Debt Rattle August 31 2017

“The costs of imported goods would undoubtedly rise sharply…spillover effects on underlying inflation would hit middle-class US workers…especially hard.”

Yes, they would. But if you burn down your factories, there are no longer any good options. They don’t appear again by sprinkling magic pixie dust, but with hard work and sacrifice. PS, that’s why you shouldn’t spend 30 years fighting the will of the people to burn them down in the first place. This author seems to think, like other coddled urbanites, that you shouldn’t do anything if it’s hard or it hurts. Perhaps we should burn down the remaining 10% of our factories by continuing the same policies to avoid the consequences of our actions a few years longer, n’est-ce pas?

“Lacking in saving and wanting to consume and grow, the US must import surplus saving from abroad to close the gap, forcing it to run massive current-account and trade deficits with countries like China to attract the foreign capital.”

So many things here. So we’re the poor, helpless victims of free goods from China? Wow, that does sound awful. Wait, how did we get these massive account deficits with 0% interest rates? If we have to attract capital shouldn’t rates already be 15%? Are you thinking clearly, Mr. Roach? What he’s really talking about is a perverse effect of having the world’s reserve currency, and it’s undermined every empire that’s had it: Netherlands, Spain, France, England, you name it. But this is just nonsense. You COULD just re-build out of pure cash-flow, and a country like the U.S. has nearly every resource to do so, plus the skilled workers that are, while 5x more expensive than China, also 5x more productive. But it’s not necessary. If you want to move faster, Hamilton (and others by the way) have installed what they call “The American Plan” whereby the U.S. floats internal bonds to fund its own development, where productivity would retire the bonds, instead of borrowing money from alien banks at unnecessary interest. Bad things have traditionally happened to administrations that do so — war of 1812, Lincoln assassination, recent attacks on Russia — but aside from coincidental bad luck, it’s possible, and unlike most things in economics, 100% proven. So no, we do not need ANY foreign savings to do ANY thing, Mr. Roach. In fact, we experienced astonishing prosperity under the American System up to 1912, and ever increasing poverty after we abandoned it. Compounding interest has a runaway curve like that.

So look, if the U.S. isn’t going to return to the Stone Age, where we have no steel and use sticks and stones to ward off our enemies, then yes, we’re going to have to install protectionism to re-start our industry and return it to functional trade-balance levels. That’s going to hurt like a hot poker and nobody’s going to like it, not us and not our allies. But once you’ve thrown your rock-star house party and the Boomers burned the furniture down to the walls and the roof caved in, there’s nothing but expensive bills and cleanup duty for everyone. Sorry Canada, Mexico, but you were in this party too. Time for us all to sober up and get responsible again, and show up for work at 9, or even 4am. You can do it or starve. Those are our options. Ask any guy from Harrisburg to Sacramento.