The New “Trickle-down” Economics
Today's Financial News - Posted December 22, 2008
Toyota Motor’s (NYSE:TM) first loss in 71 years indicates that it’s not U.S. carmakers who’re on the wrong track…
by J. Christoph Amberger
Baltimore — (TFN): In the age of globalism, low labor cost and a cheap currency are the best competitive advantage for a national economy. For the longest time, Japan managed to maintain this advantage by manipulating its currency… and preventing the rival U.S. dollar from getting too cheap buy stockpiling billions in the Bank of Japan’s foreign currency reserves.
China owes its growth to two factors. Dirt-cheap labor (at least up until now). And tethering the yuan to the falling dollar—making sure the greenback (and hence, Chinese labor) remained cheap by accumulation the largest foreign currency reserves in the world.
But monetary policy can only fine-tune an economy—whose strongest commodity is domestic demand. In countries where the populations are either too small (Australia), too old (Japan), too passive (Europe), or too poor (China) to generate vibrant, large-scale domestic consumption, economic growth had to be imported by piggybacking on other economies.
For decades now, The United States had to play engine to world propsperity growth.
Japanese and European economic growth depended on selling to the Americans directly or indirectly, by selling resources and machines to China who’d use them to manufacture goods for the Yankees.
When America stopped buying, the global engine stalled. China’s economic growth is grinding to a halt. And Japan just booked a 27 percent drop in November exports compared to a year earlier. This was the biggest declin since comparable data became available in 1980.
Say goodbye to “decoupling”….
Of particular interest in the current political climate is the tidbit that Toyota Motor Corp. (NYSE:TM), the world’s second-largest automaker, expects its first operating loss in 71 years because of plunging North American and European car sales.
What World War II was unable to achieve, deferral of automotive purchase decisions by middle-class America has brought about in a few months.
But according to liberal rhetoric, U.S. car makers are in trouble because, unlike Toyota, they didn’t have enough fuel-efficient cars on the market. Yet Toyota is crashing just as Ford, Chrysler, General Motors.
Loans to keep U.S. workers making cars or reducing mortgage rates on overpriced McMansions are the latest “trickle down” fad in economics. Only that they’re trying to run a cup of water through a barrel of sand… from the bottom up. They will not do a whit to amend the core problem of the American and, hence, the global economy:
A consumer economy only works if consumers feel good about spending. Politics cannot compel them to do so. The effects of monetary policy meddling trickle down in laughable increments.
They laughed about Bernanke and his metaphor of dropping cash from helicopters to keep Americans spending.
In a few weeks, there may be no way around warming up the engines… unless you’re ready for a Fascist-style command economy that the quality of life that it inevitably produces.
Recommended Reading
“For General Motors, the news keeps getting worse”
“A lesson from a conman: Madoff’s strategy revealed”
Cordially yours,
J. Christoph Amberger
Executive Publisher, TodaysFinancialNews.com
P.S.: Quietly and very publicly, Russia is moving its game pieces into position to checkmate the European energy market. Within the next 59 days, the Kremlin will strike… and three small companies will go through the roof! Read it in our free special report!
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