November 12, 2010

Is Free Trade killing our Economy?

POLITICS - News flash... Canada is opening free trade talks with India. And while we are at it, the USA is in a growing trade war with China.

The former, the negotiation of free trade with India, seems like a ridiculous idea now when you realize all the damage that trading with China is doing to the USA's economy.

Lets visualize this...

Imagine in your head a map of China, the Pacific Ocean and the United States.

Now imagine large amounts of ships going from China, carrying lots of products to the USA to be sold in American stores. In contrast very few ships from the USA are going back to China. Does that sound fair? No, it doesn't.

Now imagine American factories being closed down while China builds lots of new factories because their labour is so cheap? Does that sound fair? No, it doesn't.

Now imagine the US dollar with the Chinese Yuan pegged to the dollar at a rate so low its criminal. American workers can't possible compete with Chinese workers because the Chinese Yuan is pegged at a rate wherein its worth 50 to 66% less than what it really should be worth. Ergo, it costs at least half as much to build things in China because the Yuan is deliberately undervalued and isn't allowed to float on the free market. (To learn more read Currency War on the Horizon.)

Now imagine the US economy in so much economic trouble that in order to keep their economy from collapsing they BORROW money from China just so they can prop up the American economy with a bandaid solution.

Now imagine the bandaid solution has failed. The US President Barack Obama has realized that the only course of action is to demand China to allow its currency to float on the free market (which will cause the Yuan to appreciate in value until it is at its proper value). Except China refuses, like they did at the G20 meeting in Seoul this week.

So the USA is back at square effing one.

And what you realize is that Free Trade with China is killing the American economy because the Chinese aren't playing "fair". So America's only solution now is to raise tarriffs on Chinese imports.

Except that the USA owes China a lot of money. Trillions of US dollars worth of debt. So they can't go annoying China right now because its just too much debt. And worse the USA's debt keeps growing, and the country lending them more money is... China.

So what you realize is that the USA is effing screwed.

Oh in theory they could do more things like BUY AMERICAN programs and so forth, except China owns (or practically owns) most of the big retailers in the USA anyway, starting with Wal-Mart. (If you thought Wal-Mart was as American as apple pie, you'd be sorely disappointed to see who owns most of the shares in the company.)

Indeed at this point the United States is only a step away from financial collapse, but the Chinese keep bailing them out. The problem however is that the Chinese can only bailout the USA when they are given plenty of advance notice. If the US economy collapses in a single day (like it nearly did on "Black Thursday" on October 24th 1929, well then it will be too late. The US economy will need a fresh reboot, a completely new financial system.

Now it isn't all doom and gloom. One thing you have to learn is that when these things happen people come back and FIX it so it doesn't happen again.

So when they do fix it one way to think about it is how do we create a new financial system, one that can't fall apart so easily?


#1. An unified currency, ie. A global credit system. This way countries like China can't undercut other currencies by deliberately devaluing and pegging their currencies. If we all use the same currency this can't happen.

#2. A global minimum wage. If every country had a minimum hourly wage of 10 credits it would mean an end to sweatshops and companies which undercut the production costs of factories overseas, stealing jobs from other countries. The only boundary then becomes the distance the product needs to be sent.

#3. More local outsourcing. Why should Canada seek free trade with India? So we can outsource all of our banking and customer service jobs to a place with a lower minimum wage? Nonsense. Many of these jobs are just leeches in the first place, sucking money out of our financial system but without producing any actual product. What banks really need is more automation. Less staff, more computers. The only time you deal with a "banker" is when there is a problem with your account that needs to be fixed. And it is better to have someone local so they can relate to and understand the problem easier.

#4. More local manufacturing. Why are we buying cars made overseas and then shipped here? Wouldn't it make more sense to have the same car (same company, same design, etc) built locally and sold in the same geographical zone? Less shipping = Less cost. The problem however is that union jobs are sometimes WAAAAAAAY overpaid. Ridiculous to say the least. There needs to be a cap on how much union workers can be paid.

#5. Capping executive pay. Ever seen a CEO who gets a multi-million dollar bonus, but his or her company is currently filing for bankruptcy protection? Well its not fair. This is why executives, CEOs, etc should have a cap on how much they can actually be paid, and their yearly bonus likewise should have a cap on it. ie. $5 million max. After all, who needs more than $5 million per year?

#6. Changing the stock market system. Right now we have this ridiculous system of futures and instant trading. Futures trading is when you bet FOR or AGAINST a stock and claim it will go up or down, without actually buying the stock. Then when it does go up and down, you make money depending on how many people bet one way or the other. It is essentially gambling and its very irresponsible. The second thing is the issue of trading stocks instantly. You can buy it one minute and sell it a minute later. This system of buying/selling stocks is unstable and will lead to disaster. ie. One day the DOW JONES will drop 666 points in a single day and everyone will start calling it Doomsday. What we need instead is to scrap futures trading and get rid of instant trades too. Investing in a stock should have a minimum time limit, like one week, and stocks should only be traded one day of the week (Wednesday). At the same time there should be a LIMIT on how far up or down a stock can go in a single week, like 5%. If it reaches that number it is capped and can't be traded any higher or lower than that. People have to wait for the next week to see if it will keep going up or down. The end result is a stock market which still fluctuates, but does so slowly and with stability and moderation.

And there is a whole list of other ways we could make our financial system more stable. ie. We could set a limit on foreign investments to 33% to prevent foreign ownership of companies which are then closed / dismantled and the workers all laid off while operations are moved overseas.

The point is our financial system needs change. But before we can change anything it first has to collapse completely so that people realize the need for change.

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