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What is good for the individual is not good for the economy?

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I remember talking to a very smart friend of mine (who worked in finance) and I said something about trying to save every spare dollar I had instead of wasting it on needless material things. He smirked and said "if everyone did that they would send us into a recession".

It made me think - although saving money was good for me, I could be effectively putting others out of a job by not purchasing their goods (this is a micro version expanded to a very very macro level). On the other hand, people who spend spend spend are helping the economy as they feed the 'demand' side of the equation, yet by doing so, they are lessening their own wealth.

Lately I have come to think, if everyone was in a net positive financial position (ie. no debt) then that would stifle the economy significantly, no?

Add to that, the Australian governments (both Federal and, NSW at least) are pounding their chest about returning the budgets to a surplus - but does this have the same effect? Although it may be good for them to be in a surplus, does this help the economy at all? I mean, one way they are trying to achieve this is to cut down public sector jobs, which will result in more unemployment. I mean, yeah sure, it sounds good to have a budget in surplus, but now you have all these people unemployed.

Then today, I read this:

In Europe's most economically stricken countries, people are taking their money out of their banks as a way to protect their savings from the continent's growing financial storm.

Worried that their savings could be devalued, or that banks are on the verge of collapse and that governments cannot make good on deposit insurance, people in Greece, Spain and beyond are withdrawing euros by the billions - behavior that is magnifying their countries' financial stresses. The money is being hoarded at home or deposited in banks in more stable economies.

In Greece and Spain, two of the hardest-hit by the debt crisis in the 17 countries that use the euro, savers and businesses are already pulling money out of banks. They are either worried that their money could be converted into a new currency at a much lower value or because their bank might be on the verge of collapse.

It's a steady bank "jog" at the moment than a full-bore run. But it threatens to undermine the finances of those countries' already-stressed lenders. And if it does turn into a full bank run after Greece's crucial election on Sunday, it could hasten financial disaster in Europe and help spread turmoil around the world.

http://www.news.com.au/business/gre...-eurozone-crisis/story-e6frfm1i-1226397683962

Imagine if you are in Greece. Of course, you'd think "damn I better pull my money out of the bank or else I'll lose it!" So that is of course good for the individual, yet if everyone did that, then it'd cause a bank run and we all know how damaging that can be.

So do you agree that what is good for the individual is not good for the economy?

If so, do you think there is some sort of juxtaposition/contrasting logic that although what is good for the individual is not good for the economy, yet all the individuals added up make up the economy?
 
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That's the problem with money based on debt, without money being borrowed into existence there would be no money available for exchange of goods and services. However because of the factor of time, a little debt can repay a ton of debt. $1 as long as it keeps getting recycled around the economy can repay $100 or more given time. The question is how much time will it take for the debt that gets recycled to pay off the debt already in existence which hasn't been recycled. What I mean by debt that hasn't been recycled is money locked away in savings accounts of individuals/businesses and governments. Twice-lent money compounds the problem even more. http://paulgrignon.netfirms.com/MoneyasDebt/twicelentanimated.html for details on the problem of twice-lent money. The bottom line is time, there appears to be insufficient time for the money that gets recycled to pay off debt, hence more debt needs to be created to pay off existing debt.

Good thing advertising and marketing works to coerce people to spend. The problem of everyone, individuals and corporations saving and stagnating population growth is apparent in Japan.

Other factors include that even if individuals save and governments try and achieve surplus there are still private businesses that borrow to expand. The problem is, if individuals are saving rather than spending, most businesses wouldn't want to expand.
 
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The way it's supped to work is that savings are there as reserves for economic downturns or natural disasters. Savings are also meant to be accumulated so that individuals and businesses can use that capital to fund and create a business or a new product/service. We operate under the rules of capitalism here but the average Australian idiot has no idea that to get rich they need to produce more than they consume. They'll never do that with saving and then spending, saving then spending, etc. or worse still... deficit spending!! What's even worse still is that Governments actively encourage deficit spending and manipulate interest rates to encourage spending, borrowing and consumption.

