US Economy Meltdown – The Overlooked Cause

wallstreetReading the news today, we are awash in statistics and opinions regarding the current economic challenges in North America – specifically the United States. Its been called a “credit freeze”, a “Banking Crisis”, a “Crisis of Confidence”, and obviously the result of a summer-gone-wild attitude for sub-prime mortgages. I however believe the problem is more fundamental than that.

If I had to sum it up, I’d say it boils to down to this (and feel free to quote me): North America has gone from being a net producer of goods and services to be being a net consumer of goods and services.

I’m going to use some anecdotal evidence, so those with A.D.D. feel free to skip ahead. Growing up in Canada, my first summer job was at a factory that made sweaters. In high school my best friend made his pocket money by doing the bookkeeping for a plastics firm. The 80’s weren’t easy (by any stretch), but jobs were present and growth was consistent and steady. The dip in 87 was also short lived and not nearly as global as the current crisis.

Somewhere between the 1980’s and 2008 the culture in North America decided it was better to produce goods overseas where costs were lower and regulation less intrusive. The factories shut down, the jobs moved over to the service sector, or in many cases lost completely. Normally a loss of jobs of this magnitude would result in lowered standard of living, instead, the opposite occurred.

Thru the liberal use of debt (both public and private), and a lowered price for goods (hello Walmart) the good times kept rolling. The problem was that any system that relies on IOU’s to function is doomed to failure. The US Government now owes over 10.2 Trillion Dollars, and has on-the-book obligations for another 50 Trillion Dollars for Medicare and Social Security. In the words of David Webber – thats 480 Thousand dollars for every man-woman and child.

So how do we solve it? Like all things in life – the answer is complicated.

  1. The current bailout plans must be executed to stabilize the system
  2. Medicare and Social Security need to be funded or eliminated. The current status quo of “We’ll figure it out later” isn’t working, and just heaps 50 Trillion dollars of obligations on the next generation. The solution may also involve work sharing (were retired folks share jobs with the younger generation – thus feed tax and secondary revenues into the system) or an increase in the mandatory retirement age.
  3. The actual budget deficit needs to be serviced. Saying deficits “Don’t Matter” as Dick Cheney often spouts, is tantamount to guaranteeing another economic crisis.
  4. It is necessary for a sustainable economy that the US start manufacturing goods for local consumption. These goods can be resources (like oil), goods (more than auto’s – start feeding Walmart with USA goods), and lastly services. The service industry should be the employer of last resort as their are already too many service industry employee’s.

Bah – they’ll figure it out sooner or later – and I’m sure smarter minds are working on it – but I had to vent.