"Only when the tide goes out do you discover who's been swimming naked" (Warren Buffett).
When the tough economic times hit, we found out it was the indebted and leveraged American businesses who didn't have their trunks on.
Welcome to the third edition of The Golden Sense! In this edition it is all about looking around and observing where we stand. What is obvious is that over 9% of us are standing in the hiring line. Unemployment is our problem. If you're unemployed, it is tough to find a job. If you have a job, it could easily be you in that line next month.
The national unemployment rate is around 9.8% It is higher if you include people who have stopped looking for work and are now off Government benefits. The California unemployment rate is at 12.4%.
Where are all the jobs?
The answer? The businesses swimming in debt failed and the rest left to Asia and the emerging markets.
Globalization has taken over. American businesses are now dealing with vicious global competition, not just American competition. Businesses have to make a profit. If they don't, they will cease to exist. In short, they must do what's best for business.
There is a huge global trend going on. Wealth is transferring from the west to the east.
Wealth goes where production is, not where consumption is. The USA used to flood the world with high quality manufactured goods. Now, America has turned into a consumer society.
China and the rest of Asia are doing the producing.
Here is something we must understand. The definition of a trade deficit: an excess of imports over exports. The US trade deficit is running at 445 billion dollars. That means we are buying alot of goods that are made in foreign countries.
(http://www.americaneconomicalert.org/ticker_home.asp
Check your pants (i mean the tag in them), check the stuff in your kitchen. I bet it says "Made in China" or some other foreign country.
Companies no longer find it competitive to manufacture in America. There are many factors that contribute to the lack of business and high unemployment. Service companies (which are everywhere in the USA) are a normal part of an economy but they are not the basis for a strong, growing economy. Remember, wealth goes where production is.
But why is this happening? What causes unemployment? What causes this lower standard of living for all of us?
Here is one of the problems I see:
The cost of doing business. Companies find that the cost of doing business in the USA is too high. Extra costs take away the profits from companies. Costs take away extra money that could be going towards company growth. Extra costs take away money that could be used to hire additional employees.
What are these costs?
1.The current U.S. Corporate tax rate is 35%. With 35% of businesses' profit taken away, companies find it more difficult to grow, expand and hire people with less net income. Oh, and don't forget state and local taxes on top of it as well.
2.The current California Minimum Wage is at $8 per hour. Jobs that high school students typically take and new people entering the work force are being cut out of jobs because of this high rate. People used to be hired as gas pumpers, grocery baggers, gift wrappers or greeters. Today, jobs like these rarely exist. Why? It is too expensive to hire them. The higher we make the minimum wage, the more lower level jobs we eliminate. These lost jobs contribute to a healthy economy by employing the young and yet to be "skilled" workers.
3.Regulations increase the cost of doing business. Financial regulation, Patriot Act, Sarbanes Oxly, Obamacare, small business regulatory enforcement fairness act, local law, state law, federal law, etc. The list of laws and regulations go on and on and on. High costs are associated with complying with these laws. It can give you a headache just to think about all of them. Complying with regulations takes time, money, and resources. These regulations are put in place by politicians with "good intentions" behind them.
"The road to hell is paved with good intentions"
4.Fiat money (Money backed by only the full faith of the Government). Countries are pumping more money into the system and systematically devaluing their own currency. They think this will help exports. A cheaper currency makes a country's products cheaper for foreigners to buy. There by increasing demand. (Go buy something with Pesos in Mexico. Seems cheap to you?) Consequently, this unequal credit expansion creates massive trade deficits around the world along with the erosion of business and personal savings.
How do businesses deal with these problems?
The answer? They move to countries with a more business friendly climate. The jobs follow suit. America is left with unemployment.
Lets look to a historical example where things went right and a countries standard of living increased. America could actually learn something from this example.
Hong Kong
In conjunction with its military campaign, the Empire of Japan invaded Hong Kong in December of 1941. The Battle of Hong Kong ended with British and Canadian defenders surrendering control of the colony to Japan. During the Japanese occupation of Hong Kong, civilians suffered widespread food shortages, rationing, and hyper-inflation due to the forced exchange of currency for military notes. Through a policy of enforced repatriation the unemployed moved to the mainland. Because of the scarcity of food, the population of Hong Kong had dwindled from 1.6 million in 1941 to 600,000.
In short, things were bad in Hong Kong.
In 1945 after the war, the British resumed control of the colony. The British would remain in control until their lease from China ended in 1997. In the 1950s, Hong Kong's rapid industrialisation was driven by textile exports and other expanded manufacturing industries. As the population grew and labor costs remained low, living standards rose steadily.
The British colonial government did something smart, they did not intervene in the Hong Kong economy. They actually made the cost of doing business affordable.
1.Hong Kong had a simple 15% tax. Easy to understand and not high enough for people to complain. From its revenues, the government built roads, schools, hospitals, and other public infrastructure facilities and services.
2.The government avoided running up large budget deficits; and by restraining public borrowing, credit expansion and inflation were held in check. This allowed businesses to grow responsibly.
3.Many unskilled people were willing to go to work in Hong Kong and gain experience. A soon-to-be skilled labor force, coupled with the adoption of modern British/Western business methods and technology ensured that opportunities for external trade, investment, and recruitment were maximized.
4.The Hong Kong government raised revenues from the sale and taxation of land and did not place extra taxes on business profits.This allowed business to expand and employ more people.
Hong Kong's gross domestic product between 1961 and 1997 grew substantially while neighboring nations remained in poverty.
By the late 20th century, Hong Kong was one of the largest ports in the world. Hong Kong became a place noted for its high standard of living and as a hub for international business.
Hong Kong's success can be attributed to their policies toward limiting business costs.
Any country can learn from this success story. If you are thinking I am promoting that the USA return to being a colony of Britain then you have completely missed the point.
I understand that our employment problem is not a simple fix, but it is something that must be fixed. It affects us all in a personal way. In the end, we want wealth heading towards America, not away from it.
Best,
T. Norman
Random Comments,
In the WSJ (Nov. 20-21) Niall Ferguson argues that "The world is tilting back to the East." At the G20 meeting in South Korea last week, Hu Jintao, China's leader spoke the sentence that described China's real thinking, "We are the masters now." At the G20 meeting, President Obama was brushed aside and got nothing done. It was embarrassingly clear that China has become the center that the world now revolves around.
Wikileaks has released a new load of information. The Governments of the world stink of corruption.
I say, "The truth shall set you free". The freedom of information is a wonderful thing.
The Governments disgraceful reaction: throw the man in jail!
Fiji Water has recently decided to close its bottling facility on the island of Fiji. They cite that a new tax hike from Fiji politicians has made it impossible to run their business on the island. Consequently, thousands of islanders will lose jobs due to the companies relocation.
So much for "actual" Fiji water. I'm sure they'll bottle it somewhere else and stick a label on it.
Ah, all this can be depressing. It's all good though, we'll continue on, I'm sure of it.
My big news is that I recently got engaged to Rebecca! I could not be more lucky! She has a heart of gold and i love her dearly.
