Despair grips the United States, as nearly 15 million are counted as jobless
and many more languish in part-time employment. Free trade with China, flawed
energy policies and pandering to Wall Street are destroying American
prosperity.
Retail sales are up and businesses are replacing trucks, computers and critical
equipment but too much is spent on imports.
In the second quarter, imports grew so much more rapidly than exports that the
trade gap subtracted 3.5% from the demand for US made goods and services. But
for the trade deficit, gross domestic product (GDP) would have been up 5.2%
instead of a
paltry 1.7%. At the former pace, unemployment would fall to 5% by 2014.
Oil and China account for nearly the entire trade deficit, and without dramatic
changes in policy, unemployment will stay near or above 10% indefinitely.
President Barack Obama's efforts to halt offshore drilling and otherwise
curtail conventional energy supplies - premised on false assumptions about the
immediate potential of electric cars and alternative energy sources - are
making United States even more dependent on imported oil and more indebted to
China and other overseas investors.
Detroit could build many more attractive and efficient gasoline-powered
vehicles now, and a national policy to accelerate fleet replacement would
reduce imports, spur growth and create jobs much more rapidly than investments
in battery and electric technologies.
To keep Chinese products artificially inexpensive on US store shelves, Beijing
undervalues the yuan by 40%. It accomplishes this by printing yuan and selling
those for US dollars other currencies in foreign exchange markets. Annually,
those purchases exceed US$450 billion or about 10% of China's GDP or 35% of its
exports.
Obama has pleaded with China to stop manipulating its currency, but Beijing
shrewdly recognizes he lacks the will to act against Chinese mercantilism;
hence, Beijing offers token gestures and cultivates political support among US
businesses such as General Electric and Caterpillar who lead in outsourcing
jobs to China and profit from Chinese protectionism at the expense of American
working families.
Obama should impose a tax on dollar-yuan conversions in an amount equal to
China's currency market intervention divided by its exports - currently, about
35%. That would neutralize China's currency subsidies that steal US factories
and jobs. The tax could be imposed on other currencies whose governments
manipulate currencies to enjoy large trade surpluses.
Even with effective responses to oil import dependence and Chinese
mercantilism, most small businesses need credit from the 8,000 US regional
banks to expand.
Unfortunately, the Treasury used the Troubled Asset Relief Program (TARP) to
recapitalize Wall Street banks and trading houses, like Goldman Sachs, which
then recorded big record profits in 2009 and paid record bonuses with taxpayer
money in 2010.
Treasury did not create a "Bad Bank" - an analog to the Savings & Loan
Crisis Resolution Trust - to rehabilitate the Main Street banks. Many of those
banks were blindsided by Wall Street trading and the credit crisis, and are now
stuck with bad commercial mortgages and securities backed by those loans.
While Citigroup chairman Vikram Pandit pays new bank executives $5 million and
$10 million a year with his bank's share of the $2 trillion in taxpayer money
ploughed into Wall Street by the Federal Reserve and TARP, as many as 3,000
regional banks may disappear through failure or acquisition by larger brethren.
Washington provided Wall Street with taxpayer cash to monopolize banking. Now
those banks are pushing down certificate of deposit rates the elderly receive
on savings, jacking up credit card fees, and setting aside credit for big
multinationals that outsource more jobs than they create. Meanwhile,
disappearing small banks have no cash to lend the small businesses Obama say he
favors to create jobs.
To fix small banks, congress should use repaid TARP money and impose a 50% tax
on bank compensation over $2 million a year - paid now or deferred - to create
a Resolution Trust to purchase loans and securities from regional banks. That
trust could work out the loans and securities over several years and return a
profit to the taxpayers. Smaller banks would then have the funds to lend and
stay in business.
Taxes on currency manipulators and bankers and a national policy to build fuel
efficient cars are radical departures from free-market principals but the
nation is in crisis.
Deindustrialization is rapidly reaching the point of no return, and the ascent
of China threatens Western democratic values globally.
Do Americans really want Beijing making the rules on human rights - forget
about trade - in this century. If so, let China continue as banker to American
decline.
Athens was a much more civilized place than Rome but in end the Greeks were
enslaved by their more practical neighbors to the West.
Peter Morici is a professor at the Smith School of Business, University
of Maryland School, and former Chief Economist at the US International Trade
Commission.
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