What is the biggest problem the USA has economically? The trade deficit caused by China. There are two things happening here an economic downturn which was caused by poor monetary management (central bank) and the trade deficit. Of the two problems the government involvement in credit and money is bad, and is responsible for the business cycle. However, the long-term problem is the USA can not compete with other emerging countries in the long-run. Why not? The solution is actually very simple.
Cause of the economic crisis
What is the root cause of the economic crisis? The the trade deficit is the root cause of the economic problems in the USA. In the USA we import oil and Chinese consumer good and spend our excess capital on consumption rather than reinvestment and this has resulted in a trade deficit and weakened industrial base.
Consumption and service economy in the US
We are all pressing each other pants and living with a sense of entitlement. I can say this. I am an American, I live in Poland and I see how spoiled Americans are. There is no way we can solve the long run problems of the US economy unless we are an export driven country, instead of a consumption based service economy. I know this sounds like a mercantilist argument. However, I am no mercantilist. In theory services should be an extension of the production process and therefore it does not matter we are a service economy. But look around and use your common sense. We can not be a nation of shop keepers and expect to maintain the standard of living in the past. The US has to create something, whether it be high-tech or old school industries like cars. If it does not it will be like a house that spends all its money at the mall but the breadwinner works at Wal-Mart for 8 dollars an hour.
Credit, China and crisis
An extension of credit in the USA is applied to consumption rather than investment and this deepens the hole. We can not compete with China because China has low labor cost, and devalues its currency. No one can compete with China with these policies. However, if we invested instead of consumed and did not sell the US to China and China traded more fairly, then US industry would have been able to better compete. Not with labor cost but with technologically, the US would have still retained the competitive advantage.
Solutions to the US economic problems
- Get government out of monetary and fiscal management of the economy. Allow weak businesses and industries to fall, including banks and auto manufacturers. Let the markets in the US become more efficient. Government involvement makes the US lose its competitive advantage as we become inefficient.
- Get government out of trying to plan an industrial or technology policy with subsidies. Let the markets determine which is a better sector to invest in. If private industry did not have to compete with the government debt, spending and get crowded out, the world could not complete with the USA including China. All roads would lead to the USA for innovation and manufacturing again.
- The US needs to improve its products though entrepreneurship and creativity not government
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4 responses to Cause of US economic problems
The USA economics problems with china is easy to solve, if the USA government want to solve the problem with China. In the trade balance there many ways to solve this problem.
1. The USA customs duty must increase
At Chinese products up to 39%
2. The USA customs must make one US standard
Type of product any Chinese products which have not us standard must reject from the port of USA. If any merchant want to buy a good quality Chinese products from china the good quality products is not cheap in China but more expensive than the USA. The USA custom must make a good quality USA standard type of products for importers of products from China.
You are basically arguing for an increase in taxes on international trade and a simplification of this code. I agree things should be simpler but I disagree with taxes on trade.
Free trade makes us all rich. The key is how can US industries compete with low priced markets. Perhaps everyone in the USA is over paid or perhaps there is another solution.
I have been thinking a lot about this trade in balance and the root causes. I think I need to do a post on it.
Bigger Picture of the US economic problems
Basically if there is no balance between spending and revenue, any country will face problems. US has been spending so much on defence, war and supporting countries/organizatins [double standards to certain extent] for its interest or interest of certain organizations in US.
US has so much resources and neglected them so carelessly. Its education and tourism industry is still the best. But most Arabs are coming to my country Malaysia for both reasons beause of change in policy.
Be more honest with yourself and many poor countries will be your friends.
Answer: Economic problems in the US are caused by
Politics and economics
I do not think all US foreign policy is bad nor do I think it is the root cause of the economic problems. It does not help the economy but not the root cause.
I tend not to be an ideologue. That is, besides the idea of liberty for the individual (in the enlightenment sense), which is contrary to most governmental ideologies, I do not think abstract political ideologies are worth much and certainly do not think nations need to impose their ways through war, including democracy which is not the same as individual rights.
This is the cause of the US double standard.
It is the attitude that causes the world to pretend to look up to us and yet dislikes under their breath.
The US believes it is the policeman of the world, yet it is the policeman that has one hand open to economic benefits, bribes if you will. Do you like this type of policeman? I mean come on Iraq, Kuwait,Libya (Gaddafi’s our economic ally until he wanted to renegotiate oil contracts, he ruled for countless years and the US did nothing, like the fommer leader of Iraq). These wars were about, the free flow of oil. Yet we have greater political injustices in the world and turn our heads. So the US should be honest and the world would respect us more. However, that is not the cause of the economic problems.
Our nation building drags the US economy down with excess military bases, I think in about 150 countries.
Our policies some countries can dislike but it is not the root of the economic problems. I might not agree with all the US foreign policy but ultimately it is nto the root cause.
The root cause, and this might be a revision of my provious stance is this:
What causes the US economic problems
This is so clear, my qustion is why do so few people in Washington or the world see this? This is the cause of the US economic problems.
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