Coolbrucelong wrote:Axil:
Eliminate the defense department and the budget problem remains
The root cause of the US budgetary problem is the lack of tax payers. Capital investment means jobs and few if any of the world’s capital managers are investing in the US. They would now rather send capital to China. The US was at one time the only safe place to invest money; but no more.
Capital manages worldwide have now been irrationally dumping massive amounts of dollars into China to feed a liquidity bubble while the capital markets in the US have been very tight affecting a meager jobs creation process.
When the US Federal Reserve prints money to stimulate the US economy, that money flows to China instead. Hard as it is to believe, China has exhausted its supply of labor causing an escalating inflationary wage price spiral. The money that is supposed to pay for the employment of new US workers is going instead to fund inflationary pay raises for Chinese labor.
China’s decision to keep its currency weak has caused the Chinese government to lose control of inflation and risk fuelling and uncontrolled wage-price inflation.
It would be very advantageous to allow the Chinese currency to appreciate as a way of controlling their inflation. Of course, this would undermine Chinese exports and provide incentives in the US to rebuild some of its exported industrial base, something that the Chinese are loath to see happen. But the current bilateral situation is unsustainable. Something has to give sooner or later.
From a Chinese domestic perspective, the Lewis Turning Point (according to Sir W. Arthur Lewis, developing countries' industrial wages begin to rise quickly at the point when the supply of surplus labor from the countryside tapers off. The point, named after him, has recently gained wide circulation in the context of economic development in China) will crater productivity levels as wage rates rise.
The corollaries of this increase in wages and lower productivity are slower Chinese GDP growth, higher consumption, lower savings and a deteriorating external balance of payments aka current account deficits.
Also, Chinese labor shortages could spell inflation and trade deficits for China. When the wages of US workers and Chinese workers grow more equal, then the Capital will flow to India and create two billion new Indian jobs. These days, Capital will always flow to the lowest paid work force… unless somebody does something about it.
