November 18, 2004

Will the "Free Market" eventually become the nemisis of the US economy?

I am no economist; however I did spend the night at a Holiday Inn Express. People like to argue politics, but it is economics that is the real issue of life and well being.

The free market, which has been the friend of the USA for so long, is now becoming the biggest threat to our economic security and or status. The nature of freedom is that things are both free to work for you and free to work against you. For the last 50 years, it has been the former and that is why our nation pushed free markets. But in the coming years, it will likely be the latter and it will be interesting to see if we continue our zealous support of free markets or adopt more for intervention and regulation when the free market works to our competitive disadvantage.

The last major depression in this country was the product of the stock market crash and a run on banks that could not cover or honor deposits. If this is the threat that people are watching out for to bring forth the next economic depression, then they are ignoring the more likely threat, which is the crash of our economy due to the currency market and the green backs role there of. This is because the value of US currency has been “floated” or disconnected from a tangible asset, like Gold, and now has its value being created from the supply and demand forced of “speculation”. Speculation is the buying of currency in the hope of exchanging it with another currency for profit. The profit is earned from the volatility of fluctuations of currencies. Today, the vast majority of dollars circulating are due to currency speculation and trading, which means that the dollars value is linked to what investors speculate about the direction of the US economy and health will be, relative to other nations or communities.

Today, the trend is that the dollar is steadily declining in value relative to the Euro dollar and other major currencies, like the Yen, in the currency exchange market. Now, given that the USA is running trade deficit (nations current accounting) and would like to be able to increase its exports, it actually wants the dollar to continue to fall so that foreign goods will be more expensive and US made goods well be less expensive which should theoretically stimulate more demand for US goods and services by other nations. Thus, the USA is in no hurry to try to boost the value of the dollar, due to its imbalance of trade. However, the free market force of momentum cannot be easily controlled by government or central bank actions, thus, the momentum of the fall will likely fall below the targeted desirable drop to bring equilibrium between the values of exports relative to imports. The resultant of falling below the target level is inflation that will kill off economic growth and investment due to the cost of borrowing being too high.

This threat becomes more so do to politics. Again, the value of the dollar is linked to speculation and confidence of investors around the world in America Inc and the direction that it is heading. Many people ignorantly dismiss the negative sentiments around the world concerning George Bush, because they fail to understand the interdependence of a globalized economy and free market. All that they choose to see is those people do not have a political vote in regards to American political leaders. That is true, but all those people who are starting to resent American policy and arrogance can vote on our economic fate through the conduit of globalization and the free market. The can and likely will express their discontent for America in their demand for American goods and services, as well as their demand for US dollars.

In light of this, the threat of a global free market reduces nation’s hegemony over its ability to control its economic fate. Currently, the European Union is highly upset at the USA because the strong Euro dollar, relative to the green back is, is hurting their export driven economic recovery. They need their currency to fall, relative to the dollar, so that their goods will be price competitive in America. But their strong currency makes their goods cost more in the USA, the largest consumer market in the world. There is nothing, however, the Europeans can do about it in the free market construct. The same will be true when the USA starts to will need foreigners to come to the aid of its economy, but they will not do to their own interest. The world is becoming less and less dependant upon the US economy and the less dependent it becomes, via the growth of other economies, the more people will work against the interest of the USA due the decline of shared fate.

There is an important assumption in capitalistic economic theory that bases certain outcomes upon humans acting out of purely economic interest of value in a competitive free market. What debilitate capitalism and theoretical models are people who make market decision based not upon economics motives, but other motives. Capitalistic theory does take into considerations people forgoing the best “value” or deal due to political motives. If too many people around the world become upset with American policy and practices globally, they can make free market decisions against our goods and services, which can essentially amount to a boycott of America via boycotting its products and currency, since it cannot direct affect its politics. Given the last four years of George Bush and the changing of his cabinet, it only stands to reason that the worlds disdain for him will negatively effect the free market decisions of the rest of the world to some degree.

I have always said that wisdom is the understanding that every action creates reactions and that nothing is gained without something else being given up. People must have the foresight beyond the typical analysis of the benefits to the nation and to them, but to the cost and impact upon others…that in turn will at sometime in the future react in turn towards the entity negatively affecting them.

