The October Numbers
Continuing Stress on the Jobs Front
By PAUL CRAIG ROBERTS
Republicans are celebrating 337,000 new jobs created in October, but a look behind the numbers shows the same discouraging trend of the past four years. The US economy can only create jobs in government and in areas of domestic services that cannot be outsourced or replaced with imports.
Government employment accounts for 41,000 of the new jobs. The private economy produced 296,000 jobs in October. Of these jobs, 71,000 are in construction; 36,000 are in wholesale trade, retail trade, transportation and warehousing; credit services account for 17,000 jobs; employment services (primarily temporary help) account for 55,000 jobs; school administrators and teachers and health care and social assistance account for 62,000 jobs, bars and restaurants account for 20,000 jobs.
These are not "new economy" jobs, and they are not "old economy" manufacturing jobs. Today the US economy has 2.7 million fewer manufacturing jobs and 1.26 million fewer private sector jobs than when Bush was inaugurated. The only areas of job growth are in government, waitresses and bars, education and health services, construction, and credit intermediation. Gains in these areas have been more than offset by losses elsewhere.
During October US manufacturing lost another 5,000 jobs. Charles W. McMillion, president of MBG Information Services, reports that hours worked for non-managerial manufacturing workers have declined 7.6% since the current recovery began--an unprecedented development. "Never before," writes McMillion, "has a recovery failed to increase the number of hours worked in manufacturing."
America's growing dependence on imported manufacturing goods and knowledge services means a swelling trade deficit that cannot be brought into balance by selling more abroad.
No one knows how much longer the dollar can stand the strain of heavy foreign borrowing. The policy of the Bush administration is to ignore the problem until the dollar collapses--at which time it will be too late to avoid dollar dumping as the world abandons the dollar as the reserve currency.
When that time comes, it will be very unpleasant--particularly if the US is overextended in empire-building adventures abroad.
The alliance-shattering policy of the Bush administration has left America in a weak position to call on allies for help in supporting a wounded dollar.
Americans need to wake up and to realize that their country's superpower status is imperiled.
Counterpunch
------------------------------------
The Coming Currency Shock
Declining Superpower Act
By Paul Craig Roberts
11/16/04 -- China's currency peg to the US dollar prevents correction of the US trade imbalace and imperils the US dollar's role as reserve currency.
In the post World War II period, the dollar took over the reserve currency role from the British pound, because the supremacy of US manufacturing guaranteed US trade surpluses. The British pound lost its role due to debts of two world wars, loss of empire, a run down industrial base, and socialist attack on UK business.
The reserve currency conveys unique advantages on the favored country. As the reserve currency, the US dollar is guaranteed a high level of demand. Foreign central banks hold their reserves in dollars, and countries are billed in dollars for their oil imports, which requires other countries to buy dollars with their currencies.
As a reserve currency fulfills world needs in addition to the functions of a domestic currency, the favored country can hemorrhage debt for a protracted period on a scale that would promptly wreck any other country's currency.
This advantage is a two-edged sword, because it permits the reserve country to behave irresponsibly by running large trade and budget deficits. When the tide turns against the reserve currency, its exchange value collapses.
The reason for the collapse is the huge stock of reserve currency held by foreigners. When other countries conclude that their hoards of dollars represent claims that the US cannot meet, dollar dumping begins. Financing for US debt dries up; interest rates rise; imported goods become unaffordable and living standards fall.
Flight from the dollar is already underway. During the past two years, the US dollar has declined 52% against the new European currency, the Euro. This decline is striking in view of the sluggish European economy and the fact that many analysts regard the Euro as merely a political currency.
Indeed, the dollar is declining against all currencies that have any international standing: the British pound, the Canadian dollar, the Australian dollar, and even against the Japanese yen despite Tokyo's intervention to support the dollar.
Overcome by hubris and superpower delusion, US policymakers are unaware of America's peril. Economists and pundits are equally in the dark.
Economists believe that decline in the dollar's exchange value will correct the US trade deficit by reducing imports and increasing exports. Once upon a time a case could be argued for this logic. But that was a time before US corporations took to outsourcing jobs and locating production for US markets offshore.
US imports of goods and services rise each time a US factory moves offshore or a US job is outsourced. Goods and services produced offshore by US corporations for US customers count as imports and worsen the trade deficit. The US cannot reduce its trade deficit by increasing sales to China of goods made by US firms in China. As Charles McMillion, president of MBG Information Services, concisely summarizes: "Outsourcing is export substitution."
It is amazing that US policymakers and economists do not understand that dollar devaluation is meaningless as long as China keeps its currency pegged to the dollar.
America's greatest trade imbalance is with China. In 2000 the US merchandise trade deficit with China became larger than the chronic US trade deficit with Japan. By 2003 the US trade deficit with China was almost twice as large as the US deficit with Japan: $124 billion versus $66 billion. This year the US trade deficit with China is expected to be $160, a 29% increase from last year.
This imbalance cannot be corrected as long as China maintains the peg. As the dollar falls against the Euro and other currencies, the Chinese currency falls with it, thus maintaining China's advantage over US goods in world markets.
