Isnt this really the problem...

[Cris Huddle]

Forgive me for not speaking in economic terms, I'm just a regular guy- Isnt the root of our economic problem (here in the US) the fact that we simply (as a nation) spend more than we make? Or in other terms, import far more than we export? Or in yet another view, (as a nation) arrent we basically an unemployed guy living on the credit his neighbors (China) afford him?

Here's what I've witnessed, and what I've deduced from the events over the past 9 years. If I'm way off in some respect, please correct me.

Over the past 30-50 years we've seen jobs in the US simply eroding- I dont think there's any denying that. As trade restrictions have eroded, middle class jobs have been outsourced to other countries where product can be produced cheaper.

Yes we enjoy lower prices because of cheap international labor, but unless I'm mistaken, this is an arrangement in which the US in on the losing end. It seems like we've been on a slow deflation of wealth and standard of living ever since we first started exporting jobs in exchange for a better "big business" bottom line, and lower prices at the checkout stand. Yes I also recognize that spending money internationally and putting other countries to work is a great way to create strong relationships and create support for a geopolitical agenda; which I’m sure played a part in our move to relax trade restrictions.

Okay, so getting to the last 9 years-

1- We’ve been eroding jobs for 30-40 years and by the late nineties the middle class is obviously weak, and huge deficits are an everyday thing.
2- We have the dot com rally that brings all kinds of private money off the sidelines and into the game- but only for that bubble to burst. So now America is even worse off than before with all that capital pretty much wasted.
3- Greenspan sees the patient (economy) go from sick to critical with the burst of the dot com bubble- The patient needs jobs, the patient needs to be saving, not living paycheck to paycheck, it needs the political will to stop the bleeding and create sustainable international trade agreements- but Greenspan lacks the tool necessary to fix the patient, he is not a legislator, he is only able to treat the symptoms. The US needed money to stave the threat of collapse. He surveyed the landscape and saw that we as an economy, although cash poor, still had an ace up our sleeve in the form of large amounts of home equity.
4- He cuts rates and it has the affect he wanted, liquidity is restored. It goes way beyond that- it gives birth to a culture of “living equity rich.” We see more BMW’s and Mercedes being driven than ever before. Frugality becomes a thing of the past as we sip our Starbucks on our way to work in the morning, debt begetting more debt as home prices soar. I would describe the US economy as having been given a shot of adrenaline with the first round of rate cuts… the patient sprang to life and appeared healthy again.. and with each round of rate cuts another shot of adrenaline was administered… only to have less and less positive affect each time… I don’t think you can blame Greenspan though, in my opinion he kept the patient alive for 6 years- more than long enough for us the American people, and legislators to get in there and finally correct the problem. We simply didn’t.
5- Now of course the credit has run out and the economy is under extreme stress and in some areas collapsing.

So finally, here’s my question- is my above diagnosis/prognosis accurate? Or is there some grand strategy in play, which at the last moment will shift ownership of this massive amount of debt away from the US… or shift a massive amount of jobs into the US? Or (likely) is this just a case of a nation’s people going to sleep at the wheel and letting their government run a muck, and will now pay the price of this debacle for years to come?

[Cal Miles]

Yes, the problem is partially due to "spending more than we [both as citizens and as a nation] make." However, it is not due to the trade deficit (imports vs. exports) and it is certainly not due to freer trade. A trade deficit is not necessarily a negative for anybody and wasn't really in this case.

I'm not sure what is meant by "eroding jobs." We have not lacked in relative job growth, but there has been a large shift from the manufacturing sector to the services sector. And that is not only due to the lowering of trade restriction, but to changes in technology and the simple development of other nations (China, India, Vietnam, etc.) which is a good thing. What is not a good thing, however, is that shift to the services sector, a sector that is largely unproductive and unsustainable. And yes, that shift did erode some of the middle class quality of life, or at least stagnate its growth.

However, I think some of your prognosis is way off.
1- Again, I'm not sure exactly what you mean by 'eroding jobs.' Yes, the members of the middle class who had been working in manufacturing jobs got squeezed as Asian countries developed. The problem there was not trade (which is inevitable, btw) but the shift from the manufacturing to services sector. What should have replaced the manufacturing jobs were jobs in research, engineering, sciences, medicine, education, sectors in which the USA has comparative global advantage.; not services (retail, financial, etc).
2-Yes, the money spent on the dot com bubble was largely wasted. Those who lost their investments had to suffer the costs of their foolish decisions. That is not a bad thing and should not have been cause for concern.
3,4-Greenspan's problem was not that he lacked tools, but that he did anything at all. His rate cuts made credit so cheap and riskless that it inflated the housing bubble, which is a major cause of this "economics crisis" as well as the related credit-consumption culture that you describe very well. Greenspan, though, didnt keep the patient alive - he kept the patient from getting the treatment it needed, a good recession. A recession weeds out the malinvestment, cheap credit, etc. The recession is the cure, not the disease. The disease is the bubble.
5-Yes, credit is less cheap. That's a good thing. Credit was too cheap before and some areas (the unproductive, inefficient ones) need to collapse so that we can have a real economy as opposed to a "phony" economy (as Obama put it).

I don't think there is any grand strategy at play. Nobody and no organization knows everything about the US economy, much less the global economy. No economic model can predict the future when the socio-psychological state of the world's population is in play.

