Apr 072018
 
 April 7, 2018  Posted by at 12:32 pm Finance Tagged with: , , , , , , , , , , , ,


Dorothea Lange Farmers’ supply co-op. Nyssa, Malheur County, Oregon 1939

 

 

It’s Dr. D again. Told you he’s on a roll. He remains convinced America can re-invent itself. If only because it must.

 

 

Dr. D: Herbert Stein’s Law states “What Can’t Go On Forever, Doesn’t.” This is a neat summary of the present trade and currency imbalance. China makes real goods and the U.S. consumes them by typing digits on a keyboard. This is the very definition of what cannot go on forever.

 

• How long do you expect a nation can make nothing and consume everything?

• How long do you expect a nation without manufacturing, without a workforce, and now without a viable military to remain pre-eminent?

• How long does wealth and influence remain in a nation that makes nothing, does nothing, and knows nothing?

 

Reminds me of that other Law: “A fool and his money should be parted as soon as possible”, for to be wealthy, and helpless, and dumb, is not a combination that lasts for very long.

Since China cannot send the U.S. free goods forever, ergo, they won’t. That means slowly or quickly, now or later, they will cut us off. Right now it appears that can never happen, but I assure you it will very soon. And what will the U.S. do then? Actually, that’s very simple: the U.S. will have to close a $600B trade deficit instantly. Roughly, that means the U.S. will no longer import $600B worth of goods and be $600B/year poorer, or $2,000/year per person. Nor is this unusual. History is rife with examples of nations that once were prosperous and were suddenly cut off: Spain and Greece come immediately to mind. So how does this happen?

The Core nation, the trading hub has failed dozens of times in history, from Venice to Holland, Spain to England, and although most of history was on a gold standard, nevertheless the same thing happened: repudiation and devaluation of the currency. That’s why a U.K. Pound is no longer a troy pound of pure silver ($192) and why the U.S. Dollar is no longer 1/20th ounce of gold ($267). So let’s run down how this might unfold.

Like other empires, the U.S. rose to prominence with hard work and industry. Like other empires, this personal and physical industry was the foundation of an effective military. This military eventually stood alone, leaving the U.S. to set the rules of trade, the rules of diplomacy, and the rules of conduct. Like other nations, the U.S. bent those rules in its own favor, both early and late. Like other nations, the natural way to take advantage was to run an overvalued currency, which draws in capital from all trading partners worldwide, creating a 100-year spiral of wealth and influence that seems truly endless.

However math, the cruelest of Mother Nature’s laws, is not fooled. If you bend the rules to create market distortions, those distortions are indeed created. If there were fair trade, a gold standard, a nation that increases their wealth would find its currency rise. A rising currency would dampen manufacturing and efficiency, the gold would flow back out, and the unfair advantage would be corrected. But only in a free market. Any market on Earth has an Army, and that Army’s job day and night is to make sure that unfair advantage does NOT end. Ask Smedley Butler.

 

Mother Nature is never deterred. However long it takes, she waits. Lacking fair trade, an abnormally strong currency does the only other thing it can: destroy the Core nation’s industry, totally and completely. More certain than a nuclear explosion, economics will not miss a single spot until the wrong is righted and the truth is out. At first the low-gain commodity industries go: mining, shipping, smelting; then their sooty kinsmen: heavy rail, ships, ports, transportation.

After that go the lighter industries: manufacturing, stamping, autos, and so on up to mainframes, silicon chips and phones, and with them, their children, manufacturing processes and R&D. However, as London and NY showed, you can forestall currency correction even now by moving market distortions into services and financial engineering. At this point, however, the Core nation has nothing left but Banks, Universities, and the Government/Military, and no underlying economy to support them.

However, what Charles Hugh Smith calls the fiefdoms of monopoly cartels and apparatchiks of the 1% now lead an empty parade, horse-whipping the uncompliant 99% into supporting an economy that exists only in their minds. And then “What can’t go on, doesn’t.” The empire collapses from within, to the total surprise of historians of the 1%, and the total lack of interest of the 99%, for whom it had already collapsed decades before.

And of the other side? Thanks to the overly-high currency of the Core nation, the perimeter nation has an artificially LOW currency. They didn’t do that, because they are by definition small and weak and aren’t using an army to set the rules. The artificially low currency leads to low costs, low labor, high enterprise, and in the mirror image of the Core nation, the constant INCREASE in manufacturing. The increase in wealth, and the addition of commodity goods, then heavy industry, then manufacturing, then R&D. Whose fault is that? Who used a worldwide army to enforce the very rules that gutted their homeland? Not the Vandals; not China. It was Rome; it was D.C.