Think about how stupid that is. Money is irrelevant, spending is irrelevant. You could give everyone $1,000,000 tomorrow, but nobody would be any better off, because the money represents stuff available to buy, or services. If nobody is creating or offering these and everyone is "spending" .. all we get is inflation. (Higher prices)

In short, if you're saving, you ARE doing yourself and the economy a favor, but the government sees recession as a bad thing and tries to stop it. If people weren't going on consumerist binges and borrowing stupidly large mortgages, a downturn would not hurt them because they'd have sufficient capital behind them to see them through a downturn while companies restructured and became more efficient again. Yes, this means firing people and having them freed up to be put to productive use elsewhere. That's how it is (supposed to) work.

If you look at Europe, USA, and just about anyone who uses this retarded stimulus approach, they are now in so much debt that it'll never be paid back, because, as shocking as it is, they have "starved off recessions" in some places for over 20+ years, they haven't really, all they have done is borrow 20 years prosperity out of the future, and now it needs to be paid back.. Plus interest. (Which it can't) .. Australia has gone 20 years without a recession, so once they get to absolute breaking point the recession will be very severe I would imagine.
 
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Think about how stupid that is. Money is irrelevant, spending is irrelevant. You could give everyone $1,000,000 tomorrow, but nobody would be any better off, because the money represents stuff available to buy, or services. If nobody is creating or offering these and everyone is "spending" .. all we get is inflation. (Higher prices)

Yet another average Australian who doesn't understand money. You don't even understand what inflation is.

Inflation
Inflation is the opposite of deflation and occurs when the supply of money increases more than population/job growth. It decreases the value of money and causes the price of goods to rise. Another effect is it basically taxes savers/lenders to subsidize borrowers. Using the example of a mortgage if the interest rate on a home loan is 7% and inflation is at 6% then the interest rate in effect becomes 1%. If inflation is at 20% then 7 - 20 = -13% which means the amount owed has effectively decreased by 13%, this is good for the borrower assuming his/her income increases with inflation. Inflation can over-stimulate investment and cause bubbles e.g. housing or dotcom bubble. When hyperinflation occurs the value of money continues to decrease rapidly. It renders money and savings worthless and wipes out debt causing the currency to no longer be viable as a medium of exchange.

If you gave everyone 1 million dollars of debt free money tomorrow, a large number of people will be no longer in debt/slavery. Prices of goods will rise true.

We operate under the rules of capitalism here but the average Australian idiot has no idea that to get rich they need to produce more than they consume.

Think about how stupid that is, using the example of cattle. If there is more cattle than required for consumption. The price of cattle decreases, you get deflation of cattle prices. Basically what happened when the incompetent labor government stopped cattle exports. With the deflation of cattle prices, as you correctly pointed out people get fired. Your incorrect assumption is that once they get fired they are freed up to be put to productive use elsewhere. You believe based on faith that new businesses/ products and services will be created at a rate which can take in the unemployed. Yet forget that in order for new businesses/ products and services to be created they need to provide something that people want to consume. If no one wants to consume or don't have any money to consume then these new businesses/ products and services won't be created.

Production and consumption need to be in equilibrium, if production exceeds consumption you get deflation and unemployment such as during the great depression. If consumption exceeds production you get the reverse, inflation.

It is my personal belief that the problem the world faces is technological over production. There are not enough consumers with money to consume this over production, this results in unemployment. What governments all over the world have done to try and fix this problem is as you said: "Governments actively encourage deficit spending and manipulate interest rates to encourage spending, borrowing and consumption."

I will reiterate the main point, you believe based on faith that new businesses/ products and services will be created, yet conveniently forget that these new business/ products and services require sufficient numbers of consumers with money who want to consume them. The giant populations of people in poverty in third world countries don't count as consumers as they have almost no money to consume with.

