We all know that Stott’s law is a truism, and that the more of anything there are, the less they will be worth. This means that inflation has to happen, and of course is happening, regardless of that the goons in DC say. (Inflation is perhaps 12-15%, but DC says it is now 2.5%) Commodities alone, are up 30%, and gas is now averaging close to $2 per gallon. Milk will soon go up in dollars, and so it goes. Anyone who believes the federal government’s statistics on virtually ANYTHING, is grossly miss-directed. It is said that a million dollars a minute, is our trade deficit, and that is frightening. A million paper dollars a minute, go out of, more than come in to the US.
Where do they go? In the main, to China and India, with a lessening amount to Japan. White collar jobs go to India, simply because they are poverty ridden and speak English, thanks to the British civilizing them a hundred years ago. The Indians now, as is the usual case, hate the Brits. Most people eventually kick a gift horse in the mouth. Imagine where India would be now, if the Brits hadn’t literally taken them out of the dark ages, and into civilization. The British landmark architectural buildings still stand, even though they are decaying rapidly. A lot of white-collar jobs are off-shoring themselves to India. China is booming, as was Mexico and Japan. The gleam in the Mexican economy had dulled, as has Japan’s. Why? Because China can make things cheaper than Mexico, even counting shipping across the Pacific Ocean. India can’t, because aside from being English speaking, it is industrially backward and undeveloped.
Japan’s economy hit the skids a few years ago, with the Nikkei market going from over 39,000 to a low of about 8,000. Why did the Japanese economy go south? Partially because of a reason few understand, and that is far too many dollars. The buck is still the world’s “reserve currency,” in spite of its rapidly becoming “helicopter money.” This means that things are priced in dollars, and dollars are what nations accumulate and deal with. Oil and gold are priced in dollars for the most part, even though the euro is making headway. What common thing happened to Mexico, Japan, and now India and China? A huge supply of dollars, which caused them to over-build everything with their new largess.
China is doing exactly the same thing. China is taking huge amounts of oil, steel, and every commodity there is. China is an expanding economy, and is gobbling up dollars, gold, silver, scrap metals, cement, and sheet rock. China has pegged its currency to the dollar, but this will end soon. In the mean time, China’s cheap labor and enlarging manufacturing capability, has brought prosperity to a small segment of China. Huge amounts of dollars are in China, like they were in Japan and Mexico. Trade surpluses are nice, but they mostly lead to an economic collapse, because the nations receiving the prosperity, don’t use it wisely. Trade imbalances and deficits hurt us. For many years, America exported everything as fast as the goods could be made. WW II left America with intact factories and industrial might, while Japan’s was wrecked, and China had none to begin with. The cheap labor was undeniable.
The first Honda car imported into the US, was a miserable two cylinder affair, which was a joke. The first transistor radios from Japan were junk, as were most Japanese imports in the beginning. Japan learned quickly, and especially since America foolishly rebuilt her. Japan’s output became second to none in quality, while at the same time was cheap, due to low wages and taxes. The Japanese aren’t great inventors, but they surely do copy well. Japan didn’t invent what they sold to us. They improved on it, had adequate quality control, and had cheap labor. The dollars rushed into Japan, and land in Tokyo was sold by the square foot. Japan could do no wrong, and prosperity was everywhere, with rising prices, rising stock market, and bright lights everywhere. Too many dollars caused prices to go up in Yen, because they were automatically converted into yen as they came in. Inflation! It had to top out, and it did. Trillions of yen were lost when the bubble burst, just like trillions of dollars were lost, when the NASDAQ bubble burst. Land went down, and banks in Japan are still stuck with worthless, non-performing loans, which they refuse to acknowledge or account for on their books.
The dollars are pouring into China, JUST AS THEY DID IN JAPAN. Could the same thing happen in China, as happened in Japan, and even in Mexico? You bet, and it will, but I don’t know when. When things happen too soon, in any situation, it becomes a bubble. Be it an IPO, new car model, (PT Cruiser) toy, (Hula Hoops), or fad of any kind; that bubble will burst. It always has, and always will. A new restaurant will be crowded at first, while people try it out. Then that restaurant bubble will burst, and if the place is good, it will do well. Economic bubbles, stock bubbles, and yes, even precious metals bubbles, will always burst when they get too big for their value or worth. When the Chinese cease pegging their yaun to the dollar, that will be the beginning of the Chinese bubble’s deflation.
As it is now, the Chinese are building as fast as they can. They are building everything with the flood of dollars pouring into their land. It’s like they struck the lottery, and can’t spend it fast enough. Not only the world’s biggest dam, but now cars. Chinese cars are junk, but they’ll learn, and will eventually try to import them into the US, as does Korea, which is another example of a bubble bursting with too many dollars in the till. The first Korean autos were junk, but they are now much improved, I hear. Korea was flooded with dollars, thanks to their cheap labor, and they also had a severe recession, due to becoming carried away with all of the sudden prosperity. Korea now has some of its electronics made in China, because of the cheap labor, which Korea no longer possesses.
How long before China’s bubble bursts? It depends on whether manufacturing moves to another location with cheaper labor. China’s labor costs will increase as did Mexico’s, Japans, and Korea’s. This will open a new area for manufacturing. When this happens, if it does, China will be stuck with too many factories, and too many employees, as was Mexico and Japan. China’s economy will crumble, as did Japan’s, and the Mexican and Korean slowed. China’s banks are already in sad shape, just like Japan’s, and they have already started crumbling. This one world thing, is partly a political idea, but it is the marketplace in operation, whether we like it or not.
I hate it that manufacturing, and now white-collar jobs are fleeing America. I despise it, and wish the Congress would pass tariffs to at least slow the outflow of dollars and inflow of goods. I really don’t give a damn about China, Mexico, Korea, or Japan. Let them go straight to hell, not pass Go, and not collect $200, for all I care. It is our government, which has taxed us so severely, which has caused American labor to be so expensive. It is the public schools, which waste huge sums of money and don’t educate, that has caused factory property taxes to be so high, further exacerbating the situation. It is government profligacy and nonsense, which has caused taxes to be so high. It is endless promises and largess from the public treasury, which has caused the dollar to slide, and lose value every day. We can write and vote and scream, but it will do no good.
It has now gotten to the point where Greenspan and Co. can only do one thing, and that is but a short term fix. They can keep interest where it is now, and print and print and print. It has become necessary to raise interest to keep the foreigners investing, and this might harm the real estate market, causing a depression, more inflation, and a deflation in real estate. He is caught between a rock and a hard place. Catch 22. The current situation has come about not suddenly, but over the years since FDR. FDR started the welfare state, Social Security, and a host of other bureaucracies, which have caused huge government outlays, and consequent proliferation of dollars. Two World Wars, Korea, Vietnam, and now Iraq, have been hugely expensive, and were, and are being fought with the printing press. This has caused wages to go up, while the standard of living stays put. The escalating wages, have forced off-shoring, and it’s that simple. It isn’t union’s fault, or the consumer’s fault. It is pure and simple government out of control, and it has been that way since 1933, and even beginning at the time of Woodrow Wilson’s WW I.
It has all caught up with us, and the citizenry can do nothing about it but protect themselves.