Well, the trade deficit figures have been announced for January and they're the second highest in history at $58 billion dollars.
The largest contribution to the trade gap was trade with China (no surprise there) and we're told it was mostly because of an increase in the import of textiles. Gee, since we gutted the textile industry in North Carolina, I guess we have to buy our textiles from somewhere else so it might as well be China, right?
I'd like to direct your attention to the article at this
link.
The US has apparently lost the ability to create high productivity, high value-added jobs in tradable goods and services. The ladders of upward mobility are being dismantled by offshore production for home markets and outsourcing of knowledge jobs.
The BLS reports that the number of employed US technical workers has fallen by 221,000 in six major computer and engineering job classifications during 2000-2004. The largest drops were suffered by computer programmers, followed by electrical and electronics engineers, computer scientists and systems analysts.
So much for the new economy that economists promised would take the place of the lost manufacturing economy.
America's remaining job market is domestic nontradable services. While India and China develop first world job markets, the US labor market takes on the characteristics of a third world work force. Only jobs that cannot be outsourced are growing.
The Bush economy has seen a loss of 2.8 million manufacturing jobs, a rise in the unemployment rate of 1.2 percentage points, and a stagnation in real weekly earnings. How bad will things have to get before economists realize that outsourced jobs are not being replaced? Indeed, many American companies are ceasing to have any presence in the US except for a sales force.
Cisco's CEO, John Chambers, declared recently: "What we're trying to do is outline an entire strategy of becoming a Chinese company." Cisco is establishing a new R&D center in Shanghai. The US corporation manufactures $5 billion of products in China where it employs 10,000 people.
That is just one company, and there are many doing the same thing. The result is abandonment of the American work force by American corporations. Little wonder the Bush administration is the first administration in 70 years to have a net loss of private sector jobs.
If one US company or a few move offshore, their profits improve and consumer prices are lower. However, when work in general moves offshore, Americans lose the incomes associated with the production of the goods they consume. Domestic production is turned into imports, with the result that America draws down its accumulated wealth in order to pay for the imports on which it is dependent.
Perhaps this is why, in part, Warren Buffet suggests that instead of the "ownership society" proffered by the Bush administrations we're more likely to be a "sharecropper" society.
From Warren Buffet's Annual Report to the Berkshire Hathaway Stockholders (the good stuff starts on page 19 under the heading of "Foreign Currencies").
Should we continue to run current account deficits comparable to those now prevailing, the net
ownership of the U.S. by other countries and their citizens a decade from now will amount to roughly $11
trillion. And, if foreign investors were to earn only 5% on that net holding, we would need to send a net of
$.55 trillion of goods and services abroad every year merely to service the U.S. investments then held by
foreigners. At that date, a decade out, our GDP would probably total about $18 trillion (assuming low
inflation, which is far from a sure thing). Therefore, our U.S. "family" would then be delivering 3% of its
annual output to the rest of the world simply as tribute for the overindulgences of the past. In this case,
unlike that involving budget deficits, the sons would truly pay for the sins of their fathers.
This annual royalty paid the world - which would not disappear unless the U.S. massively
under-consumed and began to run consistent and large trade surpluses - would undoubtedly produce
significant political unrest in the U.S. Americans would still be living very well, indeed better than now
because of the growth in our economy. But they would chafe at the idea of perpetually paying tribute to
their creditors and owners abroad. A country that is now aspiring to an "Ownership Society" will not find
happiness in - and I'll use hyperbole here for emphasis - a "Sharecropper's Society." But that's precisely
where our trade policies, supported by Republicans and Democrats alike, are taking us.
So, why would Buffet invest about $20 billion in foreign exchange contracts spread among 12 currencies? Simply because he has little confidence in the US dollar yet he can't put all of that money anywhere else. Also, he faces the same dilemma many countries are confronted with. They have more U.S. dollars than they want, they know they're diminishing in value, but there is no market that is liquid enough to absorb them (other than the U.S. treasury bond market which is happy to sell bonds at the expense of Americans).
Consider that the US Treasury has perhaps $11 billion in gold reserves. If Buffet were to attempt to purchase $21 billion dollars worth of gold, the price of gold would rise so quickly he wouldn't be able to take delivery. In addition, his actions would probably collapse the financial markets around the world.
Note that several years ago, he did acquire several million ounces of silver when it was selling for around $3.50 an ounce.
Interestingly, Buffet laments
"I didn't do that job very well last year. My hope was to make several multi-billion dollar acquisitions that would add new and significant streams of earnings to the many we already have. But I struck out. Additionally, I found very few attractive securities to buy. Berkshire therefore ended the year with $43 billion of cash equivalents, not a happy position. Charlie and I will work to translate some of this hoard into more interesting assets during 2005, though we can't promise success."
Ok readers, here it is from one of the richest people on the planet, and he says he can't find anything to invest in. So why is the real estate market in a buying frenzy? Why have the stock markets boomed in the last three years? Why do so many people apparently disagree with him? The simple answer is that Buffet is a value investor. He only makes investments in propositions that represent value i.e. a reasonable chance for a return on one's investment. And, presently, he doesn't see any market to invest in that represents an opportunity for value. I wonder what that makes all those people who are currently jumping into real estate and the stock markets (like they did in late 1990s) with both feet ?
By the way, if any of our readers are interested in purchasing shares of Berkshire Hathaway, the class A stock - BRK is currently selling for slightly over $90,000 per share.
So, you might ask, what does all of this have to do with me? I don't have billions to invest so it's irrelevant. Well, the simple fact of the matter is that you, and I, are faced with the same problem as Mr. Buffet, the holding of a currency that's at extreme risk of loosing value, but unlike Buffet, we can protect our wealth in it's entirety. While the gold market is too illiquid for Buffet to invest in, we are able to purchase gold as a safe haven against the possibility of a debacle that may unfold.
In the final analysis, it all comes down to this simple
message from Dr. Alan Greenspan written in 1968 that is more relevant today than ever.
At my Gold Page, I list a variety of ways one may protect their savings and future through investments in gold and gold-related investments.
Personally, I prefer physical gold in hand. It's the equivalent of true wealth. Note that this page is purely a public service. I receive nothing whatsoever from any entity listed on this page.