What is this whole imbalance based on? In our case, the artificially strong dollar, backed by a worldwide U.S. military. So how must it end? With a weak dollar, falling real markets, and a U.S. military returning home.

You say this can’t happen? Yet it must happen. To say otherwise means China will give us free goods for 10,000 years, and the U.S. will get always weaker that whole time. So how does the transition go?

The U.S. financial bulwark cracks, being highest and most based on psychology, not reality, very likely in conjunction to a military failure or withdrawal, as in empire finance, the military and currency are equivalent. Slowly, then rapidly, the tide flows out, the U.S. dollar gets weaker, the Chinese Yuan gets stronger, and the whole process reversed as it should have done years ago.

 


(mind the log scale)

 

Mother Nature isn’t fooled, and those 70 years of repression and manipulation are made up in a few years.

Down on the ground, what happens is not that China shuts off free imports to the U.S. directly, with a political embargo, what happens is the U.S. is seen as a has-been and the U.S. dollar falls in purchasing power on the world market, raising the price of foreign goods in a “free” and “open” marketplace. Lacking manufacturing and the military power to stop it, the U.S. can’t hold off Mother Nature and the laws of physics any more.

Knowing this to be inevitable, how would a nation prepare? For one thing, you would need to kick-start your industry, post-haste. Anything that can be made internally will find its prices stabilize and not rise. Yet before the currency rates are corrected this face overwhelming headwinds. Second, as income will be lost and the borders will be shut off, you need to switch the focus of taxation from income to tariffs, from finance to real goods.

Third, you need to open your pipelines, ports, and infrastructure, and expand the required steel, oil by any means necessary, even armed standoffs. Fourth, you’ll need to shove the culture away from government support and subsidies that will soon disappear, and into self-reliance and productivity. Firth, you’ll need to downsize the government and especially the military, which will and must return home. Any of those platforms sound familiar?

 

Despite what you read, it’s not all bad. Just as “The arrogant people will be brought down, and high and mighty people will be humbled”, “Every valley shall be raised up, and every mountain and hill shall be made low; and the crooked shall be made straight, and the rough places smooth.”

 

This is a master reversal of all manipulations, of all imbalances that have reached extremes. As the U.S. – China trade deficit must balance, we know that Chinese goods must rise. But that also means the cost of production for U.S. goods must fall. This cost-advantage puts Americans back to work just as it did the Chinese, while the rise of the Yuan will make China rich, but less productive.

What’s more, as matters reverse, the U.S. will raise prices on their exports: food and oil, two things China must have and cannot get elsewhere. Agriculture is at an all-time, 1,000 year low and must rise. Stocks and housing are at an all-time high and must fall. In a reversal, the high prices fall, the low prices rise, that’s obvious. That’s what “reversal” means, that’s what “extreme” means.

As for manufacturing, the world is changing fast. Even China is opening “dark” factories that employ no people, only robots. That will be true here as well, which undercuts any labor savings they once had. There’s a few problems, however: robotic mega-factories only work with very large scale of identical goods that can source reliable, high-quality inputs. If oil is too high, and/or shipping or marketing fractures, those factories scale down, retool more, and therefore require more people than presently.

How is China going to have huge robotic mega-factories if half their export market can no longer afford them? If the U.S. and China split the market, aren’t all those factories half the size of present? Since the U.S. will now have low-cost people and raw materials, what advantage does China bring to offset shipping and tariffs? The “market” isn’t uniform. There was worldwide mass-integration of manufacturing between India and England and the world in 1910 too, yet it’s didn’t persist; it changed.

 

One way it can change is to leapfrog China. We hear about how the U.S. is a has-been as we are supporting legacy copper telephones while the 3rd world goes directly to fiber and cell, and this is true. However, China has mainlined on low-price, low-profit, mass-manufacturing. Why would anyone compete with them there? It’s irrational. Build a baseline and let them have all the low-profit, environment-destroying work they want, the U.S. can’t and won’t beat them there.

We can beat them by leapfrogging into technology that’s out there, but no one is revealing yet, things they haven’t done, but Americans are good at doing: innovating, high-tech, medical. Much as I hate high-tech and its panacea as an answer, yet I believe there are goods, ideas out there that can transform the way things work.

