Since the 1950's, it seems to me that we have seen the emergence of three different economies within the US. The original was the bricks and mortar/industrial economy - the one that made cars, airplanes, televisions, and so on. Then we saw the evolution of the financial services industry - a mother giant of late with more notional value than the entire world's gross product. And not to be overlooked - because it serves both, is the services economy.
It's a kind of three-legged milk stool. Supposedly.
Unfortunately, now that tables have turned on the financial services leg, it will 'take down' a big chunk of the services sector as well. And, since we have irresponsibly allowed American corporations to outsource most of our former industrial economy to China and India, the industrial leg of that milk stool has also been hacked.
What stands as a challenge for the Obamanation is how to repair the foreshortened milk stool. I think you know the answer...it's obvious to me: Rebuild infrastructure and on-shore industry.
Imposing tariffs, as was done in the last depression under the Smoot Hawley Tariff Act will likely not be played this time around, although I'd argue that bad Fed policy in the last depression had more negative influence than did Smoot-Hawley, but the capitalists have managed to effectively rewrite history and give a thorough black-eye to tariffs. Big money to be made playing them wage-rate differentials when sales flatten out.
The reality the fat-cats won't cop to is that making goods overseas - and I don't care whether it's the apple from another continent, or a refrigerator in an Asian country - happened because the wage-rate differential between a higher standard of living economy and a lesser one fell to the bottom lines - and that's bonus time. Not to say that's bad - hell, it's the same strategic decision I'd make, too, if my bread were buttered only on the one side..
The problem at a national policy level is whether the export of jobs has gone so far as to now be unrecoverable with something simple - like tariffs or a stimulus - or whether the rest of the world will just start backing away from US dollars. I guess we'll find that out over the coming few weeks with the G-20 meetings next weekend.
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My friend The Bond Dude made a very interesting observation to the effect that he thinks China will keep playing the dollar game only so long as it helps China build a strong middle class. The way he's got it penciled, once the Chinese have a strong enough middle class (e.g. enough consumers - perhaps 300-million or so...) then the Chinese can let their currency appreciate extensively relative to ours and assume Masters of the Universe global power.
They could then phase their industrial output into domestic consumption - and paradoxically, the recent earthquake in China has set off a massive rebuilding effort - and that does what? Increases the growth rate for China's middle class.
You have noticed, I hope, that China's premier Wen Jiabao says "Industrialized nations should ditch unsustainable lifestyles"? Wonder if he's been lurking around here...a rational person looking at global numbers of humans and how much resource is left would likely come to no other conclusion.
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Some indications are that the Obamanation may be a lot more 'talk' than 'action' when it comes down to tangible change. Headlines like "Obama's change leaves by the back door" are cropping up in reaction to the disappointing appointments of old-guard paradigm defenders and ex-Clintonistas in the early days of the next administration. Have we been snookered by the PTB? I wouldn't bet against that...
Ultimately, I expect the reason the market climbed last week was that the Obamanation showed its true stripes: It's going to be a refried Clinton era with, oh sure, a few new faces who will likely talk more about change that get down to the business of infrastructure rebuilding, going green, and articulating a believable, achievable new kind of American Dream.
If the Obamanation doesn't identify and strong act on the fundamental causes of disappearing jobs, salutatory initial moves like extending unemployment benefits are going to turn out 'nice but no cigar.'
Till these guys articulate a plan to rebuild the milk stool, onshore jobs, and reel in the banksters, it's the same train wreck all over again - just with a different engineer.
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