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Thread: Why America's artificially high standard of living is about to decline

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    Banned Melonie's Avatar
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    Default Why America's artificially high standard of living is about to decline

    An important concept to understand ... and particularly so for dancers whose incomes derive exclusively from the 'discretionary income' of customers !



    (snip)"A 28% Plunge In Our Standard Of Living
    by Daniel Amerman

    Crisis & Globalization I

    For the average person, what is the immediate danger from the financial crisis? Not just the financial crisis itself, but the government and Federal Reserve's response to the financial crisis, which is essentially to create trillions of dollars out of thin air? For you and me, what's the immediate, tangible danger of this limitless bailout of the most politically powerful special interest group in America, the bankers of Wall Street?

    Some people would say a high rate of inflation, others would say a depression - or both. For the average person, let me suggest that there is something we don't usually think about -- a third danger -- something that could drastically transform the day to day lives of 300 million Americans within a space of weeks or months, because the fastest collapse occurs with what wasn't real in the first place.

    In this article we're going to discuss why about 10% to 30% of your day to day standard of living hasn't been "real" for a number of years now. Because this standard of living we take for granted is actually based on our running a massive trade deficit, meaning that the United States consumes much more than we produce.

    If we were suddenly forced to consume no more than we produce -- which is exactly what the financial crisis risks -- there would be catastrophic consequences for the American consumer, potentially almost immediately. It's not too late for the US as a nation, for us as individuals, but time is running out fast, and if we are to find effective personal and societal solutions, then we need to clearly understand the extraordinarily dangerous combination of a nation in the midst of a severe financial crisis even while it has been running a huge trade deficit for many years.

    What the trade deficit represents is the difference between what the United States produces as a nation and what the United States consumes as a nation. For instance, in 2008, the US exported about $1.8 trillion, and imported about $2.5 trillion. The difference between what we sold and what we bought was a shortfall of $700 billion: the trade deficit. Huge number, but what does it really mean?

    Let's make it personal. There are 111 million households in the United States. If we take $700 billion and we divide it by 111 million households, we come up with a trade deficit per average American family of about $6,300 a year. The median income per American household is about $50,000 per year. So when we put the deficit into personal terms, it means that about 12% of the standard of living of the average American family consists of goods we consume from other nations, for which we don't produce enough with our own goods to pay.

    What does that mean for your family in practical terms? For an answer, go to any Wal-Mart or other big-box retail store, or massive retail mall, and walk the aisles. You will see row after row of goods, ranging from baby clothes, to shoes, to DVD players, and what they all have in common is that they are made in other countries and that we actually can't pay for them.

    This may sound theoretical, perhaps even crazy, but there is nothing more real and tangible than the trade deficit when it comes to the day to day standard of living of the average American family. We're not talking about paper wealth, or stocks, bonds or options. Goods and services that are consumed daily are the ultimate reality. A $700 billion annual national trade deficit represents $6,300 worth of goods and services per household, per year, that we can't pay for. Instead of esoteric theory, let me suggest that every time you bring something home from the store, you are relying upon our national trade deficit to pay for part of what's in the bag.

    28% Of Discretionary Income

    So if other nations stopped letting us have what we can't pay for, we suddenly have many less goods available and they would cost much more. Unfortunately, this doesn't translate to going down from a 50 inch flatscreen TV set to a 44 inch TV in order to cut 12% from cost. Because the key measure here is what's referred to as discretionary income.

    Do you get to decide how to spend your entire paycheck every month? Of course not. We have to pay the mortgage or rent, which is about 37% of income for the median household, and we have to pay income taxes and social security and medicare as well. For the average family -- the median family -- housing and taxes take over half their income.

    Meaning we've only got about $22,500 left per household, after housing and taxes. And when we compare our $6,300 per household share of the national trade deficit to what's left after housing and taxes, then we just lost about 28% of our income.

    Twenty-eight percent of our income. In every household in America. We're no longer talking about new TVs, we're talking about putting gas in the tank, because over half of of our oil is imported. We're not talking about steak dinners but about whether we can go to McDonald's. And instead of the latest fashion, we may be rediscovering a quaint historical artifact known as a sewing machine. Except that we buy those from overseas too, so I'm not sure that will work.

    How Did This Happen?

    Depending on your perspective - this is either a pretty horrible situation, or a pretty neat trick. How have we been getting away with this? How did we end up in Lotus Land these last few years?

