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Not Made in America at the Root of U.S. Economic Crisis

Economics / Protectionism Sep 16, 2011 - 12:29 PM GMT

By: Richard_Mills


Best Financial Markets Analysis ArticleGovernment attempts to inflate the money supply and stimulate growth through quantitative easing have failed, so far, because they gave the stimulus to banks, not directly to their citizens - stimulation will only work if the cash is spent:

  • Giving the money to bankers is the equivalent to burying it - banks used the money to shore up their balance sheets and do not loan it out
  • Consumers are already buried in debt and facing mass layoffs so taking on yet more debt by borrowing more money from the banks is not an option

There seems to have been a lesson recently learned. Instead of spending every penny they have and borrowing more - gleefully maxing out their credit limits - Americans are turning into savers. The savings rate, a short while ago in negative territory, has turned upwards and today is five percent.

Recent research shows:

"The economic impact of further US consumer deleveraging will depend on income growth - with no income growth, each percentage point increase in the savings rate reduces spending by over $100 billion. US consumers have accounted for more than three-quarters of US GDP growth since 2000 and for more than one-third of global growth in private consumption since 1990." ~ McKinsey Global Institute

Consumers will not borrow and spend when they're unemployed, underemployed or fear for their jobs. When consumers have no money to spend demand is reduced, this starts a vicious loop, prices are reduced when there are no buyers, which reduces profit margins, which results in layoffs, which results in even greater unemployment, underemployment and fear of job loss.

What's holding the US economy back from recovery is not a lack of consumer and business confidence, a poor housing market or suppressed demand, although all exist. They exist because they are all symptoms caused by the root problem of the US economy - a lack of good jobs. High quality American jobs were shipped off-shore by the millions and continue to be off-shored today.

US corporations need overseas operations to service their foreign markets, that's a given and there's nothing wrong with it. However many US companies shuttered their plants in America, rebuilt those plants overseas, and used foreign labor to manufacture the very same products Americans use to make.

As an aside - these same US corporations are now screaming for a second "tax holiday" in which they can repatriate their enormously increased profits back to America at roughly six percent instead of the usual 35% US corporate tax rate. All the while increasing their overseas investments and off-shoring more American jobs.

The communities that lose these off-shored high paying jobs never recover, the people who lost those jobs were never retrained and if they were for what? Likely to face increasingly stiffer and stiffer competition for a much lower paying job - with no benefits such as health coverage or ensured retirement security - in the service industry.

JOLTS stands for Job Openings and Labor Turnover Survey. July's JOLTS show there were 4.32 officially unemployed people looking for work for every job available. Use the real, unofficial unemployed statistics, and its 7.7 people looking for work for every job available - there's no shortage of people willing to work - there's a jobs shortage.

People need to work, they need a job to support themselves, feed, shelter and cloth their families. And yes, have some cash left over from their pay cheque for discretionary spending. The off-shoring of millions of jobs from America took away millions of opportunities for Americans to better themselves and instead gave American opportunity to foreigners. In return, America was forced to create a service industry based economy, one where people need two jobs, and still barely have enough to cover the basics of survival let alone money for discretionary spending.

Central Bank and government intervention/stimulation doesn't work - only robust job creation can right the floundering western economies.

Manufacturing jobs traditionally have provided high wages and good benefits that allow workers to care for their families. Yet big business, the multinationals responsible for off-shoring, are addicted to non-unionized and benefit free cheap overseas labor.

The American Recovery and Reinvestment Act (ARRA) of 2009, required that funds provided by the bill could not be used to purchase foreign made iron, steel, and textiles. The Senate provision was tougher still - it mandated that all manufactured goods purchased with ARRA money had to be American made - Buy American. The U.S. Chamber of Commerce, the National Association of Manufacturers, the Emergency Committee for American Trade in Washington, General Electric, Caterpillar and many other US transnational corporations opposed the "Buy American" part of the Act.

The American middle class is being destroyed because of off-shoring American jobs. The US middle class drives the US economy and the US economy is by far the largest driver of the global economy so the consequences of the destruction of the US middle class is international in effect.

