(Week 6 - Saturday, Sept. 6)
The shutting down of the auto plants in Flint, Michigan, and their relocation to locales (like the desert along the American border in Mexico), in spite of the evidently overwhelming preponderance of physical and human reasons not to do so (see Col. #32), is often held up as a prime example of the "greed and stupidity" that supposedly has infected corporate America. To be sure, it would not be difficult to find justifications to criticize the move, but looked at from a wider perspective, is the matter really that simple?
I was not present at any of the board-room deliberations at which it was decided that the factories in Flint had to go, but I can well imagine that there were present expert accountants with flip-charts heavy with graphics and ledgers full of numbers that presented 'carefully researched facts' and 'reasoned arguments', the 'bottom line' of which gave 'incontrovertible testimony' that GM had no other financial option than to move those plants. Furthermore, I can well imagine that these human beings - accountants, board members, even Roger Smith himself - may have acted, more or less, in what they perceived as good faith. As they saw it, presumably, did they not have a company to save, and would not the continuing 'high cost of labor' that would be incurred by a decision to stay in Flint result in the closing of these plants, and the loss of local jobs, anyway? After all, they had only to look around them and see most of corporate world coming to a similar conclusion in their own respective spheres.
Is it possible that all these supposedly "best and brightest" people in the business world could be "greedy and stupid," or was there some greater reality (real or imagined) at work in this now global economy that they felt compelled to recognize and make the necessary adjustment to? In my experience I have had occasion to work, from time to time, with people from the executive suites (as well as many from the factory floor), and have found them generally to exhibit the same tendencies for human integrity and corruptibility that I find in any group of human beings. I have experienced them on the whole, in the terms of their own perceived worldview, to be fine and conscientious people.
Notwithstanding, the question still remains, how then could such a judgment (abandoning Flint and relocating the plants), which seemingly flies in the face of every physical, human and indeed economic reality that lies around them, seem to otherwise intelligent, knowledgeable and responsible people to be a necessary conclusion?
The answer, I believe, lies in the deceptiveness that is an inherent part of the private-bank-loan transaction. It arises because the transaction is not a common sense borrow-money-and-pay-it-back routine (as it purports to be), but rather a money-creation-and-issuance process by which a compounding fee (called "interest"), that is in a practical sense unpayable, is attached. Thus the terms used to describe this process, such as "borrow," "loan," "debt," "interest," "payback" and "satisfaction," all have a disarmingly familiar ring, but the actualities of the steps they identify do not fit the their common sense meanings or dictionary definitions.
The building of a whole monetary universe on the foundation of an unsound mode of creating and issuing currency, and an inaccurate use of language associated with the process, has spawned a financial culture that is skewed at virtually every turn. There is not room to do the topic justice here (it will be explored as these columns continue), but the extent to which this has compromised the ability of persons in our civilization to think clearly on matters concerning money is jarring to behold. I find this to be true across the full spectrum of society, white collar and blue included.
Not only management, but the participants in the labor movement in America as well, would, I suggest, benefit from examining more closely their roll in the whole Flint drama. Only then will they be able to come to grips fully with the tragedy that has befallen them, and move forward with confidence and clarity into the future. I will take up that thread in the next column.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Friday, September 5, 2008
Column #35 THE MAQUILADOROS: MEXICO'S "FLINT"
(Week 6 - Friday, Sept. 5)
The Maquiladoros is a huge industrial district in Mexico which stretches along the U.S./Mexican border. It consists of thousands of factories that are foreign-owned, and were attracted to the country mainly by the "lower production costs" (a euphemism for "cheap labor"). The output of these plants is largely exported to the United States and other countries. This is where many of the factories that used to be in Flint, Michigan were relocated.
It would be difficult to find a place in the world where the evident contrast between "first world" vs. "third world" economics (high-value vs. low-value currency) is more starkly drawn. In San Diego on the U.S. side of the border, the average home is priced at upwards of a half-million dollars, while wages in the often horrific working conditions of the Maquiladoros on the Mexican side average $3.70; not per hour, but per day.
Most of the Mexican labor force consists of hard-working folk who have been driven out of the countryside because, as farmers, they could not compete with the heavily bankrolled and highly-subsidized agribusiness production of basic farm commodities on the American size of the border (where, at the same time, American family farmers have been losing their farms in large numbers because they can't pay their loans to the banks).
Perhaps the most ironic outcome of this process is that many of the Maquiladoros industries are themselves now being closed and relocated to other locales (mostly to China) in the never-ending corporate search for even "cheaper labor." As the Maquiladoros is shut down, thousands of displaced Mexicans feel compelled to cross the border into the U.S., where, if they make it, they will likely find economic opportunity that is relatively better than the desperate options in their home country, but they will also find themselves in the position of being re-exploited, as they are obliged to do the most difficult, dirty and dangerous work for whatever wage and working condition they can find. They have little recourse because they have scant political rights, being that they are not only "cheap labor," but "illegal labor."