In short, if you're saving, you ARE doing yourself and the economy a favor

Keep lying to yourself on how you are doing the economy a favor. You are certainly doing yourself a favor. As for the economy, money in savings, is money out of circulation. Money is a medium of exchange. When there is less money in circulation, less medium of exchange in circulation. The economy slows down as less exchanges occur. There is also less money to repay debt therefore debt takes longer to repay. No, the bank doesn't lend out your savings. It creates new money every time a loan is taken out.

I will reiterate, money is created through borrowing/debt. It comes into existence when someone takes out a loan. Savings locks away that money that someone else borrowed into existence. It is no longer available for repayment of the original loan, until the saver decides to spend that money.
 
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Premier Campbell Newman says Queensland has 20,000 more public servants than it can afford.

Mr Newman has put a figure on how many jobs could go in a massive State Government cost-cutting exercise.

It follows the release of a commission of audit last week which forecast a blowout in state debt to more than $90 billion in four years.

The audit - headed by former federal treasurer Peter Costello - suggested increased tax and charges as well as public sector job cuts to return the budget to surplus.

Read the audit here.

Mr Newman has told Parliament the previous government relied on borrowings to pay public service wages.

"Labor has employed 20,000 more public servants than the people of Queensland can currently afford," Mr Newman said.

"Labor was paying those 20,000 public servants by borrowing, by incurring debt, by borrowing to keep the lights on as well.

"I've had the guts - I might add - to come in here and tell the truth."

Opposition Leader Annastacia Palaszcuk says new government figures on temporary contracts and casual workers show even more jobs are under threat.

"55,000 jobs are clearly at risk under this new government," Ms Palaszcuk said.

Deputy Premier Jeff Seeney says severe cutbacks in Government spending are required.

However, he says those cutbacks will only be one side of the Government's response.

"Our government will redouble our efforts to boost the income of the state by growing the four economic pillars," Mr Seeney said.

The Government is also negotiating a new pay deal with public servants, offering 2.3 per cent annual pay rises.

http://www.abc.net.au/news/2012-06-19/newman3a-202c000-too-many-public-servants/4079460

I read this today. If they have their way, that'll be potentially 20,000 more unemployed people, 20,000 more on Centrelink.

It's not a nice deficit I know, but why in recent times has there been such a rush to get into surplus? What is the big deal? Once you get to a surplus - so what? What good is a surplus if there are all these people unemployed??
 

Glen48

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Nothing wrong with a surplus you can use it to build more units for the un-employed, soup kitchen etc.
 
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http://www.abc.net.au/news/2012-06-19/newman3a-202c000-too-many-public-servants/4079460

I read this today. If they have their way, that'll be potentially 20,000 more unemployed people, 20,000 more on Centrelink.

It's not a nice deficit I know, but why in recent times has there been such a rush to get into surplus? What is the big deal? Once you get to a surplus - so what? What good is a surplus if there are all these people unemployed??

what good is a deficit that cant be re-payed because you're forking out for wages.
 
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What good is a surplus if there are all these people unemployed??

So you think a Queensland public servant couldn't get alternative employment? You are probably right. Having had some experience with the State public service, I think the majority of the deadwood would be unemployable in the private sector.
 
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Having had some experience with the State public service, I think the majority of the deadwood would be unemployable in the private sector.
It's the old 80 / 20 rule. There are some very hard working, committed individuals in the public service but agreed there is also a lot of dead wood.

The main thing I noted as a public servant was that those who were highly motivated and hard working strongly believed in the value of what they were doing. :2twocents
 
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I remember talking to a very smart friend of mine (who worked in finance) and I said something about trying to save every spare dollar I had instead of wasting it on needless material things. He smirked and said "if everyone did that they would send us into a recession".

Full on consumption is just as detrimental to an economy as full on capital hoarding.

It's not like those people who 'waste every spare dollar on needless material things' are magical economic go-juice. If they are consuming more than they are producing then there is a saver/net producer somewhere subsidising that consumption.