"An important part of the job fraud is to make the people feel like the loss of jobs is due to the recession, not off-shoring. Long before the recession, South Carolina lost its textile industry; North Carolina lost its furniture industry; Detroit its automobile industry, and California its computer industry, etc. President Obama wants to increase exports, but we have nothing to export. Today, the United States has the export profile of an eighteenth century colony... Last week, the Wall Street Journal announced that the largest chemical producer in the United States was off-shoring. Most of the job loss is from off-shoring, not the recession. But Washington acts as if nothing can be done to limit the off-shoring and protect our economy.

Globalization has developed into a trade war with production looking for the cheapest country to produce, with fierce competition for industry and jobs." ~ Washington's Job Fraud by Sen. Fritz Hollings

Twelve million jobs are needed just to get back to even yet:

  • US taxpayers are still funding Federal programs that provide incentives (loans, subsidies, credits, or loan guarantees) for US corporations to relocate their jobs offshore.
  • Companies can defer paying taxes on their overseas income indefinitely while deducting many of the expenses caused by moving offshore. Companies that would owe U.S. taxes on overseas profits can avoid payment by reinvesting the proceeds abroad.
  • According to recent data from the Commerce Department U.S., multinational firms reduced their workforce in this country by 2.9 million between 1999 and 2009,. Meanwhile, they added 2.4 million workers overseas - many of these multinational firms are represented on Obama's Jobs Council.
  • American guest worker programs such as the H-1B, L-1, and B-1 visas are often used to bring in lower cost foreign workers who substitute for and compete against, American workers
  • Almost every company on the Fortune 500 list of companies has increased its presence and overseas investments while at the same time laying off U.S. workers

Recently President Barack Obama started an Advisory Council for Jobs and Competitiveness. When announcing the Jobs Council Obama said:

"Our job is to do everything we can to ensure that businesses can take root, and folks can find good jobs. We're going to build stuff, and invent stuff."

Jeff Immelt, Chairman and Chief Executive Officer at GE, is the head of President Obama's 26 member Council on Jobs and Competitiveness - the sole purpose of which is creating jobs in the USA.

General Electric:

  • CEO Jeff Immelt, chair of the council, since taking control of GE in 2001, has slashed GE's US job rolls by 20 percent
  • G.E. did not pay any taxes on $5.1 billion in profits for 2010. GE did earn $3.2 billion of tax payer's money in tax benefits by utilizing existing loopholes and tax shelters.
  • GE just moved their diagnostic imaging equipment manufacturing X-ray business from Wisconsin to Beijing, China

"In a regulatory filing just a week before the Japanese disaster put a spotlight on the company's nuclear reactor business, G.E. reported that its tax burden was 7.4 percent of its American profits, about a third of the average reported by other American multinationals. Even those figures are overstated, because they include taxes that will be paid only if the company brings its overseas profits back to the United States. With those profits still offshore, G.E. is effectively getting money back.

Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation's tax receipts -- from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009." G.E.'s Strategies Let It Avoid Taxes Altogether By David Kocieniewski

Then there's this by Congressman Kucinich:

"As 14 million Americans struggle with unemployment, General Electric, under Mr. Immelt's leadership, is exporting highly-sophisticated technology to the Chinese in order to book short-term profits for GE. GE strives mightily to avoid paying federal income taxes, but goes 'all in' on a deal to transfer U.S. government-subsidized technology to the Chinese. Jeffrey Immelt has a conflict of interest. He cannot ethically advise the President on how to create American jobs and promote American competiveness, while at the same time leading a company that is exporting American technology and, along with it, American jobs." Congressman Dennis Kucinich (D-OH)

Members of Obama's Jobs Council, from other U.S. multinational corporations, include:

  • Intel, CEO and President Paul Otellini - Intel, led by council member Paul Ottellini, shed 21 percent of its U.S. workforce in the last five years
  • Citigroup Inc., Chairman Richard Parsons - Citigroup received one of the biggest bailouts in history
  • U.S. multinational corporations which waged a campaign against the "Buy American" program are represented on Obama's jobs council
  • Multinational companies, with current or former chief executive officers on Obama's jobs council, have, over the past four years, almost doubled the cumulative amounts they've reinvested overseas

America's economy use to be a job creation engine but in the last decade (2000-2010) job creation actually went into reverse - the effects have been horrendous.

