back to government to perform as they have up until now.

America absolutely needs a dramatic change in leadership in government. We need leadership who gets it, and understands what we are facing here. If those we send to elected office this November believe our economy is fundamentally sound and will bounce back largely on its own, they will not tackle and work to minimize the negative consequences that will befall 10's of millions more of Americans in coming years.

Sending the same politicians who either didn't understand what was happening, and likely still don't, or who didn't care since they were wealthy and the wealthy will do alright regardless, or were never educated and intelligent enough to grasp economics in the first place, is the worst possible thing Americans could do themselves and their children's future. Voting for change, means voting some new representative in office, and putting the old politicians on notice that they are next if things don't improve by their next reelection campaign.

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This page contains a single entry by David R. Remer published on September 2, 2008 8:37 PM.

McCain's Poor Judgment: Palin was the previous entry in this blog.

Palin's Speech and Noonan's Odds is the next entry in this blog.

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