Where is all this going? We can see in the Flint-to-Maquiladoros-and-beyond economic progression a compressed view of what is happening under the influence of the private "debt"-money system. The world is dividing ever more starkly into the "rich" vs. the "poor," the "haves" vs. "have-nots"; those who use money to make money vs. those who earn money by doing the work. This is not a matter of good people vs. bad. It is rather the virtually inevitable outcome of an inequitable monetary order.
To put it simply, the "haves" are those who are the recipients of the "interest" payments on money that is issued as "debt." The "have-nots" are the ones who make what is increasingly a less-than-living wage doing the basic work necessary for the maintenance of society, while making the "interest" payments on money they are forced to borrow into circulation to live.
The vaunted American work ethic is increasingly being rendered moot, as wealth accrues, not to productive labor, but to the exploitation of labor (i.e. ownership of the contracts for "debt" which those who labor are obliged to take on merely to live).
We are becoming a "civilization," both in America and throughout the world, in which the wealthy few dominate, through their privileged niche in the monetary order, the working many. There is still enough distribution of wealth in America to make it look like a middle class society, but the middle is eroding, as the many who are struggling just to maintain their lifestyle (or stay in their home) often attest.
The jobs that pay a living wage are disappearing, the work is being done by immigrants who are working for inadequate wages, and the middle class is struggling to hang onto its lifestyle (for now) by taking on more "debt." There is a relatively small (and shrinking) percentage of the population that is growing wealthy by "living off the interest." All are basically good people, but they are caught up in a dysfunctional economic order they don't quite understand, and more-and-more can't seem to control. Its mounting inequities are ultimately a threat to everyone, and are rooted in how our money is created, issued and controlled. That is the lesson of the Maquiladoros and Flint.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
The Maquiladoros is a huge industrial district in Mexico which stretches along the U.S./Mexican border. It consists of thousands of factories that are foreign-owned, and were attracted to the country mainly by the "lower production costs" (a euphemism for "cheap labor"). The output of these plants is largely exported to the United States and other countries. This is where many of the factories that used to be in Flint, Michigan were relocated.
It would be difficult to find a place in the world where the evident contrast between "first world" vs. "third world" economics (high-value vs. low-value currency) is more starkly drawn. In San Diego on the U.S. side of the border, the average home is priced at upwards of a half-million dollars, while wages in the often horrific working conditions of the Maquiladoros on the Mexican side average $3.70; not per hour, but per day.
Most of the Mexican labor force consists of hard-working folk who have been driven out of the countryside because, as farmers, they could not compete with the heavily bankrolled and highly-subsidized agribusiness production of basic farm commodities on the American size of the border (where, at the same time, American family farmers have been losing their farms in large numbers because they can't pay their loans to the banks).
Perhaps the most ironic outcome of this process is that many of the Maquiladoros industries are themselves now being closed and relocated to other locales (mostly to China) in the never-ending corporate search for even "cheaper labor." As the Maquiladoros is shut down, thousands of displaced Mexicans feel compelled to cross the border into the U.S., where, if they make it, they will likely find economic opportunity that is relatively better than the desperate options in their home country, but they will also find themselves in the position of being re-exploited, as they are obliged to do the most difficult, dirty and dangerous work for whatever wage and working condition they can find. They have little recourse because they have scant political rights, being that they are not only "cheap labor," but "illegal labor."
Where is all this going? We can see in the Flint-to-Maquiladoros-and-beyond economic progression a compressed view of what is happening under the influence of the private "debt"-money system. The world is dividing ever more starkly into the "rich" vs. the "poor," the "haves" vs. "have-nots"; those who use money to make money vs. those who earn money by doing the work. This is not a matter of good people vs. bad. It is rather the virtually inevitable outcome of an inequitable monetary order.
To put it simply, the "haves" are those who are the recipients of the "interest" payments on money that is issued as "debt." The "have-nots" are the ones who make what is increasingly a less-than-living wage doing the basic work necessary for the maintenance of society, while making the "interest" payments on money they are forced to borrow into circulation to live.
The vaunted American work ethic is increasingly being rendered moot, as wealth accrues, not to productive labor, but to the exploitation of labor (i.e. ownership of the contracts for "debt" which those who labor are obliged to take on merely to live).
We are becoming a "civilization," both in America and throughout the world, in which the wealthy few dominate, through their privileged niche in the monetary order, the working many. There is still enough distribution of wealth in America to make it look like a middle class society, but the middle is eroding, as the many who are struggling just to maintain their lifestyle (or stay in their home) often attest.
