Sunday, October 29, 2006

The squeeze is on

Median household income in America has declined an average of 6% nationwide, from 1999 to 2005:

In Olathe, Kansas, the average price for a new home has doubled in the past five years, while median household income in Kansas has dropped 9.8%. Rents are now climbing as well.

Compounding this dismal picture, the value of a dollar declined by 15% from 1999 to 2005.

But there is another aspect to this financial woe being faced by so many, and that is: China. Already, major construction projects are facing delays and cost overruns, because they are now competing with China for concrete and steel. In less than two years, from June 2003 to April 2005, the price of steel doubled. Prices for copper, gypsum, plywood, and lumber are also significantly higher, and lead times for material delivery has jumped to eight months (from three).

It is obvious that this creates havoc with the construction industry, but we might want to think about what’s next: in our much-vaunted globalized economy, how long will it be until the “Chinese competition” story will instead be about food?

China’s game plan is obvious to anyone willing to exercise some foresight. They have already bought America, lock, stock, and barrel; the only question is when they will choose to call in their paper debt, money that will be used to outcompete us in every conceivable market until we are, for all intents and purposes, a third world nation, exporting only raw materials to the rest of the world, and scrabbling around to feed our populace (or not).

Already we are a nation that has forgotten how to manufacture goods. We have destroyed our own factories, and sold all our machine tool knowledge to others, with the mistaken belief that we can ride on our wealthy laurels from here on out. What will happen if we suddenly need to amp up production of warships, as we did in WWII? We don’t even have the steelmaking capacity for the enterprise.

But the real tragedy is our loss of manufacturing skill, our abandonment of the apprenticeship system of teaching the trades to the next generation. We have made the assumption that we can buy our way into prosperity, but then we turned around and sold our future to the highest bidder, and that bidder was, mostly China. We “purchased” $243.5 billion of goods from China in 2005, and sold them just $41.9 billion, sending them a net of $201.5 billion in just one year.

China is not the biggest holder of America’s indebtedness - Japan is - but China presently holds about $323.5 billion of our total $1.886 trillion debt, or about 17.2% of the total. “At the end of 2004, foreign holdings of Treasury debt were $1.886 trillion, which was 44% of the total debt” and that number has continued to climb. We are in hock up to our ears, but what we are ignoring is the effect that this will have on prices, and our personal ability to purchase both essentials and luxuries when we can so easily be outcompeted by other, non-debtor, nations.

And just to top off this tale of woe, consider the fact that in this country it is perfectly legal for foreign nationals to buy any and all real property of their choosing. This is not the case in most countries, but in the U.S., American citizens who are facing the economic squeeze caused by corporate and governmental monetary policies are also having to compete with wealthy investors who are citizens of those countries where we are sending all of our nation’s money. It doesn’t take a doctorate in economic theory to comprehend the price pressures that result from these policies, and their impact on real estate prices here.

In fact, I think that the possession of an economics doctorate might just hinder one’s comprehension of the big picture of what is being done to our country by policies that favor corporate interests, which are defined by law to be entirely self-serving of the corporation without a second glance to what is good for the citizens or the country, and by policies that favor successful investment over any kind of productive enterprise.

All we are watching are the results of several decades of globalization policy coming home to roost. We really should be paying attention, because what use to us are liberty or freedom (what’s left to us following Bush’s gutting of the Constitution, that is) when we can’t take care of our basic physical needs of food and shelter?


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