    Basically, other nations and -- we'll use China as the biggest example -- produce all sorts of goods for much cheaper than we can produce them ourselves, with the biggest difference being that its laborers work longer hours for less money. With globalization, we dropped our trade barriers, and let these less expensive goods effectively destroy our own domestic industries, that used to produce everything from cameras to clothing tissues to consumer electronics. We have hollowed out our own economy, effectively moving our industrial strength as a nation overseas.

    Now from an ivory tower theory perspective, we pay for these goods using our supposedly superior intellectual resources. But in reality, the rest of the world doesn't value America's so-called intellectually superior knowledge nearly as much as we would like them to. The proof? Look at the size of our trade deficit in the real world. Because we don't have the goods to sell to them, they buy US treasury bonds instead, and effectively use the US trade deficit to fund the US budget deficit. Neat trick eh?

    An Unstable Relationship

    So how real are the chances of our having a precipitous drop in our national standard of living because other nations will no longer provide goods that we can't pay for?

    Well, relationships like this are always unstable when we look back over world history, but this is one that exists for a reason. China doesn't buy our treasury bonds because they like us -- they buy them to prop up the value of the dollar, keeping the dollar artificially high, so their goods stay artificially cheap, and their industrial base can grow while ours shrinks. In other words, through currency manipulation, they hollow out our real economy, build their real economy and we get a temporary, artificially high standard of living. If they cut us off too abruptly, the dollar plunges in value, we can no longer afford the goods they sell, and then their own economy also likely goes straight into depression."(snip)

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    Default Re: Why America's artificially high standard of living is about to decline

    So...the worst thing that can happen then is people stop living beyond their means and consuming more than is produced? Then everything will be balanced nicely and you'll have a nice little Utopia. Yay! Therefore = No worries.

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    Default Re: Why America's artificially high standard of living is about to decline

    ^^^ yes it's 'no worries' as long as those people have not already committed themselves to spending more than 72% of their present 'discretionary incomes' on credit cards / consumer loans / utility bills / groceries / college tuition etc. - because that's all that will be left for them to live on if actual US consumption was forced to equal actual US production by America's foreign creditors. And that assumes that taxes will not increase thus 'eating up' a separate piece of present 'discretionary incomes'. However, per announced Washington policy, the GWB tax cuts will be allowed to expire next year ... which will result in an additional $2500 worth of federal income tax for the average American family earning $50-$60k per year.

    We've discussed this basic point before. Canadians enjoy an artificially high standard of living because the Canadian gov't is able to pump crude oil / natural gas etc. out of the Canadian ground, sell it at full world market price, and use the 'profits' to subsidize Canadian residents / taxpayers i.e. this is real new current income for the Canadian gov't. America enjoys an artificially high standard of living by the American gov't effectively borrowing an additional $6,300 per year per American family from Chinese / Japanese / Middle Eastern buyers of freshly printed US gov't bonds ... US bonds upon which interest and principal must be repaid by US taxpayers, their children, and their grandchildren. And while Canadian oil and gas well production may decline slowly over the next 30 years, US bond sales could be cut off tomorrow ( while the repayment obligation of existing bonds would continue for the next 30 years).

    ~
    Last edited by Melonie; 10-23-2009 at 03:18 PM.

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    Default Re: Why America's artificially high standard of living is about to decline

    The gist of the article was that doom was coming because America and Americans were living 28% beyond their means...consuming more than they produce. This is supposedly unsustainable. But what is the actual doom that is coming: they will be forced to live within their means, ie. consume what they produce...which is not doom after all.

    Our standard of living in Canada is not artificially high (well, it is in your eyes). Our high standard of living is based on many things, only one of which is our abundance of natural resources....a fortunate circumstance which is also shared by our neighbours to the south.

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    Default Re: Why America's artificially high standard of living is about to decline

    I buy American. I'm in the clear

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    Default Re: Why America's artificially high standard of living is about to decline

    The article assumes that if we were to eliminate the trade deficit, the $700 billion deficit would be reduced by Americans buying nothing. If we were to completely eliminate our trade deficit, which is very unlikely, many of the goods we import would be replaced by domestically produced goods. Considering we have 10% unemployment, this would be a good thing.

    In addition, we can significantly reduce the import of certain products, especially oil, without reducing our standard of living. By simply buying more fuel-efficient cars, we can significantly reduce the amount of oil we use, without affecting our standard of living.

