[Grovenet] Gas Lines are not fun

[David Morelli]

On Feb 1, 2008, at 9:52 AM, Ron D'Eau Claire wrote:

> If we make our stuff, why is my "American" Ford car an import,  
> assembled
> largely in Mexico with parts from Europe and Japan?
>
> Why is virtually everything I find on the shelves of the stores  
> imported?
>
> Why does my Hewlett-Packard computer come from China?
>
> Ron D'Eau Claire

Those products come from foreign sources for the same reason that  
your fuel comes from foreign sources.  The United States government  
is consciously working to keep the dollar "strong" in foreign trade.   
Listen to the political rhetoric, everyone wants to keep oil prices  
and natural gas prices low to feed our thirst for fossil fuels.    
That keeps imports like petroleum, computers and car parts less  
expensive for the consumer.  Unfortunately, it also makes exports  
like steel, ships and machinery more expensive, which hurts the wage  
earners.  In simple terms, having a dollar that is overvalued hurts  
our manufacturers and workers, while helping our trade partners and  
consumers.

******

Foreign trade is supposed to be trade.  Exchange.  Value for value.   
At least it is in a free market.

So, with an exchange rate of about 7 yuan to 1 dollar, for every $1  
Billion we sell to China we would have no more than 7 Billion Yuan of  
credit to purchase goods from China.

China wants to expand their industrial capacity, and so they will  
loan billions of yuan to the USA so that we can buy more goods than  
we sell.  They do this by holding their exchange rate at an  
artificially low level.  This process is known as "mercantilism".  As  
collateral they accept American dollars.  They store those dollars in  
US Treasury Bills, US consumer debt, American stock and US real  
estate.  But, in the end, if they wish to repatriate their assets  
they will have to change the dollars back into yuan or American goods  
and distribute them to the Chinese people.  We don't have the yuan  
and they aren't demanding American goods.  At this rate, they won't  
get paid.

Right now, their loans to the USA are similar to the Sub-Prime loans  
in the real estate market.  Their debtors don't have the capacity to  
repay the loan.

******

In very general terms, "mercantilism" is the notion that a nation's  
wealth is counted by looking at the financial assets, and that a  
nation should export more than they import so that they can  
accumulate money from outside nations.

Adam Smith and others pushed for a "free market" that had balanced  
exchanges benefiting both parties.

The United States has gone from a colony of a mercantile nation, to a  
mercantile nation, through the free trade point, and on to the other  
extreme.  We now suffer from the notion that our wealth is counted by  
looking at consumer consumption, and that a nation that imports more  
than they export is a healthy economy.


David