Friday, September 11, 2009

First, a quote from Mike Shedlock's excellent blog:

Like it or not (and most don't) this is a global economy. The US cannot make itself into a self-sustaining island. Moreover, the idea that we can pay everyone $35 an hour and compete globally is ludicrous.

As I have said many times, the problem is not wages, but how far wages go. Greenspan and Bernanke have wrecked the US dollar. Financial engineering drove property prices up to insane levels. The US wastes $trillions attempting to be the world's policeman. There are so many student loan programs that the cost of education has soared. This is what happens when one throws money around.
Fairly straight forward, right?  The U.S MUST trade with the world, whether one likes it, or believes it. MUST.  ALL of us must compete at every level with people that do not have 3 extra bathrooms to pay for, or a bunch of retired police officer's pensions.  Ergo, they are pretty competitive (they can work cheap).

$35 per hour.  If one worked 40 hours per week (the U.S. work week is about 32 hours presently), 52 weeks per year that would work out to $72,800 in compensation.  But, as Mish just said we can't all get paid $35 per hour, or said another way, the average American cannot earn $72,800 per year by mathematical necessity or $2,184,000 over a 30 year career before taxes... or $1,419,600 in after tax income LIFE TIME income.  Let us assume that this worker was EXTREMELY disciplined and saved 10% of their after tax income - $141,960 over the course of their LIFE.

Does anybody think that its a good idea for EVERYONE to spend $200,000 of after tax money on an UNDER GRAD education in order to get a job that will only yield $141,960 in savings IF the subject is a FANTASTIC saver AND it is not possible for the AVERAGE American to earn the $35 per hour in the first place?  My best guesstimate is that an average of $20 per hour, or just over $40,000 per year will be tough to achieve.

If you are fortunate enough to have that money (not counting folks with net worth's of $5 million or more) available to educate your child... well, for the AVERAGE person the $200k investment just is not worth it. Itt is nothing more than a confiscatory tax benefitting a very few... a few who are participating in a system that is going to break down.  THAT  is why I say that half of the private colleges WILL NOT be in business by the time your college age kid is my age.

Believe me, you are going to be buffeted over the next 5 or 10 years with studies, propaganda, guilt trips, etc... in the media in an attempt to get you to make this really, really dumb move.  

Don't fall for it.

From the movie "Fight Club":
We are the middle children of history, with no purpose or place. We have no great war, or great depression. The great war is a spiritual war. The great depression is our lives. We were raised by television to believe that we'd be millionaires and movie gods and rock stars -- but we won't. And we're learning that fact. And we're very, very pissed-off.

The U.S. has seen its supplies of petroleum products reduced by 2.7 MILLION barrels per day (if you do not consider ethanol a "petroleum product" - and I do not).  

So?  At this rate of decline, several million people in the U.S. each year FROM THIS POINT FORWARD are going to stop commuting and start working from home (those that will still have a job, that is).  That means that the value of commercial Real Estate is going to drop like a stone (Who holds all of those commercial mortgages?

It is simple physics.  If you remove an energy input large enough to run Germany from the American economy a certain number of people either are NOT going to have a job or are going to have to work from home and the commercial space they formerly used is going to go vacant. A certain number of hotel rooms will have to go empty and a certain number of jets will have been grounded.

The U.S. was already overbuilt with office, retail, and commercial space.  I think it likely that the U.S. will NEVER need any more construction in these products - ever again.  The 2 year rate of decline for petroleum imports is over 8% per year.  If that continues, and I think it likely to continue AND accelerate, in a addition to no need for further construction, the U.S. will have little demand for cars and trucks, aircraft, etc...

We are in the grips of powerful deflationary forces, yet the stock market has taken off and the US$ has cratered.  These things can happen in tandem in the short run, but over the longer haul they are mutually exclusive events.  And while the US$ might catch another bid (I had thought that would have happened as I write this... didn't work out that way), over the next 2 years the Federal Budget Deficit is likely to grow by nearly $3.5 Trillion.  More than the reserves of China and Japan combined.  Will the new American saver have enough savings to finance the difference?  Maybe. Then again, maybe not.


bureaucrat said...

Funny you should mention Germany: high wages, lots of vacation time, seen as the conservative defender of the Euro, has generous health care benefits, doesn't get anywhere near as much money from the U.S. as some countries, forced to trade with everyone cause of its geography ... apparently living the cushy life of an American isn't restricted just to Americans. :)

Dan said...

If petroleum is down and going further down, how does that not benefit blue collar workers? Would we not need more manual labor?

On global trade we have had global economies before and they collapsed, why is this time any different? While it is certainly my interest to maintain a global economy that doesn’t mean we will. There are too many dead set against it, including many that derive a net benefit from it. If cooler heads prevail as the problems continue to grow it will be nothing short of a miracle; it just is not human nature to think rationally. Globalism will not survive the crisis.

The only thing we must get from outside the US is petroleum, but that doesn’t necessitate global trade, or even trade for that matter.

You are spot on about the school though. I’ve long thought that schools reputations are largely based on what they turned out twenty-five to forty years ago. What will be their reputations when the current crop of lazy queer theorist, phenomenological researchers, et al. takes over?

Anonymous said...

Yes, the Germans, who:

1. Protect their industry because they know their prosperity depends on it.

2. Protect their trade secrets and intellectual property because they know their prosperity depends on it

3. Keep trade in balance because they know their prosperity depends on it.

In the U.S. we've been led to believe that prosperity is in the air and water, and will exist in defiance of the laws of economics and nature. And, still nobody inside the beltway is getting it. None of 'em.


Coal Guy

Greg T. Jeffers said...


"If goods do not cross borders, armies will."

The world has always had a "global" economy, or at least since Alexander's time. Of course, the size of the "globe" is not the same as the surface area of the earth.

No, manual labor will not benefit from a lack of technology or energy. If it did we could solve all of our problems by outlawing all earth moving equipment and handing every man, woman and child a shovel.

I know it is very hard to see it, but just look at any picture of earth from space. There are no national boarders, those are merely abstracts created by nation states. People separated by several hundred yards but living in "China" and "Afghanistan" have much more in common, including DNA, than their respective governments thousands of miles away.

Greg T. Jeffers said...

Yes Germany, with no installed and perpetual underclass to support, no illegal immigration to fund, and which has in fact been funded more than any nation on earth since the end of WWII.

Greg T. Jeffers said...

The point of Germany was to put in perspective the size and scope of the decline in Oil supplies. I could have used France or Japan instead.

bureaucrat said...

Yeah, I thought Britian had "Paki" issues and Germany had "Turkey" issues. We did rebuild them, ti's true. What we really need is someone to conquer us! :)

Dan said...

"If goods do not cross borders, armies will."

No arguments here, just because it’s bad doesn’t mean it will not happen.

On Germany, keep in mind that “southerner” means south of the Med and “youth” means Near-East Asian. While they do not have “illegal immigrants” they have a huge population of “refugee” “southerners” and “youths” living in the “suburbs” (public housing projects) drawing welfare, robbing folks, lighting cars on fire and in general acting like radicalized... You get the picture; the news is horrible if you know how to read it.

Same thing goes for most of Western Europe.

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