I think that you are right that it is largely due to bad governmental policy.

I really think you would be interested in speech by financial economist, Peter Schiff, who has been predicting this meltdown relatively perfectly for years. He is not especially academic, but is quite entertaining.

[Cris Huddle]

wow- you werent kidding that video was great- appreciate the recommendation.. a LOT to digest, but almost all of it seems to make perfect, what I call "big picture sense"... omg this guy had me in stitches when he talks about how instead of sacrificing to pay the chinese back, we're going to tell them they're predatory lenders and that they never should have lended us the money- hilarious- but at the same time, soooo not funny in my opinion. It seems to me this is a great way to create wars. I think the us should care more about it's credibility in the world and step up and do exactly what he described in his example obama address regarding sacrifice.

To answer your question what I meant by "eroding" jobs, I meant exactly what he was talking about regarding losing blue collar "producing widgets" jobs... it's those jobs we so clearly lack here... it's funny but I think that the movement toward free trade (which of course is the best thing for the world including the us) presented the us with a very unique opportunity to indulge our entreprenuerial spirit, and expand our idea of earning a living from "our country" to "the world"... Sure thats easy for me to say now being a product of the information age, I know.. but even without the internet, plenty of americans could have risen to the challenge and found ways to sell products to the world with small businesses. Had american small business began taking steps to earn internationally when the job erosion began, i think america would be in a very different place right now. But we didnt we kept our blinders on and watched our wealth leak out of the country (dont get me wrong I'm not advocating protectionism). Politicians should have created an awareness of the need for profiting not just here at home but internationally- they didnt, at least not on a large effective scale. Can you blame it all on the politicians?- of course not, ultimately americans either HAD or HADDNT, the hunger, desire, resourcefulness, smarts necessary to evolve to the next level- international profits... it looks like for whatever reason (malaise?) the us still hasnt evolved adequately... I think the sickest way the us could come through this would be for american small business to get pissed, knuckle down, take stock of what it can produce competitively, identify markets with that particular demand, learn some foreign languages and start sellin some stuff.

lol there's also a pretty positive flip side to his prediction of the dollar's extreme devaluation... (so long as china doesnt all of a sudden adopt protectinism- which of course the history books tell us they're famed for) if the dollar becomes worth very little- then that means america is where you build your factories and manufacture your product! lol we become china.

[Salivating Dog]

, but to changes in technology and the simple development of other nations (China, India, Vietnam, etc.) which is a good thing.

These people can niether afford to buy our products, nor will they buy them. Do you realize these people are our COMPETITION? (or did you forget that?)

They are getting MORE developed, while we are losing development. Is that good?

[Tyler Jennings]

Jackpot Cris! Please read my new essay, "Hungry: You will be!" It is on the main page. I like what you have to say, if my essay strikes a note with you, please help me spread the seed. Give me permission, and I will help spread your notes as well.

[Cris Huddle]

Appreciate the compliment! I took a ganders at your essay- some parts I agreed with (e.g. the cost of energy having extreme affects on ag margin) but most was unfamiliar to me- something to keep in mind though.

[Shilpi]

Yes, the problem is partially due to "spending more than we make."A trade deficit is not necessarily a negative for anybody and wasn't really in this case.

[Cal Miles]

You agree or disagree?

[Richard Garrod]

I guess it depends in what sense you consider spending more than you make a bad thing... if you take out a credit card or a loan, you spend more than you make, but, if you expect in the long run to earn enough to pay off the loan and the interest then you do it anyway, a country is not that different to an individual.

A country acts on a far different time scale however, as a country never dies it is only realistically limited by how much interest investors believe it can realistically service...

At the end of the day, it's not the "country's" fault that you spend more than you earn, it's the individual's fault that they spend more than they earn, and in part the bankers fault that lends them the money to do so. Government's job isn't to baby the population and to make sure nothing bad can happen to them, government's job is to make sure people can do the things they want to do in a secure and well established system.

I get quite annoyed that everyone expects the government to look after them and to make sure these kind of things never happen. Government ISN'T YOUR MOTHER, NOR IS IT YOU'RE FATHER, IT IS AN INSTITUTION DESIGNED TO UPHOLD THE LAWS OF THE LAND.

I accept that I'm quite liberal however (in the real sense of the word) and that nowadays people need government to tell them what to do, unless they want to do something the government would tell them not to do, in which case they want government to shut up... God i'm glad to have peers with such strong convictions...

[Cris Huddle]

lol I resolutely disagree with your point of view on "...and to make sure these kinds of things never happen." I think it's absolutely the government's job to prevent this. Private and public companies are not self regulators- you dont ask the fox to guard the hen-house.. pinning the blame on them is cheap. At the end of the day those institutions should only be responsible for two things- abide by the law and be profitable. It's enough challenge in today's competitive world for a company to stay profitable... you try and add the responsibility of "only do what's squeaky clean ethically, and good for the market as a whole" on top of that, and your expectations just became wildly disconnected from reality. So, no, government should never take on the role of "mother" or "father," but I dont think it's too much to ask for them to pay attention to whats being bought and sold, and take early measures to prevent systemic meltdowns. See for me, I thought this type of monitoring already existed, but apparently we didnt learn enough from the depression.. it sucks to see them lose controll of this thing a second time, granted not as severe as the first, but hopefull it will be the last.