The official unemployment rate, at 9.1 per cent, remains more than twice as high as it was in 2007. The real jobless rate is considerably higher - include those who have become so discouraged that they didn't look for a job last month (2.6 million), and those working part-time hours because they cannot find full-time work (8.8 million), and the combined unemployment and underemployment rate would be approaching 20%.

Latest data, Census Bureau Report, released September 12th:

  • A record 46.2 million people - nearly 1 in 6 Americans - are now counted among the nations poor
  • The number of Americans without health insurance has reached 49.9 million, the most in over twenty years. The number of people covered by employment based health plans declined from 170.8 million (2009) to 169.3 million in 2010
  • The overall poverty rate has climbed from 14.3 percent to 15.1 percent
  • In 2010, the median - or midpoint - household income was $49,445, down 2.3 percent from 2009
  • Working-age Americans (ages 18-65) now represent nearly 3 out of 5 poor people, rising from 12.9 percent in 2009 to 13.7 percent in 2010

One of the biggest proponents of off-shoring - the McKinsey Global Institute - found, in their 2003 report, Off-shoring: Is It A Win-Win Game?, that while the American economy gained from off-shoring, American workers didn't.

The report estimated that with no off-shoring American workers received 72 cents for each dollar of economic activity, while after off-shoring began American workers received only 45 cents.

"Can we trust the resilience of our economy? The starting point is convincing people of the probability of re-employment. … Over the past 10 years, the US economy has created a total of 35 million new private sector jobs, or an average of 3.5 million new jobs per year. At this rate of job creation, the vast majority of displaced workers are re-employed within 6 months." ~ Diana Farrell, lead author of the McKinsey report

Even in 2003 the US economy wasn't creating enough jobs for all the US workers displaced by off-shoring. Today's job creation is a different situation than in 2003 - it's far worse. The American economy is not creating jobs - no jobs were created in August 2011 - let alone 3.5 million a year.

"Jobs off-shoring is nothing more than an activity in pursuit of the lowest cost factor." ~ Paul Craig Roberts

David Ricardo, the originator of the free trade theory, described jobs off-shoring as the betrayal of one's own country in pursuit of "absolute advantage."

American jobs sent out of the country aren't likely to return anytime soon and as long as employers can continue to take advantage of much lower production costs in other countries, and the breaks they receive from America for exporting them there, why would they bring them back?


"NOT MADE IN AMERICA" stickers are now found on nearly every item for sale in America. In 1985, the US imported less than $4 billion worth of goods from China, and the country had just a small trade deficit. Today, the US spends almost $400 billion per year just on Chinese goods and has a massive trade deficit with the world.

Real new wealth, and an economic superpower, are only created when a countries resources are used to manufacture goods to sell at home and abroad, and when a countries natural resources are used to provide solid long term high paying jobs. When people are working, and have discretionary income, economic stimulus results. The United States of America was an economic superpower for these very reasons. The US needs to regenerate and re-grow its economy - restart the process of generating new wealth - this creates jobs and brings national prosperity.

Exploitation of the United States own natural resources, combined with a solid manufacturing sector and the right infrastructure spending stimulus will, in this author's opinion, be the economic drivers of a resurgent US economy.

Are companies engaged in the search for, development and extraction of natural resources on your radar screen?

If not, maybe they should be.

By Richard (Rick) Mills

If you're interested in learning more about specific lithium juniors and the junior resource market in general please come and visit us at Membership is free, no credit card or personal information is asked for.

Copyright © 2011 Richard (Rick) Mills - All Rights Reserved

Legal Notice / Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

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