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    Default Re: Why America's artificially high standard of living is about to decline

    ^^^ unless of course the key components to produce those fuel-efficient hybrid cars i.e. rare earth magnet motors, lithium battery packs etc. must all be imported !!!

    The article is actually pointing out that the $700 billion per year that Americans as a whole are spending over and above what they produce in order to maintain an artificially high standard of living is derived from the taking on of additional debt ... either personally via consumer loans, or collectively via the US Treasury issuing and selling yet more newly printed bonds, or stealthily via the printing of new US dollars. That additional debt is contingent on other countries willingness to extend more loans / purchase more US treasury bonds / accept more US dollars as payment for their exported goods to America - which could stop on a dime.

    If you're looking for a way to reduce imports in a major way, and reduce the trade deficit by a huge margin, I suggest drilling for and pumping domestic oil rather than purchasing imported oil. Hey it works for Canada !

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    Default Re: Why America's artificially high standard of living is about to decline

    And this is without the USD plunging
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

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    Default Re: Why America's artificially high standard of living is about to decline

    Quote Originally Posted by Melonie View Post
    ^^^ unless of course the key components to produce those fuel-efficient hybrid cars i.e. rare earth magnet motors, lithium battery packs etc. must all be imported !!!
    There are plenty of alternatives if we lose access to those components and other sources aren't found. Automobiles, and even hybrids, don't need to run on lithium batteries. There are plenty of gas and diesel powered automobiles that get good mileage. Automakers may also come out with new ways to power cars, such as fuel cells, which run on hydrogen.

    Quote Originally Posted by Melonie View Post
    The article is actually pointing out that the $700 billion per year that Americans as a whole are spending over and above what they produce in order to maintain an artificially high standard of living is derived from the taking on of additional debt ... either personally via consumer loans, or collectively via the US Treasury issuing and selling yet more newly printed bonds, or stealthily via the printing of new US dollars. That additional debt is contingent on other countries willingness to extend more loans / purchase more US treasury bonds / accept more US dollars as payment for their exported goods to America - which could stop on a dime.
    Again, much of the $700 billion that we import, above what we export, can be produced here, or we could sell more overseas. Of course you and Eric strongly support the policies that are causing the large trade deficits with your constant arguing against weakening the dollar, which makes American products more competitive at home and abroad.

    Quote Originally Posted by Melonie View Post
    If you're looking for a way to reduce imports in a major way, and reduce the trade deficit by a huge margin, I suggest drilling for and pumping domestic oil rather than purchasing imported oil. Hey it works for Canada !
    There isn't anywhere near enough oil here to have any significant impact on the amount of oil we import. Of course this is meaningless to conservative ideologues, since the only other alternative would be to use less oil, something conservative ideologues are dead set against.

    Canada has a lot more oil than the US and a lot fewer people.

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    Default Re: Why America's artificially high standard of living is about to decline

    I did not think we were living artificially high during the Clinton era because our budget was balanced. The one thing about the Clinton administration was their obsession with advancing globalization when our country was not ready for it. One of the many things about the Bush administration is that they didn't give a hoot about better preparing us for globalization and they spent and borrowed like crazy. Then they busted open our financial floodgates. And I agree it is now a huge problem.
    Last edited by threlayer; 10-31-2009 at 05:26 PM.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: Why America's artificially high standard of living is about to decline

    Quote Originally Posted by Melonie View Post
    ^^^ unless of course the key components to produce those fuel-efficient hybrid cars i.e. rare earth magnet motors, lithium battery packs etc. must all be imported !!!.........
    News of the week, locally...

    http://www.syracuse.com/news/index.s...ge_for_re.html

    Crucial deal sets stage for Reva electric car plant in Central New York
    Syracuse, NY -- A company that wants Central New York workers to build a new generation of electric cars for North America has struck a crucial agreement with the Reva Electric Car Co. of India, removing one of the last hurdles to a deal for a new local assembly plant.
    Bannon Automotive, of Long Island, has secured an exclusive North American licensing deal with the company, according to sources familiar with their negotiations.
    The partners want to open their first North American plant in Onondaga County, where several sites are under consideration, the sources said. A state official said Monday that Bannon plans to renovate a 150,000-square-foot building in Clay.
    The plant would initially employ 100 people, with the potential to add many more as the plant ramps up to full capacity.

    ---------------------
    A nice little crap car for grocery shopping, local visiting, and little else. But it represents manufacturing JOBS. Even though it also represents importing expensive components from India.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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