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US' best partner

By Shawn A. Mesaros (Shanghai Daily)

09:07, October 19, 2011

llustration by Zhou Tao

Americans must know that it's an election year.

Rhetoric regarding jobs is now in full swing and in order to combat the rising tide of angst regarding the jobless issues plaguing the United States.

In an recent article titled "Pass the China Currency Bill," Peter Morici says: "The China Currency Bill is the most significant jobs bill Congress could pass... The nearly US$600 billion trade deficit is destroying more American jobs than the mortgage crisis..."

Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former chief economist at the US International Trade Commission.

The US made the bed that it sleeps in today, and China did not create the policies of Fannie Mae or Freddie Mac, AIG, Lehman, Bear Stearns - the list is too long for print media.

Income taxes, estate taxes, and taxes in many other forms dropped in the United States over the last 30 years. Yet largely due to "Chinese Mercantilism" trade dramatically accelerated with Asia over the same time frame.

Many US states even raised sales tax revenues in order to take advantage of all of the trade that was happening with China. Like most forms of government revenue, it was something politicians became overly reliant upon.

The current problems (in the US) don't stem from lack of available jobs, but due to a country which ran on politically supported (and protected) leverage and credit, in which case the jobs lost were in areas of the economy which were in fact far out of proportion with long term economic reality.

Mortgage bankers, stock brokers, retail bankers, real estate professionals, mortgage servicing, credit enhancement. Anything with leverage will not be coming back and yet this is not China's fault.

Peter Morici suggests that "all we have to do is not buy US$600 billion annually from China and it will be made right here at home in the USA" - and nothing could be further from the truth. If Mr Morici wants to take a page from his own lesson books, he understands that when leverage runs an economy into the ground, those associated with it will be out of a job.

When "finance" becomes 35 percent of the S&P 500 profit estimates, the economy is one big leveraged bank.

When the dot-com era was in full swing, over 35 percent of the S&P 500 was attributed to the value of technology companies.

It's surreal that now the same country that has relied upon China as a great business partner, a partner who owns TRILLIONS of dollars in paper - the same country, deeply reliant on external funding, should now create a trade war with its No. 1 financial partner.

Americans will remain out of work until the economy rotates and trades off the excesses of yesterday for the promise of tomorrow. A trade war and the political assassination of China will at that point be complete. The unemployment will rise and not fall.

When a large bubble hits the economy, and a sector of the economy grows out of control, the problem is a political problem completely home grown, right in the heart of Washington DC.


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