The jobs that pay a living wage are disappearing, the work is being done by immigrants who are working for inadequate wages, and the middle class is struggling to hang onto its lifestyle (for now) by taking on more "debt." There is a relatively small (and shrinking) percentage of the population that is growing wealthy by "living off the interest." All are basically good people, but they are caught up in a dysfunctional economic order they don't quite understand, and more-and-more can't seem to control. Its mounting inequities are ultimately a threat to everyone, and are rooted in how our money is created, issued and controlled. That is the lesson of the Maquiladoros and Flint.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Thursday, September 4, 2008
Column #34 THE MATTER OF "CHEAP LABOR"
(Week 6 - Thursday, Sept. 4)
The virtual closing down of the automotive industry in Flint, Michigan is an arch-typical example of what has happened to the industrial base across America in the name of industries having to move their operations abroad, driven by the "realities," supposedly, of having to remain "competitive" in a new global marketplace. A less artful way in which the issue is often stated is that American corporations have felt compelled to search the globe for "cheap labor." What, we should ask, is "cheap labor?"
The very idea that there is something that can be properly called "cheap labor" implies that there are "cheap people." To even utter such an expression without being mindful of what one is really saying is to demean inadvertently the work of all people. It is regrettable that this phrase seems to have been picked up by activists of all hues of the political spectrum. Even those who have presented themselves (sincerely so) as heartfelt champions of the victims of globalization too often repeat, without due reflection, the argument that industries leaving one country for another ostensibly because of "cheaper labor" is some new "global reality" that we have to live with, and premise their arguments from there.
If only, I have heard it said, we could improve secondary education, provide universal health care, offer inexpensive day care, inspire workforce motivation, make more investment in infrastructure or cut taxes, then we could "compete" more successfully in the global marketplace. Don't misunderstand. I am not suggesting that education, health care, child care, workforce motivation, infrastructure and wise fiscal management are not essential in their own right (one could find "debt"-based money at the root of their debilitations also). My point is that they are not the core of the perceived "competitiveness" problem, any more that taxing and spending parameters are at the heart of the "national debt" (see columns # 25 –31).
The problem is not "cheap labor," but rather "cheap money." If workers in different countries around the world were paid in national currencies that reflected the real value of exchanges of goods between those countries, the values of the currencies themselves would tend naturally to a just and equitable balance relative to each other. In fact, this is a long-held principle of classic economics.
What, then, has kept it from happening after the passage of centuries of time for such leveling to occur? The answer is that there have always been inequitable currency patterns established that more or less guarantee the dominance of one part of the world over the other.
For example, when the colonial powers were establishing their dominance over Africa in the eighteenth century, one of the first measures they would take was to levy a tax on every household that had to paid in a currency that was set up for that purpose. The only way the people could get the money to pay the tax was to work for their new rulers or supply them with the fruit of their land. As a matter of course, this currency was kept in short supply so a certain portion of the people, and eventually the country as a whole, were fated to sink into "debt." These patterns of "debt" still exist in "third-world" countries today, and the essential foreign currency is mostly dollars.
I sometimes detect in the usage of the expression "cheap labor" a certain "first-world" hubris that regards the workforce that lives in relatively "third-world" conditions as being "less developed," "less skilled or educated," "harboring lower expectations," or otherwise being expected to resign themselves to a lesser state of living. There are many variables at work here, and I don't want to be simplistic. Truth is that even such stereotypical labeling reflects some degree of reality, and/or alternative values and virtues described in a pejorative manner. For example, the lesser material "prosperity" of a given society may in part reflect their authentic valuing of less material wants, and embody its own virtues in the end.
Whatever the truth of the matter, such personal and cultural preferences deserve the chance to find their own natural expression. To have millions of people around the world laboring under inhumane conditions because they get paid in a currency that hardly buys anything, while they spend their days and life energies making luxury goods for those who have borrowed dollars to spend, is not something that can be lightly attributed to their misfortune of living in areas where labor is "cheap." There is cause and effect at work in such conditions, and one cannot get to their root without taking into account the monetary parameters under which each society labors.
The bottom-line truth is that nobody's labor is "cheaper." Humanly speaking, we all exert and sweat just the same to perform a given task. We all have the right, in freedom, economic and otherwise, to seek our full measure of dignity, development and expression. That won't be fully realized in a world in which there is "cheap money" posing as "cheap labor."
Richard Kotlarz
mailto:Kotlarzrichkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
The virtual closing down of the automotive industry in Flint, Michigan is an arch-typical example of what has happened to the industrial base across America in the name of industries having to move their operations abroad, driven by the "realities," supposedly, of having to remain "competitive" in a new global marketplace. A less artful way in which the issue is often stated is that American corporations have felt compelled to search the globe for "cheap labor." What, we should ask, is "cheap labor?"