Both the Clinton and Bush administrations are guilty of permitting China to maintain a grossly undervalued currency that sucks productive capacity out of the US. The combination of cheap Chinese labor and an undervalued currency are destroying US middle class living standards.
As America's industrial base erodes, so does its competitiveness and ability to close its trade deficit through exports.
Currency markets cannot correct the undervalued Chinese currency, because China does not permit its currency to be traded and there are insufficient stocks of Chinese currency in foreign hands with which to form a currency market.
Sooner or later the peg will come to an end--perhaps when China fulfills its WTO obligation to let its currency float. When the peg ends, it will deliver a severe shock to US living standards. Suddenly, Chinese manufactured goods--including advanced technology products--on which the US is now dependent will cost much more. Overnight, shopping at Wal-Mart will be like shopping in high-end department stores.
China accounts for a quarter of the US trade deficit and for one-third of the US deficit in manufactured goods, is the second largest source of US imports after Canada, and is America's third largest trading partner as conventionally measured. Despite these facts, the US government does not publish full current account data for China, instead lumping China in with "Other Countries in Asia and Africa." This keeps the magnitude of the problem out of sight.
Canada and Mexico rank as the US's two largest "trading partners" because of double counting in the measure of imports and exports. For example, the full value of auto bodies shipped across the borders to Canada and Mexico for assembly operations are counted as "exports" when they leave the US and as "imports" when they return.
In contrast US "trade" with China involves almost no double counting of component parts.
Recently, Goodyear Tire and Rubber Company declared its intention to close all US plants and to manufacture offshore for US markets. Each time the US loses an industry, America's export potential declines and America's imports rise. This scenario guarantees a rising trade deficit and the end of the dollar's reserve currency role.
Dr. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy during 1981-82.
http://www.counterpunch.org/roberts11162004.html
-------------------------
Just a comment to the last article:
If China does decide to losen the peg it will simultaneously mean that they will no longer keep buying US bonds with their export profits at the same rate as previously. We then enter the scenario where the world stops lending money to the US.
" In June, Henry said America's budget and current account deficits amounted to a "substantial risk for international financial stability".
If, or when, the rest of the world decides to stop funnelling the $US2 billion per working day that the US needs to pay for its spending, Henry says we're all in for "an economic adjustment of major proportions".
American interest rates would skyrocket and the greenback would drop like a stone, for starters, which is why Henry argued so hard for the Reserve Bank board to drop interest rates pre-emptively this year."
smh.au
Continuing Stress on the Jobs Front
By PAUL CRAIG ROBERTS
Republicans are celebrating 337,000 new jobs created in October, but a look behind the numbers shows the same discouraging trend of the past four years. The US economy can only create jobs in government and in areas of domestic services that cannot be outsourced or replaced with imports.
Government employment accounts for 41,000 of the new jobs. The private economy produced 296,000 jobs in October. Of these jobs, 71,000 are in construction; 36,000 are in wholesale trade, retail trade, transportation and warehousing; credit services account for 17,000 jobs; employment services (primarily temporary help) account for 55,000 jobs; school administrators and teachers and health care and social assistance account for 62,000 jobs, bars and restaurants account for 20,000 jobs.
These are not "new economy" jobs, and they are not "old economy" manufacturing jobs. Today the US economy has 2.7 million fewer manufacturing jobs and 1.26 million fewer private sector jobs than when Bush was inaugurated. The only areas of job growth are in government, waitresses and bars, education and health services, construction, and credit intermediation. Gains in these areas have been more than offset by losses elsewhere.
During October US manufacturing lost another 5,000 jobs. Charles W. McMillion, president of MBG Information Services, reports that hours worked for non-managerial manufacturing workers have declined 7.6% since the current recovery began--an unprecedented development. "Never before," writes McMillion, "has a recovery failed to increase the number of hours worked in manufacturing."
America's growing dependence on imported manufacturing goods and knowledge services means a swelling trade deficit that cannot be brought into balance by selling more abroad.
No one knows how much longer the dollar can stand the strain of heavy foreign borrowing. The policy of the Bush administration is to ignore the problem until the dollar collapses--at which time it will be too late to avoid dollar dumping as the world abandons the dollar as the reserve currency.
When that time comes, it will be very unpleasant--particularly if the US is overextended in empire-building adventures abroad.
The alliance-shattering policy of the Bush administration has left America in a weak position to call on allies for help in supporting a wounded dollar.
Americans need to wake up and to realize that their country's superpower status is imperiled.
Counterpunch
------------------------------------
The Coming Currency Shock
Declining Superpower Act
By Paul Craig Roberts
11/16/04 -- China's currency peg to the US dollar prevents correction of the US trade imbalace and imperils the US dollar's role as reserve currency.
In the post World War II period, the dollar took over the reserve currency role from the British pound, because the supremacy of US manufacturing guaranteed US trade surpluses. The British pound lost its role due to debts of two world wars, loss of empire, a run down industrial base, and socialist attack on UK business.