Try to think about the opposite of what you said to your friend, if everyone spent every spare dollar on material things instead of saving it...what would we have? Well, pretty much what we've got right now. The reason it is so is simply because people in other countries "trying to save every spare dollar" and net producers willing to extend credit to everyone else. Governments of net consumption countries only extend credit at the cost of savers and physical notes.

If those parties weren't willing to extend that credit, then what's the upper limit on how much anyone could consume? No more than they produced minus what they need to live on.
 
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All the cool countries are running defecits ;)

well if everyone else is! don't quote me on this, but I hear the 'cool countries' are doing really well by running huge deficits, the bigger the better apparently. perhaps the gov can start their spending by buying us all umbrellas to protect us from the US$1 bills that will be falling from the skies if they keep printing.
 
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Try to think about the opposite of what you said to your friend, if everyone spent every spare dollar on material things instead of saving it...what would we have? Well, pretty much what we've got right now.

Another misleading statement if not clarified properly. It should read:
Try to think about the opposite of what you said to your friend, if everyone spent every spare dollar on material things instead of saving it and borrowed money they don't have to consume...what would we have? Well, pretty much what we've got right now.



Full on consumption is just as detrimental to an economy as full on capital hoarding.

It's not like those people who 'waste every spare dollar on needless material things' are magical economic go-juice. If they are consuming more than they are producing then there is a saver/net producer somewhere subsidising that consumption.

'waste every spare dollar on needless material things' refers to someone wasting all the money they have. Assuming you are paid inline with your production, a claim the majority of this forum no doubt believe, being a right wing forum. Funny enough, the fact that people are already paid to dole bludge already discounts this theory. Nevertheless assuming the theory is true, then when someone wastes every spare dollar on needless material things, they are consuming what they are producing. In order to consume more than they produce they need to 'waste every spare dollar on needless material things' and also borrow money they don't have to consume.

Try to think about the opposite of what you said to your friend, if everyone spent every spare dollar on material things instead of saving it...what would we have? Well, pretty much what we've got right now.

Using your incorrect misleading statement, no we wouldn't have what we have now. If everyone spent every spare dollar on material things instead of saving it. The economy would be in equilibrium as so far as any debt based economy can be in equilibrium. Obviously you run into problems such as everyone having to work their entire lives and there being no such thing as retirement.

In a ideal debt based economy with equilibrium there will be savers who save for retirement e.t.c who are offset by private businesses who go into debt to start up or grow. The most important factor being that the two balance out. Obviously the ideal debt based economy is unachievable and savings manage to grow and grow (the rich get richer), because savings are always getting larger and larger, this requires debt to be larger and larger. If debt doesn't get larger and larger in response to savings getting larger, the disconnect, non-equilibrium leads to unemployment/depression. Governments trying to stop unemployment resort to growing debt. They grow government debt and they try and grow individual debt by manipulating interest rates. The same option under a different guise is printing money, unfortunately in a debt based economy, printing money invariably means growing government debt. When the rate of debt growth outpaces the rate of savings growth, inflation occurs.

Another factor that alleviates the problem of the inherent in-equilibrium of the debt based economy is unlimited growth/ population growth. The more people there are, the more debt can be distributed throughout the population.

Another key problem with the debt based economy is time. The time required for the saver to spend their savings and therefore recycle money/ the medium of exchange back into the economy is too long, hence governments resort to growing debt. Hence the debt based economy to remain in equilibrium requires unlimited growth. Not withstanding the fact that the rich usually stay rich and that the savings probably will never get fully recycled into the economy.

Any economic system that requires unlimited growth for sustainability is inherently unstable considering humans are tied to the finite resource called earth.

Try to think about the opposite of what you said to your friend, if everyone spent every spare dollar on material things instead of saving it and borrowed money they don't have to consume...what would we have? Well, pretty much what we've got right now.

