I think I finally figured it out ... why we have had no inflation after years of our Fed (and other national banks) flooding the world with cheap money ... remember Quantitive Easing? Starting with the financial crisis in 2008, the Federal ReserveBank has been burning up the presses printing money ... as have the central banks in the European Union, Japan and most of the rest of the world. So why don’t we need wheelbarrows full of worthless bills to buy a loaf of bread ... like in Germany after World War One?
Well the coronavirus has exposed the reason. During our present pandemic we discover that over 90% of our critical drug components are made in China. And this seems just the beginning. For decades, ever since Bill Clinton invited China into the World Trade Organization, American companies have been shipping our manufacturing jobs to China ... because it was very cheap and provided results. Add to drug manufacturing transfers ... electronics, toys, clothing, auto parts, furniture and on and on ... all at a mere fraction the cost of what it was here in the U.S.
This obviously has meant a continued large reductions in the cost of goods for American companies ... and fueled 7+% growth for China for almost 25 years ... a seismic economic shift happening right before our eyes ... yet we did not grasp the downside consequences. Lower cost of goods has encouraged these American companies to keep prices low in order to expand market share (read Walmart, etc.). The United States has been on a consumer buying binge ... all fueled by hundreds of millions of very cheap Chinese workers (and the resulting strategic supply-chain fix we now find ourselves in due to the Wuhan virus.) We have built up a potential enemy in exchange for cheap manufacturing .... and more profits ... a massive strategic blunder given China’s desire to dominate. There is always an obverse side to every shiny coin.
Bingo ... no inflation ... despite enormous monetary expansion during the Obama administration. Now it all makes sense.
Afterthought: Will fixing our trade imbalances with China finally bring about the inflation we all have been expecting?
NOW it makes sense? Cheap Chinese goods sold at Walmarts that shuttered small downtown shops as well as drove American manufacturing into an unrelenting collapse. That was done before the year 2000. Sam Walton was on a campaign in 1985 to support American manufacturing. See https://www.nytimes.com/1985/04/10/business/wal-mart-s-buy-american.html. After Sam died in 1992, Sam's children went full-on into buy-Chinese, kill-small-American-suppliers, prices-are-dropping mode.
ReplyDeleteI think you are agreeing with me?
ReplyDeleteWell yes, I am agreeing with you. But my point is that it is no recent revelation.
ReplyDeleteTo me, the revelation was the sheer size of how much is now in China,
ReplyDeleteIf we had put the trillions we dumped into the Middle East and overblown military equipment into our infrastructure, we would have a fabulous rail system, all-new airports, all-new bridges and roadways, and probably education and healthcare for all.
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