The Beginning Of The End
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National Economic Suicide: The U.S. Trade Deficit With China Just Hit A New Record High

Economics - Public DomainDid you know that we buy nearly five times as much stuff from the Chinese as they buy from us?  According to government numbers that were just released, we imported 44.9 billion dollars worth of stuff from China in September but we only exported 9.3 billion dollars worth of stuff to them.  And this is not happening because our economy is so much larger than China’s.  In fact, the IMF says that China now has the largest economy on the entire planet on a purchasing power basis.  No, the truth is that this is happening because our economy is broken.  Every month, we consume far more wealth than we produce.  Because the outflow of money is far greater than the inflow, we have to go to major exporting nations and beg them to lend our dollars back to us so that we can pay our bills.  Meanwhile, the quality of the jobs in this country continues to go down and our formerly great manufacturing cities are rotting and decaying.  We are committing national economic suicide, and most Americans don’t seem to care.

Barack Obama is constantly hyping a “manufacturing resurgence” in America, but the numbers don’t lie.  In September, our manufactured goods trade deficit with the rest of the world soared to a new all-time record high of 69.16 billion dollars.  For the year, we are nearly 12 percent ahead of last year’s record pace.

When we buy far more things than we sell, we get poorer as a nation.

How do you think that we ever got into a position of owing China more than a trillion dollars?

We just kept buying far more from them than they bought from us, and their money just kept piling up.  Now it has gotten to the point where our politicians literally beg them to lend our money back to us.  They are the head and we are the tail.

And we did this to ourselves.

Once upon a time, the United States was the greatest manufacturing powerhouse that the world had ever seen.  But now China manufactures more stuff than us and China also accounts for more total global trade (imports plus exports) than us.

This should never have happened.  Several decades ago, the Chinese economy was a complete joke.  But decades of incredibly foolish decisions by our politicians have resulted in the loss of tens of thousands of manufacturing facilities, millions of good paying jobs and the destruction of vast stretches of our economic infrastructure.

During the same time frame, gleaming new manufacturing facilities have gone up all over China.

China is literally wiping the floor with us on the global economic stage and most Americans don’t even understand what is happening.  Here is more on the trade deficit numbers that were just released from the RealityChek Blog

>The China goods deficit of $35.56 billion blew past the old mark of $30.86 billion, set in July, by 15.23 percent. The new deficit also represented a 17.77 percent increase over the August level of $30.20 billion.

>U.S. goods exports to the still strongly growing Chinese economy fell on month in September from $9.63 billion to $9.33 billion (3.12 percent). U.S. merchandise imports from China jumped by 12.70 percent over August levels, from $39.83 billion to $44.89 billion – itself an all-time high.

>The U.S. goods deficit with China this year is now so far running 5.62 percent ahead of 2014’s record pace.

>The longstanding U.S. manufacturing trade shortfall shot up from $59.10 billion in August to $69.16 billion in September. This 17.02 percent jump resulted in a beat of the old record of $67.33 billion, also set in July, by 2.72 percent.

And it isn’t just cheap plastic trinkets that China is selling to us.

In fact, their number one export to us is computer equipment.

Meanwhile, one of our main exports to them is “scrap and trash”.

For much more on how China is absolutely dominating us, please see my previous article entitled “Not Just The Largest Economy – Here Are 26 Other Ways China Has Surpassed America“.

Sadly, there are a couple of factors that will probably make our trade deficit with the rest of the world even worse in the months ahead.

Number one, the currency war that I wrote about earlier this week will probably push the U.S. dollar even higher against the yen and the euro.

You might think that a rising dollar sounds good, but the truth is that it will make our exports less competitive in the global marketplace.

Nations such as Japan devalue their currencies so that they can sell more stuff to us.  But that hurts our own domestic industries.  And when our own domestic industries suffer, that means less jobs for American workers.

Secondly, the collapse in the price of oil could have very serious implications for the shale oil industry.

In recent years, the shale oil revolution has caused local economic booms in states such as Texas and North Dakota.  But shale oil tends to be quite expensive to extract.  As I write this, the price of U.S. oil has fallen to about 77 dollars a barrel.  If it stays at that level or keeps going down, shale oil production in the United States will slow down dramatically.