This statement however is true, what we have now is the result of the active encouragement of growing debt by the government and by the media through advertising and marketing. Governments growing their own debt also contributes, governments rely on inflation to decrease their debt to GDP ratios.
 
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Interesting thread. It raises the old question of balance between saving and spending, one which many people struggle with.

So do you agree that what is good for the individual is not good for the economy?

If so, do you think there is some sort of juxtaposition/contrasting logic that although what is good for the individual is not good for the economy, yet all the individuals added up make up the economy?
There are huge gains and losses to be made by the local economy depending exactly what the individual wastes his money on! I would rather focus on the local economy than the global one when talking about this.

A holiday is always good for the individual, whether it is described as wasting money on a needles material thing or not. But a family man undertaking a 2000km road trip with his wife & kids to spend a fortnight on the coast will provide an economic boost to many businesses along the way because he is spending his money here. A different family might travel abroad but once the plane is in the air the economic benefit to this country stops - to me, that is a waste. Far better to spend $20 in the bakery at Bulahdelah than a cafe in Kuta.

At the end of the day it probably doesn't matter if we are talking about the local or global economies. Spending creates growth. But given the choice, if I had money to waste, I would always try to do it here!
 

Glen48

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This is the end result of using other peoples money to buy their goods and the end result of Globalization:
USA is probably more vulnerable than the rest of the world due to the amount they own China and the number is still climbing


