Back to the Revolution

It’s been a while since I’ve written here, but that doesn’t mean that there’s nothing going on in the economic scene that interests me. There’ve been some interesting developments in China that are actually quite surprising. China’s labor force, specifically in manufacturing, is in the process of receiving wage increases. Some local governments are raising the minimum wage and companies are responding to an economy that has been picking up and to workers’ strikes that have reflected their awareness of their wages. But now, considering that China has been feeling the pressure to allow its currency to fluctuate in the foreign exchange market, a rise in production costs could mean higher prices on its exports. If the US economy were to pick up, its currency could appreciate which could offset the effect of a higher Chinese currency. But we keep getting mixed signals and mixed signals are usually a bad sign. With unemployment close to 10%, a rising deficit and wars that seem to have no end it is hard to say what direction the economy is going other than bad. The great recession that does not seem to end eroded much of the liquidity that existed in the economy. As people bought homes at record prices because banks allowed them to so they could turn over that loan for a profit, loans that had very little chance of being repaid were packaged as safe investments and a lot of money moved in their direction. When those traditionally-safe investments vanished so did the opportunity of many for a life. Now their investments were gone, their jobs were about to disappear and their homes had become worthless. The money that people had faithfully put into these investments is now in the hands of a very powerful few because that money did not disappear, it is somewhere. It moved from millions of bank and brokerage accounts to probably a few hundred. Now those people and institutions that hold that money are keeping it. And money that would normally be running through the economy creating jobs and spurring business is sitting on the sidelines because the house kept it and most lost. Traditionally, the American economy was built on solid products that were reliable and came from companies that wanted to compete and be here for years to come. Now what this recession is showing us is that it’s ok to be a hit and run economy in which we can create bubbles and whoever’s on top of it and controls the information keeps the money and wins the game. In the meantime, everybody that loses stays in the sideline until the next genius with an idea that’s equivalent to those sold for 19.99 on TV comes along cashes in and cashes out and crashes the market. With this pattern it’s going to be very hard to compete with an economy like China where they do have a desire to win. Now the rise in Chinese currency as well as the rise in labor costs in that country will ultimately hit the pockets of average consumers in the short run. If other economies take the opportunity in rising costs in China to try and become exporting powerhouses themselves then maybe there is a silver lining in this.