Liddick: Ready for scary?
Step one: What did the President actually accomplish in his 10-day get-out-of-Dodge trip to Asia, besides taking credit for a modest number of business deals already in the works? If you can’t recall much, that may be because there wasn’t much to recall. Did Korea agree to a more open trade regime? Don’t be silly. That would endanger the ruling party there. Did China agree to let their currency float? Sure, and the celebratory balloons were dropped by flying pigs. Did anyone agree to take steps to address their trade surplus with us? Stop, you’re killing me …
No, despite all that new “respect” we were promised back in 2008, our Asian trading partners ignored our concerns – again. Maybe the president was too distracted to notice: explaining that changing the timetable for withdrawal from Afghanistan is not really changing the timetable for withdrawal must require concentration. But still.
The upshot of this pocketful of nothing is that we will continue to do business as usual, and that is not good. For the reason why, go to any large store and start looking for “made in America” labels. Take your time. You’ll need it.
Step two: Goaded by persistent trade deficits and partners reluctant to take any action which might result in loss of jobs – save on our side of the equation – a number of US politicians have begun to explore import restrictions, particularly through tariffs, which would offer the benefit of adding a revenue stream to federal income. Be afraid. Be very afraid.
To understand why, consider our history. In our last great economic crisis, both manufacturers and farmers pressured Congress and the president alike to “preserve American jobs” through increased tariffs on imports. The president vacillated but finally – against the urgings and advice of over a thousand economists – Herbert Hoover signed the Hawley-Smoot tariff. Manufacturing and international trade quickly slumped and the Great Depression went global. Fine work, all.
Step three: Ben Bernanke buys bonds. Having blown through the other instruments at hand to keep the economy afloat, the Federal Reserve is now resorting to “quantitative easing.” This is a fancy word for the Fed’s purchase of both government and commercial paper from US banks and other financial institutions, replacing the latter’s holdings with currency which, theoretically, they then lend, lowering the cost of borrowing still further. There are two serious dangers here.
First, banks may not be willing to lend the additional money, nor consumers to borrow, given present uncertainty about the strength and direction of the economy and the challenges that remain ahead. Will reserve requirements rise? Health care costs balloon? How about energy? Consumer confidence? Many find the future daunting.
Second, does anyone know where the Fed gets the money it uses to buy all these notes from other financial institutions? The legal term is ex nihilo, and for those of us lacking in a classical education, that’s Latin for “out of nothing.” Yep, the money is literally “hot off the press.”
This has the additional effect of lowering the value of our currency, making our exports cheaper and our imports dearer. Sometimes called a “beggar-thy-neighbor” policy, this dodge, together with protectionist tariffs, are faves of Banana Republics worldwide, who use them to rig the game of international trade – often with deleterious effects on their citizens. It’s important to remember that a nation which cannot sell to you, will be reticent to buy from you.
There’s a desperate, blind-alley quality to these efforts; the more so when one considers that we ourselves have shown what works. The growing America of the late 19th and early 20th centuries embraced vigorous and constant competition, an appreciation for gain, deferred gratification, limited government and prideful nationalism; these worked to propel the country beyond the wildest dreams of the people of that time.
The problem is, following our own example today would require sweeping changes in attitude, work ethic and above all, patience – all three critically lacking in an America that stresses entitlement, equality of outcome, ease of accomplishment and instant gratification. These problems are exacerbated by current national leadership that calls for, rather than decries a world that is more “equal”; in which no nation or group is “better.”
But unless we can return to earlier values, we seem destined to diminish as a nation in the face of challenges from those who now embrace what we once did. Realistically, given current sociopolitical and economic realities, we should probably prepare for at least a short-term decline. Whether we are able to recoup late, time will tell.
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