Consequences Of Importing More Than We Can Pay For

Here are some sobering facts

The US is losing $725 Billion per year to foreign countries through trade losses. This money does not come back to buy our goods and services. It comes back to the US in three other ways:

1. Foreign countries are bankrolling the US Government - with levels as high as 53% of US Treasury debt held in foreign hands
2. Foreign countries are using the rest of this money to buy out our core industries and companies ($1.3 Trillion spent to acquire 8,600 US wealth producing companies in last 10 years)
3. Many American industries are now controlled by non-US companies (e.g. Book publishing 63% foreign owned, Financial services 36%, Motion pictures 75%, Cement Industry 81%, and Television manufacturing 100%)

Here is the result

Foreign lenders are effectively propping up the US Government, low US interest rates, and consumer spending. If foreign countries were to stop extending this easy credit to the US, imported goods would cost much more and the government would have to raise interest rates in order to attract lenders for US Treasury debt. We naively assume faith in the perpetuity of US superpower status. No "superpower" in history has ever produced so little of what it consumes for so long while taking on such overwhelming debt.

Why is this a risk

If foreign creditors were willing to continue to ship us foreign goods and bankroll our government indefinitely all in exchange for printed dollar bills, this would be fine. However, at some point, as US debts continue to skyrocket, foreigners may demand something more than printed paper as security for this credit. As they are presently using much of these dollars to buy our assets, there will be less and less of the US to offer as security. The US rates of indebtedness and asset loss are climbing much faster than the rate we are replacing them with new industries and new assets. We assume that at any point, we will be able to rebuild our industries at a whim. The failing US auto industry shows just how difficult that is. It takes time, money, and know-how - three luxuries a country at war with massive debts may not have.

Why has nothing been done

This has been going on for 30 years and each new administration likes to think they will not be caught with the "hot potato." Instead, the US blames Asian countries for undervaluing their currency and not opening up their markets. The US blames Europe for not helping reign in military threats to global stability and for subsidizing their own industries. Meanwhile these regions blame the US for recklessly abusing its superpower status to run up huge deficits to support the US lifestyle without domestic production. By our own admission, we have converted from a production economy to a services economy. However we don't recognize that domestic services cannot be readily traded for foreign goods. At present our goods deficit with the rest of the world is 14 timeslarger than our services surplus.

The straw

At some point, higher oil prices, terrorism, higher interest rates, or some other exogenous factor could disrupt the precarious balance that is presently supporting the US standard of living. Our options are to wait until so-called market forces return the situation to equilibrium or to acknowledge the problem and develop a plan to deal with this problem. The problem with the wait-and-see approach is that since other countries are actively executing their own economic "war plans," we may not like what the new equilibrium means for the US. The problem with the planned approach is that it probably means short-term pain for the US and the outcome may not be what we expect either.

At the very least, US leaders should formulate a task force to examine this problem thoroughly and understand the magnitude of our economic vulnerabilities and how, under various scenarios, the near term may unfold. To do otherwise is no less than a disgrace to past generations who sacrificed for our present position and a dereliction of duty with respect to future generations that must live with the liabilities this generation establishes.

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