In other words, a lot of these shale oil “boom towns” could go “bust” very rapidly.

If that happens, the amount of oil that we import will rise substantially and that will add to our overall trade deficit.

But of course the biggest factor fueling our trade deficit is that the vast majority of Americans simply do not care that we are committing national economic suicide.

When we buy products made in America, we support American businesses and American workers.

When we buy products made overseas, we hurt American businesses, we kill American jobs and we make ourselves poorer as a nation.

Of course there is nothing wrong with buying a foreign-made product once in a while.  But this holiday season, most people will fill their shopping carts to the brim with foreign-made goods without even thinking twice about it.

The next time that you go into a huge retail establishment such as Wal-Mart, start picking up products and look to see where they were made.

I think that you will be shocked at how few of them are actually made inside the United States.

When are Americans going to get sick and tired of making China wealthier at our expense?

We are willing participants in the destruction of the U.S. economy, and yet only a small minority of people seem to care.

What is it going to take for people to finally wake up?

If Obama Can Just Create A Trillion Dollar Coin, Then Why Do We Have To Pay Taxes?

If Obama Can Just Create A Trillion Dollar Coin, Then Why Do We Have To Pay TaxesIf Barack Obama can “solve” the debt ceiling crisis by printing up some trillion dollar coins, then why does the federal government need our money?  As another debt ceiling showdown approaches, many in the liberal media are suggesting that if Congress does not raise the debt ceiling that Obama should just have the U.S. Treasury create a trillion dollar platinum coin and use it to pay our bills.  It sounds crazy, but many notable voices (including Paul Krugman of the New York Times) are supporting this idea.  But if the federal government has had the power to create trillion dollar coins out of thin air all this time, then why do we have to pay taxes?  Not only that, why do we have a national debt?  If the federal government can just create money whenever it wants, then why does the federal government ever have to borrow it from others?  The U.S. Constitution actually grants Congress the power to “coin money”, so why is the Federal Reserve doing it?  Those are some very important questions.  Most Americans don’t even realize that the U.S. government never actually needed to borrow a single penny from anyone else.  The U.S. Congress has the authority to create debt-free money whenever it wants to.  Conceivably, the entire federal government could be funded without ever borrowing a single dollar and without ever receiving a single dollar from any of us in taxes.  Just imagine that – a nation without a single penny of national debt, no income tax and no IRS.  What a wonderful world that would be.  Of course there would be other potential dangers under such a system (such as runaway inflation), and those dangers would have to be addressed.  But the truth is that we don’t have to have an income tax or 16 trillion dollars of government debt.  We only have those things because we have chosen to have those things.

Sometimes, a crisis can illuminate options that most people had not considered previously.  As another debt ceiling crisis draws closer, many are looking for ways for the U.S. government to be able to continue to pay its bills if Congress does not authorize an increase in the debt ceiling.

If a debt ceiling agreement is not worked out, the U.S. government will soon only be able to pay about half the bills that are coming due after interest payments on the national debt (which will almost certainly be prioritized) are made.

That is why a lot of people on the left are pushing the “trillion dollar coin” alternative.  So how would this work exactly?  The mechanics were recently explained by Jim Pethokoukis on his American Enterprise Institute blog

There are limits on how much paper money the U.S. can circulate and rules that govern coinage on gold, silver, and copper.  BUT, the Treasury has broad discretion on coins made from platinum.  The theory goes that the U.S. Mint would create a handful of trillion dollar (or more) platinum coins.  The President would then order the coins deposited at the Fed, who would then put the coin(s) in the Treasury who now can pay all their bills and a default is removed from the equation.  The effects on the currency market and inflation are unclear, to say the least.

In my opinion, if anyone in the federal government is going to be creating money out of thin air, it should be the U.S. Congress.  After all, according to Article I, Section 8 of the U.S. Constitution, it is the U.S. Congress that has been granted the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.

But those that are pushing Obama to create a “trillion dollar coin” point to a law that Congress passed that allows the U.S. Treasury to mint platinum coins.  The following is from a recent CNN article

Normally, the Federal Reserve is charged with issuing currency. But U.S. law, specifically 31 USC § 5112, also grants Treasury permission to “mint and issue platinum bullion coins and proof platinum coins.”