The reserve currency conveys unique advantages on the favored country. As the reserve currency, the US dollar is guaranteed a high level of demand. Foreign central banks hold their reserves in dollars, and countries are billed in dollars for their oil imports, which requires other countries to buy dollars with their currencies.
As a reserve currency fulfills world needs in addition to the functions of a domestic currency, the favored country can hemorrhage debt for a protracted period on a scale that would promptly wreck any other country's currency.
This advantage is a two-edged sword, because it permits the reserve country to behave irresponsibly by running large trade and budget deficits. When the tide turns against the reserve currency, its exchange value collapses.
The reason for the collapse is the huge stock of reserve currency held by foreigners. When other countries conclude that their hoards of dollars represent claims that the US cannot meet, dollar dumping begins. Financing for US debt dries up; interest rates rise; imported goods become unaffordable and living standards fall.
Flight from the dollar is already underway. During the past two years, the US dollar has declined 52% against the new European currency, the Euro. This decline is striking in view of the sluggish European economy and the fact that many analysts regard the Euro as merely a political currency.
Indeed, the dollar is declining against all currencies that have any international standing: the British pound, the Canadian dollar, the Australian dollar, and even against the Japanese yen despite Tokyo's intervention to support the dollar.
Overcome by hubris and superpower delusion, US policymakers are unaware of America's peril. Economists and pundits are equally in the dark.
Economists believe that decline in the dollar's exchange value will correct the US trade deficit by reducing imports and increasing exports. Once upon a time a case could be argued for this logic. But that was a time before US corporations took to outsourcing jobs and locating production for US markets offshore.
US imports of goods and services rise each time a US factory moves offshore or a US job is outsourced. Goods and services produced offshore by US corporations for US customers count as imports and worsen the trade deficit. The US cannot reduce its trade deficit by increasing sales to China of goods made by US firms in China. As Charles McMillion, president of MBG Information Services, concisely summarizes: "Outsourcing is export substitution."
It is amazing that US policymakers and economists do not understand that dollar devaluation is meaningless as long as China keeps its currency pegged to the dollar.
America's greatest trade imbalance is with China. In 2000 the US merchandise trade deficit with China became larger than the chronic US trade deficit with Japan. By 2003 the US trade deficit with China was almost twice as large as the US deficit with Japan: $124 billion versus $66 billion. This year the US trade deficit with China is expected to be $160, a 29% increase from last year.
This imbalance cannot be corrected as long as China maintains the peg. As the dollar falls against the Euro and other currencies, the Chinese currency falls with it, thus maintaining China's advantage over US goods in world markets.
Both the Clinton and Bush administrations are guilty of permitting China to maintain a grossly undervalued currency that sucks productive capacity out of the US. The combination of cheap Chinese labor and an undervalued currency are destroying US middle class living standards.
As America's industrial base erodes, so does its competitiveness and ability to close its trade deficit through exports.
Currency markets cannot correct the undervalued Chinese currency, because China does not permit its currency to be traded and there are insufficient stocks of Chinese currency in foreign hands with which to form a currency market.
Sooner or later the peg will come to an end--perhaps when China fulfills its WTO obligation to let its currency float. When the peg ends, it will deliver a severe shock to US living standards. Suddenly, Chinese manufactured goods--including advanced technology products--on which the US is now dependent will cost much more. Overnight, shopping at Wal-Mart will be like shopping in high-end department stores.
China accounts for a quarter of the US trade deficit and for one-third of the US deficit in manufactured goods, is the second largest source of US imports after Canada, and is America's third largest trading partner as conventionally measured. Despite these facts, the US government does not publish full current account data for China, instead lumping China in with "Other Countries in Asia and Africa." This keeps the magnitude of the problem out of sight.
Canada and Mexico rank as the US's two largest "trading partners" because of double counting in the measure of imports and exports. For example, the full value of auto bodies shipped across the borders to Canada and Mexico for assembly operations are counted as "exports" when they leave the US and as "imports" when they return.
In contrast US "trade" with China involves almost no double counting of component parts.
Recently, Goodyear Tire and Rubber Company declared its intention to close all US plants and to manufacture offshore for US markets. Each time the US loses an industry, America's export potential declines and America's imports rise. This scenario guarantees a rising trade deficit and the end of the dollar's reserve currency role.
Dr. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy during 1981-82.
http://www.counterpunch.org/roberts11162004.html
-------------------------
Just a comment to the last article:
If China does decide to losen the peg it will simultaneously mean that they will no longer keep buying US bonds with their export profits at the same rate as previously. We then enter the scenario where the world stops lending money to the US.
" In June, Henry said America's budget and current account deficits amounted to a "substantial risk for international financial stability".
If, or when, the rest of the world decides to stop funnelling the $US2 billion per working day that the US needs to pay for its spending, Henry says we're all in for "an economic adjustment of major proportions".
American interest rates would skyrocket and the greenback would drop like a stone, for starters, which is why Henry argued so hard for the Reserve Bank board to drop interest rates pre-emptively this year."
smh.au