[FONT=Arial, Helvetica, Verdana, sans-serif]It has been said that there are two ways to conquer and enslave a nation. One way is by using the sword, and the other is by using debt. Fortunately, America is not in danger of being conquered by the sword right now, but America [/FONT]is[FONT=Arial, Helvetica, Verdana, sans-serif] being conquered by debt. The borrower is the servant of the lender, and today we owe China more than a trillion dollars. By running a gigantic trade deficit with us, China has been able to become incredibly wealthy. We have begged them to lend us back some of the money that we have sent them and this has made them even wealthier. Now China is gobbling up U.S. real estate and U.S. assets at an astounding pace. In fact, some cities are in danger of becoming completely dominated by Chinese ownership. One of those cities is Toledo, Ohio. In many “rust belt” areas, real estate can be had for a song, and the Chinese are taking full advantage of this. America was once the wealthiest nation on earth, but now we are drowning in debt and we are being sold off in chunks to the highest bidder. Is this the legacy that we are going to leave for future generations?[/FONT]According to a recent Fortune article, Chinese investors have been very busy purchasing distressed commercial real estate in Toledo lately….
In March 2011, Chinese investors paid $2.15 million cash for a restaurant complex on the Maumee River in Toledo, Ohio. Soon they put down another $3.8 million on 69 acres of newly decontaminated land in the city’s Marina District, promising to invest $200 million in a new residential-commercial development. That September, another Chinese firm spent $3 million for an aging hotel across a nearby bridge with a view of the minor league ballpark.
Toledo is being promoted to Chinese investors as a “5-star logistics region“. From Toledo it is very easy to get to Chicago, Detroit, Cleveland, Pittsburgh, Columbus and Indianapolis.
With a population of 287,000, Toledo is only the fourth largest city in Ohio, but it lies at the junction of two important highways ”” I-75 and I-80/90. “My vision is to make Toledo a true international city,” Toledo’s Mayor Mike Bell told the Toledo Blade.
For some reason the Chinese seem to be very interested in that area of the country. Last month, I wrote about how one Chinese group plans to develop a 200 acre “China city” just 40 minutes away from Toledo….
A Chinese group known as “Sino-Michigan Properties LLC” has bought up 200 acres of land near the town of Milan, Michigan. Their plan is to construct a “China City” with artificial lakes, a Chinese cultural center and hundreds of housing units for Chinese citizens. Essentially, it would be a little slice of communist China dropped right into the heartland of America. This “China City” would be located about 40 minutes from both Detroit and Toledo, and it would be marketed to Chinese business people that want to start businesses in the United States.
But it is not just the rust belt that is being bought up by the Chinese. A recent Forbes article documented several of the huge real estate deals that the Chinese are doing in New York right now….
According to a recent report in the New York Times, investors from China are “snapping up luxury apartments” and are planning to spend hundreds of millions of dollars on commercial and residential projects like Atlantic Yards in Brooklyn. Chinese companies also have signed major leases at the Empire State Building and at 1 World Trade Center, the report said.
In addition to real estate, the Chinese are also buying up businesses and natural resources all over the United States.For example, the Dalian Wanda Group recently bought U.S. movie theater chain AMC Entertainment for 2.6 billion dollars.Also, the Obama administration has been allowing companies owned by the Chinese government to gobble up U.S. oil and gas deposits worth billions of dollars.On top of all that, the Federal Reserve recently announced that it will now allow Chinese banks to start buying up American banks.So how in the world did we come to be so completely and totally dominated by China?Well, the key to all of this is the trade deficit.Most Americans can’t even tell you what a trade deficit is, but it is at the very heart of our economic problems.Basically, we buy far, far more from other countries than they buy from us.Most Americans don’t realize this, but the truth is that the United States has a trade imbalance that is more than 5 times larger than any other nation on earth has.Overall, the U.S. has run a trade deficit of more than 8 trillion dollars with the rest of the globe since 1975.If you go into a Wal-Mart of a dollar store today and you start looking at product labels, you will notice that hundreds of products say “made in China” and very few of them say that they were made in this country.Every single month, China sends us gigantic mountains of plastic crap to sell in our stores and we send them gigantic mountains of our money.The U.S. trade deficit with China during 2011 was $295.4 billion. That was the largest trade deficit that one country has had with another country in the history of the planet.Sadly, so far our trade deficit with China in 2012 is about 12 percent larger than it was last year.So things are getting even worse.To get an idea of how far things have come, let us take a look back at the 1980s for a moment.Back in 1985, the U.S. trade deficit with China was only 6 million dollars for the entire year.All of this imbalanced trade is absolutely killing us.Today, the United States spends about 4 dollars on goods and services from China for every one dollar that China spends on goods and services from the United States.So why doesn’t China buy more stuff from us?Well, there are a whole lot of reasons. One of the main reasons is that they slap huge tariffs on many American-made goods.For example, according to the New York Times a Jeep Grand Cherokee that costs $27,490 in the United States costs about $85,000 in China thanks to all the tariffs.So why do we allow China to keep doing this to us?That is a very good question.Meanwhile, China is continually getting wealthier and we are continually getting poorer.All of the money that is leaving this country and going to China could be going to U.S. businesses and U.S. workers instead. In turn, those businesses and workers would pay taxes on that money to support the government.Instead, we have to go beg China to lend us the money that we just sent to them.At this point, China now holds approximately 1.17 trillion dollars of U.S. government debt.None of this ever had to happen.But it did happen because we were stupid.Now China has mountains of money to literally buy us up.But China is not the only country that we have an imbalanced trading relationship with.For example, the new “free trade agreement” between the United States and South Korea that Barack Obama has been touting went into full effect on March 15, 2012.So how has that “free trade agreement” turned out so far? The following is from a recent article by Pat Buchanan….
