Tuesday, 24 November 2009

How does the US make this transition?

I'm repeating myself from my last post but, you hear people talking about "export based" economies as if it were a permanent condition. Presumably people who talk about export based economies assume that countries that appear to be "export based" will remain "export based" forever. Strangely you don't often hear about "import based" economies! Its obviously nonsensical! No country could be an "import based" economy forever! I will suggest a translation of these terms.
  • Export based economy = Country temporarily giving goods to other countries in return for IOU's.
  • Import based economy = Country temporarily receiving goods from other countries that they will have to fully pay back (in goods) in the long term.
So in the long term the US will have to pay China back in goods. The question is how can this happen? How can the US economy make a transition to a state where its populous are busy making stuff to give to China? Presumably the goods will gave to be better value than the ones the Chinese make for themselves otherwise why would the Chinese buy them? Presumably this can not happen until the wages paid for a certain level of production in the US is lower than the wages paid for that same level of production in China. How's that going to happen?

I see a lot of pain ahead. This crisis sure as hell isn't over.

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