By Bill Burch
Published: 07-18-08
Our current economic situation is similar to that which many people face in their personal lives. Quite simply our country is living beyond its means. As individuals if we spend more than we bring in so that we can sustain our lifestyle we eventually reach a point to where we can no longer borrow and become at risk of losing all that we have gained. To resolve the problem we must cut back on our standard of living for a period of time until our income exceeds our expenditures. In so doing we become stronger than we were before.
Let’s now put this into the perspective of the U.S. economy. When we have a trade surplus the value of the dollar is more than that of other countries currency. In other words our country is living within its means. At this point companies become attracted to suppliers and manufacturers in other countries who can provide products at a much lower cost than they pay here.
For example let’s say that a toy you would have to pay $2.00 for here and sell for $4.00 can be bought for $1.00 plus .10 cents for shipping. You can now sell the same product for $2.20 giving you the same markup or $3.10 giving you the same profit with a higher markup but a lower price than your competitors. Now your volume increases giving you more total profits. As more and more companies follow suit suddenly we have more dollars going to other countries than we have coming into our country.
This changes the trade surplus into a trade deficit. It is here that we as a country begin to live beyond our means. As our nation’s debt to other countries increases the value of the dollar is reduced. At this point we start owing other countries more that they owe us. Because of the previous years of surpluses it starts as a slow reduction in the value of the dollar but it can become a rapid downward spiral.
We must also throw into the equation the cost of oil. As some people looked around they saw an opportunity to do what they thought was the right thing to do by placing restrictions on our oil industry in regards to exploration taxes refineries and etc.
In our complacency we also overlooked other forms of energy such as natural gas (once burned off at the well head as being worthless) nuclear wind solar coal nano technology and other sources. As we blindly and complacently shipped our dollars overseas the value of the dollar became worth less and less. Because the price of oil is tied to the dollar as the value of the dollar declines the price of oil and all other imports increases.
Oil as a commodity further rises as traders bet that the dollar will continue to decline thus pushing the price of oil up even further. With the exception of the price increase as a result of speculators the price of oil for other countries is about the same as it was before.
Remember the toy our American company bought for a dollar plus ten cents for shipping? Well now the price is two dollars plus thirty cents for shipping. For the markup you want you must now sell it for four dollars and sixty cents ($4.60). Competition opportunity for increased profits environmental concerns and other agendas have gradually resulted in our current dilemma.
If we fail to address these issues soon the holders of our dollars (China is said to hold over one trillion dollars) may decide to dump them on the open market thus making the dollar almost worthless. If this happens our life style will be reduced to a fraction of what it is today. Gas food clothing entertainment and almost everything else will become unaffordable. The good times end and poverty begins for all of us Democrat and Republican alike.
So what do we do and where are the opportunities. Obviously we need to rapidly replace our current dependence on foreign oil with increased domestic production and alternative energy. But another overlooked opportunity is in manufacturing. If we can build modern plants that use robotics computers and other technologies to increase productivity we can further change our trade balance situation.
The dollar will begin to rise oil prices will decline and we will keep our new manufacturing facilities and jobs without the threat of losing them in the future. Government Lenders and Universities should work together with the business community to develop rapid ways of bringing manufacturing new energy sources refining natural gas and new drilling sites online. The result will be that our economy will rise like the Phoenix out of the ashes of the old stronger than ever. And as a result our standard of living will also rise.
As the most resilient and creative people of the world together we can do this. Let’s all roll up our sleeves and let good times roll once again. Remember we are Texans and we are Americans we can do anything if we put our minds to it.
Bill Burch is a Candidate for Texas State Representative-District 93 www.electbillburch.com