The U.S. trade deficit with Korea tripled in one month. Imports from South Korea jumped 15 percent to $5.5 billion in April, while U.S. exports to South Korea fell 12 percent to $3.7 billion. Suddenly, the U.S. trade deficit with Seoul surged to an annual rate of $22 billion.
Shades of NAFTA. When it passed in 1993, we had a $1.6 billion trade surplus with Mexico. By 2010, our trade deficit with Mexico had reached $61.6 billion.
Ouch.The truth is that these free trade agreements are not fair and balanced.U.S. workers end up competing for jobs with workers in countries where it is legal to pay slave labor wages. And other countries often have far fewer rules and regulations to follow as well. In his recent article, Buchanan described why all Americans should be economic nationalists….
Global free trade means U.S. workers compete with Asian and Latin American workers whose wages are a fraction of our own and whose benefits may be nonexistent. Global free trade means U.S factories that relocate to Indonesia or India need not observe U.S. laws on health, safety, pollution or paying a minimum wage.
Global free trade means that companies that move factories outside the United States can send their products back to the United States free of charge and undercut businessmen who retain their American workers and live within American laws.
Free trade makes suckers and fools out of patriots.
Unfortunately, both major political parties in the United States are absolutely married to the one world economic agenda that the elite are pushing.So we will continue to bleed wealth, businesses and jobs at an astounding pace.You can get a really good idea of the horrific manufacturing job losses in the United States over the past 40 years by checking out this map right here.Overall, the United States has lost a total of more than 56,000 manufacturing facilities since 2001.According to the Economic Policy Institute, since 2001 America has lost approximately 2.8 million jobs due to our trade deficit with China alone.There seems to be absolutely no concern with protecting American jobs these days.If you can believe it, Chinese corporations are even building our bridges. The following is a brief excerptfrom a recent ABC News article….
In New York there is a $400 million renovation project on the Alexander Hamilton Bridge.
In California, there is a $7.2 billion project to rebuild the Bay Bridge connecting San Francisco and Oakland.
In Alaska, there is a proposal for a $190 million bridge project.
These projects sound like steps in the right direction, but much of the work is going to Chinese government-owned firms.
“When we subsidize jobs in China, we’re not creating any wealth in the United States,” said Scott Paul, executive director for the Alliance for American Manufacturing.
Americans need to start understanding that our trade deficit is causing us to lose massive numbers of businesses and jobs and that this is making us poorer as a nation.As I wrote about the other day, the median net worth of families in the United States declined “from $126,400 in 2007 to $77,300 in 2010” according to the Federal Reserve.Even if you take away the effect of the housing collapse, household net worth still declined by 25 percentbetween 2005 and 2010.A lot of that decline in wealth was due to the recent recession, but the point I am trying to make is that we are getting poorer as a nation.A decade ago, the United States was ranked number one in average wealth per adult. By 2010, the United States had fallen to seventh.And when you factor in our debts, we are a complete and total mess. U.S. consumers are more than 11 trillion dollars in debt and the federal government is nearly 16 trillion dollars in debt.We are getting deeper in debt at the same time that our ability to service that debt is declining.The reality is that our economy is completely falling apart and it no longer produces enough jobs for everyone.In fact, it isn’t even close.Right now there are about 3.7 workers that are “officially” unemployed for every single job opening.So what we are doing right now is clearly not working.We need to fundamentally change direction as a nation.Unfortunately, that is not going to happen any time soon.So where do we go from here?
 
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Interesting you post that, because according to my friends, the same is happening here in Australia. They tell me the Chinese are one of the causes of the property bubble here.
 
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Here is an article on the point I made:

For several years, the economy limped along because of me. I scrimped on everything, did it myself if I could do it myself, and hoarded money out of fear that the recent recession had another dip or two left in it.

Things are different now. I’ve turned my savings into spending, rung up thousands of dollars’ worth of purchases on my credit cards and in the process paid a lot more in taxes. And I’ll probably keep spending like this until I nearly run out of money.

In other words, I’ve bought a house.

http://www.zerohedge.com/news/2013-07-20/confessions-keynesian-debt-serf
 
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What you and your friend were talking about is similar to the paradox of thrift.

It's usually mentioned when an economy starts to slow. As an individual you start to worry about the future and begin to save a bit more. As an individual this is a logical thing to do, but if everyone in the economy starts to do the same thing then the loss of economic activity can drive the economy towards recession.

I think half the reason people have been moanig about how tough life is post GFC is the fact that the savings rate has moved back from negative to around 10% which is the long term average. I dare say this more conservative nature of the consumer is why the CAD didn't blow out during the mining boom, and why interest rates were able to be lowered.
 
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