Look at the rapid development and uptake of LEDs for example. The patent office is filled with them, and an outsized number are American. We have superconducting maglev, field physics, material science of no-weight foam, color-shifting paint, hyperconducting graphite, and transparent concrete to name a few. All there, all unused. Let’s make an example case in a very large, very quiet investment.

Medical and Biotech are to some extent used up, with overpriced, mass-market pharmaceuticals being rejected by price and form even by the wider population. But that’s so last-century. The new biotech is going to take a blood or DNA sample and synthesize a drug specifically for your blood and DNA. They are going to create another organ, a blood transfusion no one but you can use.

In one way, this may be more expensive, and that’s good for profits, but in another way, they will work for you, much better and guaranteed, and therefore fix your health faster, spare you useless drugs, bad side effects, and actually work, and therefore be cheaper. What does it take to make them? A complete revolution in drug manufacturing. Multi-billion dollars’ worth of equipment, extremely unique development and patents, a 20 year head start.

 

Could you sell such a thing to the Chinese? You bet. Could they get off retail manufacturing and scoop us on it? Not a chance. So you see how such a thing could happen, even with a U.S. dollar falling and a hard readjustment ahead. And that’s just one.

If boutique and robotic goods are the new industries, what do we do with 200 million unemployed? We won’t have 200 million. That’s a consequence of the distorted extreme of our finance, our centralization, our currency. For one thing, we have only 100 million now and a lower dollar will definitely restore the competitive advantage of highly-productive U.S. workers. At the same time, if work requires fewer workers, we will find a solution. Why?

Because you can’t have 200 million unemployed. Not even 100 million. The resulting inequity and income disparity can and has caused a revolution. Faced with that, any nation will adjust because they must or perish. As difficult as Americans can be, they are a practical people above all. This has happened to dozens of nations in the past: Spain, France, Germany, England, China, Japan, and they all still exist. Things rotated out in the big wheel of time. New things were made and the old ones faded away, and we will too.

We’re going back to being just one of many nations, and a fair and productive one too. There are ways and we will find them. How can I be so sure? Because “What Can’t Go On Forever, Doesn’t,” and it won’t this time either.

 

 

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This topic contains 24 replies, has 10 voices, and was last updated by  Nassim 5 months, 2 weeks ago.

Viewing 25 posts - 1 through 25 (of 25 total)
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  • #39858

    Dorothea Lange Farmers’ supply co-op. Nyssa, Malheur County, Oregon 1939     It’s Dr. D again. Told you he’s on a roll. He remains convinced
    [See the full post at: America 2.0]

    #39859

    bluebird
    Participant

    Dr. D – I agree what you are saying, that our way of life cannot go on forever. But how long is the big wheel of time? Can U.S. manufacturing be started up again to produce those necessary items that people use every day, before the wheel stops in another bloody world war.

    #39862

    zerosum
    Participant

    “…The empire collapses from within, to the total surprise of historians of the 1%, and the total lack of interest of the 99%, for whom it had already collapsed decades before….”
    …what do we do with 200 million unemployed?…

    @ Dr. D
    Good! You have an optimist message.
    You are also part of the 99%
    We, bloggers, will not live long enough to experience your projections.

    #39863

    Dr. D
    Participant

    I guess that’s the question. They are certainly trying everything to start a war now, and yet another group within the same institutions is trying just as hard to stop them. That’s why foreign and even domestic policy seem so schizophrenic. But China is on top and doesn’t want a war. Napoleon said “Never interfere with an enemy while he’s in the process of destroying himself.” If the West is losing, why act? That’s not the Art of War, the Eastern way. They’ll calmly let us fall apart and enjoy the peaceful use of the brand-new cities and high-tech that we’ve lost because our oligarchs are violent mouth-breathing dummies who steal too much.

    The West tried to have a nuclear war with incendiary provocations against Russian allies Libya, Syria, Ukraine, put nuclear missiles 10 minutes from Moscow, (apparently) staged fake chemical attacks a dozen times, bombed Russian soldiers in Syria, and ambushed a Russian MIG and shot down the Russian rescue helicopter, illegally embargoed them, attempted to throw them off the Security Council, is right now breaking the Chemical Weapons treaty, and told China to get out of the China Sea. That’s just some and just the last few years. You know, if Russia had the slightest interest in war, we’d have one.

    And that’s why they have to start this idiotic, suicidal war virtually no one in any western nation wants: BECAUSE they are losing every minute to China and Russia, then Turkey and Iran, and now even embarrassing midgets (no offense) Philippines, Pakistan, Hungary, Ecuador, and so many more. When Pakistan tells you to suck it, you know you’re a has-been. And like I said, once you’ve destroyed everything, the military and your violent reputation is all that’s left. When countries laugh at that, your currency is dead, and with it your power. Then your own people come and get you.