If it is true that the first terrorist attack against the USA was not an inside job, then there will be another terrorist attack that I am sure will be designed to have maximum impact aimed at toppling the USA economy. The USA economy is structural weak on all accounts, from savings rates, to trade deficits, to the loss of comparative advantage in the free market, to budget deficits and wars sucking up dollars. Another major attack and jolt within the USA borders, greater than the magnitude of 911, could be the free market trigger that sends our nation spiraling into a major depression. Unless politicians change global policy and arrogance that breeds the hatred of Americans….this things will not be “ifs”, but “when’s”.


At 12:44 PM, Blogger Scott said...

ROFL, our economy is fine.

But what is more important is that everyone else's is worse. And we are have the most stable large market for investment.

At 1:35 PM, Blogger Noah TA said...

How do you type and ROFL? You must be a very dynamic individual…

Yes, our economy was fine before the crash in 1929 as well. The truth is that our economy benefited a great deal from the European continent being plagued by major world wars, especially WWII. Great Britain and France were the economic leaders of the world before the world wars of the 20th century (Caesar starting counting at 0 right…making the 1900’s the 20th century? I forget). Those wars decimated the European Economies because the fighting took place in their land. This allowed the US, by default, to become the worlds leading economy. Not only that…we lent monies and sold our goods and services to them, which were double boost to our economy. We have not looked back since….however. A peaceful world gives nations the opportunity to catch up…and they are and they are usurping the comparative advantage that the we has had for decades.

As it is now, our economy and standard of living is really not that superior to the European Unions major economies. The reason I say that is because we work many more hours than they do and take less vacations. Hence they enjoy life more because they are less stressed and more relaxed…due to not being in a material competition to keep up with the joneses. The quality of life in America is eroding, but all people seem to value is GDP growth. Well, if you have to have people who work 70 hour weeks and who only get two weeks of vacation a year just so that you can claim GDP superiority…while sacrificing the quality of life, time with and the rearing of children….what’s the point?

At 1:39 PM, Blogger Noah TA said...

Also know how in the sport of boxing that the opponent who lands a good punch that hurts the guy, that fighter struck will often smile and laugh to pretend that he was not hurt? That is how I interpret you are simply faking a laugh to hide the pain of the truth. That is physc 101 bro....the truth hurts.

At 8:23 AM, Blogger Scott said...

Read the economist sometimes. Europe economy is in the crapper. And as long as they continue to be socialist it will get more and more in the crapper.

You think we can't compete with India and China. They haven't even made it to the stadium. Their protectionist policies and thier welfare state will collapse just like the former soveit union.

At 8:36 AM, Blogger Noah TA said...

The problem with Europes economy is to a large degree the result of near zero population growth of whites. without population growth, there is not new workers and consumers to feed a growing economy.Thus, they have large immigrant populations coming in their nation. Furthermore, their economy is suffering from a strong Euro dollar relative to the dollar. That means that there exports to the USA are more costly than comparable US goods.

China and India...both with over a billion people each...will be a major threat to the US economy...even if the vast majority of their citizens do not benefit from the boom. That is because those combined countries have roughly a third of the earths population.

At 10:35 AM, Blogger Noah TA said...

Not that I need people to agree with me but...... Alan Greenspan (yah heard of him Scotty?) says...."Greenspan: U.S. trade gap could hurt economy
Fed chief says reducing budget deficit is key"

see entire article:

At 3:45 PM, Blogger Constructive Feedback said...

[quote]The free market, which has been the friend of the USA for so long, is now becoming the biggest threat to our economic security and or status.[/quote]

But I thought that you believed the United States and it's "stolen legacy" is getting it's "just due". What is the problem?

What does the "free market" offer to Africa and other places around the world that had been previously shut out?

What if Americans were forced to immigrate to other places, as have other people immigrated to the United States? Could this impending fact of the United States prove to be the impetus for the bridge between African-Americans and Africa?

In your "zero sum" theory what is good for China, South Korea, Honduras and the Philipeans is bad for the big guy on the block, the United States.

Would you be willing to forgoe a little of your relatively high standard of living so that a middle class could be built in other places around the world?

When I grew up I listened to countless "Psuedo-Intellectual Blacks" tell me that political boundries are instruments of imperialism and exploitation. On the one side of the Texas border is abundant wealth and hedonism. On the other side is desperate poverty, the lack of adequate systems to provide basic services and dispair.
Just as water will seek a common level, absent a container what if the collapse of the United States lifted the water level around the world, Noah?

Would this not be a net positive in YOUR perspective as I understand it to be?

At 10:17 PM, Blogger Noah TA said...

Why are you asking all these rhetorical question? If you do not know my position by now...why should I bother to keep telling you if your memory is that poor.


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