US and Our Dreams : Today and Tomorrow
How big is US economy today?
Let’s draw some comparisons.
1. Entire annual economic output of Iraq is less than one third of that of the Rhode Island.
2. Entire annual economic output of Afghanistan is less than that of the half of Vermont.
3. Entire annual economic output of Oil-rich Iran is less than that of the state of Maryland.
4. Entire annual economic output of Oil-rich Iran is less than that of the state of New Jersey, where most of Indians live.
5. The Entire combined economic output of all Middle-Eastern Oil-rich nations (Saudi, Iran, UAE, Iraq, Qatar, Kuwait, Oman, Syria and Jordan) is 40% less than that of California.
6. Entire annual economic output of former super-power Russia is less than that of the state of New York.
7. Entire annual economic output of would-be super-power China is less than that of the state of California and Texas added.
8. US exceeds the number 2 largest economy Japan (in nominal value) by more than three times. And it surpasses the number 3, Germany, by more than 4 times. The gap between USA and Japan is 8.8 trillion USD, that is again the combined GDP of 161 nations.
9. Japan and Germany remodelled their ecomnomies to follow USA after their defeat in World war II. And that’s why they are number 2 and 3. The economic system in USA functions far better than most of the world. Together these three countries generate 42% of World production.
Now let’s look at a few facts about current state of US economy. How healthy is it today?
1. Cheap overproduction – the world is massively overproducing everything at competitive prices. China in manufacturing and India in services are leading the race. China can, in fact produce every single manufactured product that every single person in the world needs very soon. India can provide each service (banking to software) to the rest of the world once it is fully functioning. Just India and China. This is because the technology we have got in last few decades and the consumption hasn’t matched the speed of technology. It’s a fact that’s not going to change very soon.
2. Over 2bn low-wage workers has entered Global workforce (China, India, rest of Asia and East Europe). They work for wages 75% less than their US counterparts. Another fact that’s not going to change soon.
3. US factories must move overseas to compete and in the process must root out millions of jobs in USA. A Crysler factory was shifted out of USA and put to Mexico a decade ago. Now they have shifted the same factory to China. Even Mexico can’t compete with China, forget about USA.
4. The US middle-class is formally being eliminated, both blue collar and white collar jobs are going away and replaced by low paying jobs at McDonalds, Wall-Mart and Starbucks.
5. Profits are squeezed as cost of raw materials increase and prices fall due to competition. The other price controller is the Internet. Because everybody gets to know what the prices are all over the world through the internet, it’s difficult to fool customers with a huge price-tag.
6. Only US massive over-consumption has kept the Global (as well as the US) economy afloat in recent years. The consumers are now maxed out of debt and are seeing declining economy. How many TVs can you buy or how soon can you change your car model? Average Americans are drowned in their stuff. Govt has given them cheap loan to buy anything and they are into the debt.
7. To keep these consumptions growing, in last couple of decades we had two big bubbles – first the stock bubble in late 90s and then the Real Estate one until a year back. The first bubble already bursted and gave rise to the next. Only a third bubble can save the second one.
Between 2000 to 2002, the stock market lost 8 trillion dollars in total (the GDP gap between US and Japan). The stock prices are not yet back to that stage, and will probably never be. To make matters worse, US economy didn’t try to beef up the production, rather went onto reduce the interest rates. That led to real estate buying spree among consumers and created real estate bubble. Real estate prices gone overpriced by 2-3 times.
8. Foreign Dollar holders are getting nervous as the budget and trade deficits surpass 1 trillion. The countries holding dollar (Japan, China, India) are moving to other currencies. To neutralize the effects US is printing currency and that is what we see as inflation. Inflation is again asking dollar holders to sell their dollar assets and move to Euro. Net result – further inflation.
The picture is to gloomy? But it is true …