Politics and Economics are Never Far Apart – The Strength of the USA Economy

Sept 24, 2012 The Telegraph Beijing hints at a bond attack on Japan
A senior adviser to the Chinese government has called for an attack on the Japanese bond market to precipitate a funding crisis and bring the country to its knees, unless Tokyo reverses its decision to nationalize the disputed Senkaku/Diaoyu islands in the East China Sea.

Human Conflicts and Distrust Abound as Always
A the world shrinks in distance, and as instantaneous communications improve worldwide, we sometimes think that human nature has changed, but it hasn’t and likely will not for the foreseeable future.

In WWII, in WWI, and in all other wars, the USA has been insulated by distance from other world powers. and was therefore protected from the ravages of war. No foreign intruder has stepped on American soil in over 200 years. This protection by distance remains a great advantage for the USA. But the US has many other advantages including a legal system that protects the rights of individuals, an economic system that relies on the rights of business and individuals, and a general distrust of large government.

No other country has these advantages
It is not foreseeable that any other country will have these advantages in our lifetime. The USSR (Russia) was a competitor, but collapsed because it could not keep up. The EU was a competitor but collapsed through lack of unified government combined with overly aggressive social planning and the resulting debt. Japan was a competitor, but fell by the wayside because of population and resource availability issues.

Now China is a competitor, but again, it lacks the essential advantages of the USA. Everything runs in cycles and it is important to understand where we are in the current cycle.

Productivity and Wages Costs – USA v China – The US Will Soon Be More Productive
Sept 23/12 Toronto Star – Harold Sirkin, senior partner Boston Consulting Group, researched and found that when comparing wage costs in the two countries, costs in the US were falling while costs in China were rising – dramatically. He predicts that in the year 2015, the US will be more productive with lower costs, than China. More and more companies are realizing this, and the result is the start of a new trend whereby jobs are coming back to the USA from China and elsewhere. Most of these jobs are flowing to the non-union southern USA, but everywhere in the US the phenomena is evident.

The USA Economy Will Recover First and Strongest
The US owes a large debt, but compared to other countries, such as Japan or Greece, it is reasonably manageable. That is not to say that the US deficit is not very serious – it is indeed extremely serious. But it is not anything like Japan’s debt.

The US Election – What Will Happen
One should remember that WWII ended the Great Depression. That period lasted from 1928 until the economic activity generated by the various aspects of WWII created massive economic activity. In that period, spending enormous sums on the war effort, and creating large debts, created a recovery from the Great Depression. The US voter is starting to realize that the call by the extreme right to dramatically cut taxes and spending, will create economic havoc, by taking money and benefits away from everyone except a privileged few. The only beneficiaries will be the extremists and the ultra rich. It is nice rhetoric, and nice sounding buzzwords, but more people are starting to realize that something is wrong with these claims.

The result will be a continued moderation of economic activities wherein the private sector will gradually rebuild this economic powerhouse.

The Signs of An Economic Rebirth
As mentioned previously, auto sales are stronger now than since before 2008. Construction of new homes is the strongest since 2007, resulting in a shortage of skilled workers. The US deficit is gradually reducing. As economic activity resumes, the deficit will automatically be reduced by tax revenues resuming their level predicted in 2007. Oil imports are at the lowest point in the last decade and shrinking. US shale gas production is increasing and the money being shipped overseas for oil imports is decreasing rapidly. Job growth in the US continues.

Be confident. The US is well on the way to recovering its dominance in world economic matters. China, Japan, Russia, the EU and everyone else will be a distant second. Accompanying this economic recovery will be a recovering stock market.

 Investing now will get you on the wagon before the band jumps on.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

Auto sales, China, Deficit reduction, Economic recovery, Energy, home builders, Importing Oil, Japan, jobs, Oil Imports, Energy, Russia, Senkaku/Diaoyu islands, Shale Gas, stock market investing, US advantages, USSR