    In my opinion, in their psychosis of entitlement they both believe that the West is far stronger than it is, and the East is far weaker than it is, and they would consider it an absolute benefit-only-to-be-dreamed-of to kill most of their own annoying western population. “You can’t oppress me, I got rights, why did you steal my house and drive my daughter to prostitution, blah blah blah.” This is like every. empire. ever. And like every empire ever, they are completely, catastrophically wrong being such pencil-necked chicken hawks that never got a bloody nose in their life. Luckily, although they are EVEN STUPIDER – so far, far stupider! — than the dumbest MAGA supporter from southern Indiana, the population at large is smart enough to know which way the wind blows and to get out of the rain. They don’t want war, and voted against it the last 4 Presidents. The generalized business interests don’t want war either, which leaves only the achingly dumb entitled apparatchiks, the billionaires, and *some* of the military against everybody else in America. That’s why step by step they’re losing, will lose, and in fact lost some years ago, but it’s ugly and very slow.

    Europe is not so lucky. As we see in Britain, and indeed France sending troops 2,500 miles to fight Turkey, the single largest army in Europe(!!) who will happily shoot the crap out of them, the European people are frighteningly less able to resist — savaged by a 50% unemployment rate and a dead economy — against the warmongers in Brussels who are taking all wealth, making every instigation even against even their own members, and making any form of open discussion more illegal than Goebbels and Stalin ever dreamed. Unseating the elected Italian P.M in minutes without discussion or redress, felony charging the top French candidate, imprisoning comedians at will, are you kidding me? What does it take to get you guys alarmed?

    The U.S. has cycles of isolationism (i.e., realizing we shouldn’t be in other people’s business) while we figure things out, and this will be one of those times. Asia will be happy to exist and prosper until they too get so drunk on power they colonize the Pacific rim and take MENA. But Europe, I fear for you. This looks like one of those collapses of ethnos vs ethnos you have, and with no structure within and no way to project power without, will be dark days indeed. You may know better than I, but I don’t see anything pulling you back from the edge but us and we can’t even help ourselves right now.

    And that’s the optimist’s message. It can get worse than that real easy.

    #39864

    regionswork
    Participant

    Core nations began their ascent with deep natural capital. The cedars of Lebanon are long gone. Italy’s environmental recovery from the Roman Empire took a thousand years. Spanish, French and English forests went to sea and never came back.

    I live in Virginia’s Shenandoah Valley. Reforestation began in the 1920s to protect the water supply of Washington, D.C. the Shenandoah River was a running sewer where it met the Potomac River at Harpers Ferry, West Virginia, The Potomac Highlands ov WV polluted as well, including more mining waste. The rich soils found by settlers all went to the Chesapeake Bay, silting up the early harbors. Settlers depleted forests and soils State by State.

    Without liquid nitrogen fertilizer, there would be little natural agricultural production. Real soil must be alive. Deer over graze in Bambi protected suburbs making home gardening quite expensive. The payback on a ten foot electrified fence is long. HOAs don’t allow them.

    A lot of the early productivity of the U.S. was due to depletion of the natural capital built up prior to neolithic agriculture and settlements. Empires boomed and busted. The technosphere built-enviroment mass accumulated, now 30 trillion metric tonnes, over 4,000 metric tonnes per capita. Is it sustainable into the ever more technological future, where repair is not a big concern. Just throw it away; the new model will be better.

    Depreciation is an accounting notion. It really doesn’t encompass depletion. Selling below the true cost of production is what busts empires. The cascade is in play. Will human civilization be able to wake up and save itself, or will its tribes fight to exhaustion, Earth a scaled up Easter Island?

    #39865

    Patricia
    Participant

    What do you think of China’s new Silk Road Dr D? And their ginormous population? And the huge under populated agricultural land in Central Asia through which it is to pass? And their fast railway along side? I see that as the future for the world. If the world’s future is to be consumption…. i think that China’s economic system is very different from the West. Neot right or wrong just different.

    #39866

    V. Arnold
    Participant

    Patricia
    There is an excellent 4 part series by FEDERICO PIERACCINI that I would consider most important to answer your question.
    The key here is MacKinder + Spykman + Mahan, who fully understood the true center or heartland of the world.
    The link below will take you to the first of 4 articles; it’s quite an education.
    The importance of the BRI will be clear, as will the current geopolitical situation.
    https://www.strategic-culture.org/news/2016/12/19/geopolitics-globalization-and-world-order.html

    #39874

    Patricia
    Participant

    Thank you V Arnold. I have read the first part and it is so good but how do I get the other three. I have tried but the must be stupid or is it dementia coming on.!