This section of law was meant to allow for the printing of commemorative coins and the like. But the Treasury Secretary has the authority to mint these coins in any denomination he or she sees fit.

But it wouldn’t quite be that easy.  According to a recent ABC News article, some elements of the coin design would have to be determined by legislation…

The more difficult part comes sometime after the decision is made to coin the platinum and before the Mint gets to work in sculpting the pieces.

At that point, the American people must decide whose face will adorn the trillion dollar trinket. The process to determine the “specs” of the coin, U.S. Mint Public Affairs Specialist Genevieve Billia warns, must be “determined by legislation,” creating the potential for another congressional impasse.

So we would likely end up back at square one.

But if printing up a “trillion dollar coin” does not work out, Paul Krugman of the New York Times has come up with another option

Don’t like the platinum coin option? Here’s a functionally equivalent alternative: have the Treasury sell pieces of paper labeled “moral obligation coupons”, which declare the intention of the government to redeem these coupons at face value in one year.

It should be clearly stated on the coupons that the government has no, repeat no, legal obligation to pay anything at all; you see, they’re not debt, and therefore don’t count against the debt limit. But that shouldn’t keep them from having substantial market value.

Of course there is a very, very low probability that any of these wild ideas will ever be tried, but this debate has raised some very interesting points.

The truth is that we do not have to have a system where more money is only created when more debt is created.  We could have a system where the federal government directly creates debt-free money that is spent directly into circulation by the federal government.

In fact, this has happened before.

As I have written about previously, during the presidency of JFK a limited number of debt-free United States Notes were issued by the U.S. Treasury and spent by the U.S. government directly into circulation without any new debt being created.  In fact, each bill said “United States Note” right at the top.

Unfortunately, after JFK’s presidency no more debt-free United States Notes were ever issued.

But even before JFK, there were times when debt-free United States Notes were being used.  According to Wikipedia, United States Notes were first used during the Civil War….

They were originally issued directly into circulation by the U.S. Treasury to pay expenses incurred by the Union during the American Civil War. Over the next century, the legislation governing these notes was modified many times and numerous versions have been issued by the Treasury.

So why are we using debt-based Federal Reserve Notes today instead of debt-free United States Notes?

If the Federal Reserve did not exist and the U.S. government directly created money instead of borrowing it, it is conceivable that we could have a national debt of $0.00 today instead of $16,432,707,263,449.56.

Which option do you think our children and our grandchildren will wish that we had opted for?

In a system where the government directly created money, it is also conceivable that we could completely do away with the income tax and the IRS completely.  The U.S. once prospered greatly without an income tax, and it could do so again.

And the truth is that our system of taxation is broken beyond repair.  If you doubt this, just read this article.

So what would the downside be to such a system?  Well, of course rampant inflation would be a huge danger.  Allowing Congress to print up money whenever they wanted to would be playing with fire.  That is why it would be imperative for there to be a hard cap on what the federal government could spend.  For example, you could set the cap on spending by the federal government at 20 percent of GDP.  That way we would hopefully never end up looking like the Weimar Republic.

And the current federal debt could be paid down a little at a time using newly created debt-free currency.  This would have to be done slowly to keep inflation under control, but it could be done.

Of course if you wanted to continue to fund the federal government through taxation, there are other options that would still allow you to do away with the income tax.  For example, one of the ways that our founders intended for the federal government to be funded was through tariffs, and we could definitely raise a lot of money that way.  Plus, that would have the added benefit of making American companies much more competitive again and it would reduce the flow of American jobs out of the country.

So am I in favor of having Barack Obama create a trillion dollar coin to get around the debt ceiling crisis?

Most definitely not.  If it does not violate the letter of the Constitution (which I believe it does), it sure does violate the spirit of it.

But if the U.S. Congress decided to shut down the Federal Reserve and the IRS and they decided to abolish the income tax, and instead they started directly issuing debt-free currency directly into circulation, that is something I would very much be in favor of.

Yes, that system would not be perfect either, but it would be far more preferable to what we have today.

So what do you think?  Should we keep our current system of debt-based money, or would a system of debt-free money be better?

Please feel free to post a comment with your opinion below…

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