Share this
Twitter
Myspace
Digg
Del.icio.us
Reddit
Slashdot
Furl
Yahoo
Technorati
Newsvine
Facebook
Export PDF
Print
E-mail
TagsBY ROY NERSESIAN
COMMENTARY
People are susceptible to the easy way out. For instance, people in oil exporting nations feel that they do not have to work. That's the reward for being fortunate enough to be born with an oil field under your feet. The per capita GDP for many of these nations is declining. So we laugh at their ignorance, yet we bought the Walmart fairytale hook, line and sinker. Shift our manufacturing base to China, buy the cheap goods made by Chinese coolies paid $2 per day in exchange for our artistically designed currency. Then Americans were told, indeed urged by Bush, to keep on buying no matter what is happening to keep the economy rolling. Thus our economy changed from one of production to one of consumption where buying power was not limited by income, but by pervasive borrowing on a wide variety of credit instruments.
With the implosion of the real estate bubble and the collapse of the house of debt, the federal government has substituted its ability to expand debt as a substitute for shrinking consumer debt to maintain demand. How can adding federal debt solve a problem caused by too much consumer debt? The unraveling of the economy is continuing to add to unemployment, which is not 10 percent, but more like 20+ percent when the total count is made of unemployed receiving and having exhausted unemployment benefits, and those who work part time as a substitute for the loss of fulltime jobs.Unemployment and loss of permanent jobs substituted with low paying part time work cause foreclosures. Foreclosures also occur from the continuing fall of property values creating negative equity. When foreclosures cease occurring in such large numbers and stories begin to circulate that people are actually finding work, then we at last have a signal that things are getting better. The slowing down of the rate of unemployment is not a sign of incipient economic improvement.
But living standards will not get back to where they were because we are permanently encumbered by the necessity to repay loans be they personal, municipal, state or federal. We are forced to dedicate a greater portion of our income for debt repayment because no one is offering us more debt to refinance our mountain of debt. Moreover we will be paying higher municipal taxes, state taxes and federal taxes to enable these political entities to repay their debt load for the exact same reason.
Jobs lost from following the Walmart fairytale are lost forever. Water flows down hill. Except for rare exceptions, there is no way for jobs to migrate from where workers receive $2 per day to one where they receive $7 per hour.
The reason why China still has a strong economy after having lost its export market to the United States is that they are loaded with cash from their export earnings that can be spent on improving their infrastructure. We, on the other hand, are buried in a sea of debt. Our options are limited. Our weakened currency has helped our exports, but to prevent the total collapse our currency, we may have to raise interest rates to keep China, Japan and the oil exporters from liquidating their dollar holdings. Paying a real rate of interest to stabilize the currency would only exacerbate the economic mess we're in.
How then can prognosticators tell us that the "current recovery" will restore our economy by mid-2010? Exactly what hallucinatory drugs are they smoking? We sought the easy way out by borrowing ourselves into prosperity and now it's not going to be so easy to find another easy way out.
Roy Nersesian, a resident of Maplewood, teaches at the Leon Hess School of Business at Monmouth University in West Long Branch and also at the Center for Energy and Marine Transportation at Columbia University. He has authored several books, the last on Energy for the 21st Century published by M.E. Sharpe.