    #39875

    Patricia
    Participant

    Found it!

    #39876

    V. Arnold
    Participant

    Patricia
    Dementia worry/concern is my constant companion as well; so far so good @73. 😉
    Good, you found it. I had trouble as well.
    But well worth the effort.
    It is good isn’t it?
    Gave me a whole new perspective on the world at large.

    #39877

    Patricia
    Participant

    V. Arnold. It was such good reading and explained so much. Really everything in reality is very simple. It is just us humans who like to make things worse by over analysing. If only we would just live and let live.

    #39878

    V. Arnold
    Participant

    Patricia
    Indeed; but, it seems, not our nature; to live and let live…
    Cheers, and very happy it resonated with you as well….

    #39879

    So where are those 3 chapters?

    The Heartland/Rimland theories are essential to the whole Wolfowitz worldview. Putin is very aware of them, obviously. Still, interesting theories, but to what extent do they still apply?

    I keep on having my doubts about the Silk Road. Someone has to finance it.China can’t, it’s going broke as is. It wants the countries along the Road to pay for it, by buying Chinese steel etc. With monopoly money borrowed from Beijing, no less.

    I can see China withdrawing within itself, for purely economic reasons at first, then for political ones as well, to keep control of the population that gets restless as the growth fades away and the empty apartments fall to pieces but the loans fro them must still be paid.

    #39880

    Patricia
    Participant

    You have to search for them through the authori’s name but they do explain such a lot. I don’t see that China will go broke as you say. They can just print their own money and spend it internally. They still have industries that produce and we don’t. They are selling and buying oil with yuan as well as other products it seems. I see it as their way of getting out of the control of American domination. It is a country that plans and we don’t.

    #39881

    V. Arnold
    Participant

    I’ll e-mail you my attachments for the remaing 3 installments; unlike Patricia, I couldn’t find them, but I C&P’d them to Open Office.

    #39882

    V. Arnold
    Participant

    Okay, done.
    Please let me know if they were okay.

    #39883

    V. Arnold
    Participant

    Patricia
    Well done you.
    I agree; China will be fine.
    The BRI will happen…

    #39885

    SteveB
    Participant

    “What is this whole imbalance based on?”

    It’s based on our cultural belief in the concept of exchange. Always has been, regardless of the lack of awareness of that fact.

    #39886

    V. Arnold
    Participant

    Apparently Ilargi knew nothing about MacKinder + Spykman + Mahan.
    Critical history of the great game played out as this is written.
    History is so deep and far reaching; to not know it is a fatal flaw.
    I’m still in my infancy, but striving on in the great adventure, that is history…

    #39887

    Apparently Ilargi knew nothing about MacKinder + Spykman + Mahan.

    Only as much as Putin.

    #39888

    bluebird
    Participant

    I haven’t yet read Federico Pieraccini articles, but what is BRI? I get confused with so many acronyms.

    #39892

    Patricia
    Participant

    Bluebird. I don’t know what BRI means but all you need to know is that it is referring to China’s new Silk Road so just look up that. It ifollows the old trading route. It is quite amazing where it is going to go. I think it has got as far as and into Kazakhstan. The aim is to get goods to Europe. Apparently the time saved in transit of goods is quite great.

    #39893

    V. Arnold
    Participant

    BRI is the Belt Road Initiative
    It’s the acronym for the whole project, which is vast.
    The U.S. is scared to death of it; because it will leave the U.S. as second fiddle in world trade.
    Given the U.S. is already on the way down, it will be the coup de grace…

    #39896

    Ken Barrows
    Participant

    For any country to be on top, it will still have to increase debt faster than income. I don’t know how long that will last–perhaps decades–but in the end the industrial way of live will go. The “United States” and “China” won’t matter to anyone.

    #39898

    Nassim
    Participant

    “Earth a scaled up Easter Island”

    I fully agree with what you said, however Easter Island is a case of fake history.

    The idea that the inhabitants of these islands were totally reckless and that they did not try to protect their environment is pure nonsense – derived from Jared Diamond’s book “Collapse”

    “Easter Island’s “ecological suicide” – myths and realities”

    Easter Island’s “ecological suicide” – myths and realities

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