The very idea that there is something that can be properly called "cheap labor" implies that there are "cheap people." To even utter such an expression without being mindful of what one is really saying is to demean inadvertently the work of all people. It is regrettable that this phrase seems to have been picked up by activists of all hues of the political spectrum. Even those who have presented themselves (sincerely so) as heartfelt champions of the victims of globalization too often repeat, without due reflection, the argument that industries leaving one country for another ostensibly because of "cheaper labor" is some new "global reality" that we have to live with, and premise their arguments from there.
If only, I have heard it said, we could improve secondary education, provide universal health care, offer inexpensive day care, inspire workforce motivation, make more investment in infrastructure or cut taxes, then we could "compete" more successfully in the global marketplace. Don't misunderstand. I am not suggesting that education, health care, child care, workforce motivation, infrastructure and wise fiscal management are not essential in their own right (one could find "debt"-based money at the root of their debilitations also). My point is that they are not the core of the perceived "competitiveness" problem, any more that taxing and spending parameters are at the heart of the "national debt" (see columns # 25 –31).
The problem is not "cheap labor," but rather "cheap money." If workers in different countries around the world were paid in national currencies that reflected the real value of exchanges of goods between those countries, the values of the currencies themselves would tend naturally to a just and equitable balance relative to each other. In fact, this is a long-held principle of classic economics.
What, then, has kept it from happening after the passage of centuries of time for such leveling to occur? The answer is that there have always been inequitable currency patterns established that more or less guarantee the dominance of one part of the world over the other.
For example, when the colonial powers were establishing their dominance over Africa in the eighteenth century, one of the first measures they would take was to levy a tax on every household that had to paid in a currency that was set up for that purpose. The only way the people could get the money to pay the tax was to work for their new rulers or supply them with the fruit of their land. As a matter of course, this currency was kept in short supply so a certain portion of the people, and eventually the country as a whole, were fated to sink into "debt." These patterns of "debt" still exist in "third-world" countries today, and the essential foreign currency is mostly dollars.
I sometimes detect in the usage of the expression "cheap labor" a certain "first-world" hubris that regards the workforce that lives in relatively "third-world" conditions as being "less developed," "less skilled or educated," "harboring lower expectations," or otherwise being expected to resign themselves to a lesser state of living. There are many variables at work here, and I don't want to be simplistic. Truth is that even such stereotypical labeling reflects some degree of reality, and/or alternative values and virtues described in a pejorative manner. For example, the lesser material "prosperity" of a given society may in part reflect their authentic valuing of less material wants, and embody its own virtues in the end.
Whatever the truth of the matter, such personal and cultural preferences deserve the chance to find their own natural expression. To have millions of people around the world laboring under inhumane conditions because they get paid in a currency that hardly buys anything, while they spend their days and life energies making luxury goods for those who have borrowed dollars to spend, is not something that can be lightly attributed to their misfortune of living in areas where labor is "cheap." There is cause and effect at work in such conditions, and one cannot get to their root without taking into account the monetary parameters under which each society labors.
The bottom-line truth is that nobody's labor is "cheaper." Humanly speaking, we all exert and sweat just the same to perform a given task. We all have the right, in freedom, economic and otherwise, to seek our full measure of dignity, development and expression. That won't be fully realized in a world in which there is "cheap money" posing as "cheap labor."
Richard Kotlarz
mailto:Kotlarzrichkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Wednesday, September 3, 2008
Column #33 WHY THE VALUE OF THE DOLLAR REMAINS SO HIGH
(Week 6 - Wednesday, Sept. 3)
In yesterday's column we noted that into the late 1970's the city of Flint, Michigan was the home of one of the largest automotive production complexes in the world, but after a concerted program by the management of General Motors to relocate these factories to other areas (like, for instance, the desert in Mexico) that in a physical and human sense had virtually no natural advantages over Flint (in fact were hugely disadvantaged), the workforce shrunk to only ten percent of its previous size in less that three decades.
The economic reason widely attributed in the media and claimed by the GM management to have compelled such a drastic move was that the Flint plants and workforce were somehow no longer "competitive" in the "global marketplace." By constructing a mental checklist of the relative physical and human advantages of the Flint-vs.-Mexico siting I attempted to demonstrate that this could not have possibly been the reason in actual physical or human terms. The only factor that did seemingly make the move economically compelling was the relative disequilibrium in the exchange ratio between the dollar (which currency American workers get paid in) and the peso (by which Mexican workers are paid).
If the value of the dollar remains high enough for long enough, this effectively becomes the reason that American workers cannot "compete," supposedly, with their foreign counterparts. That has evidently been the case for the last few decades, as the U.S. has run up enormous and mounting "balance of trade deficits." The perception that this "imbalance" was in effect, and would be for some decades at least, must, it would seem, have been a factor in the mindset of GM management (though perhaps not consciously in these terms) when they decided that they just had to move those plants to save the company.
The question then becomes, what has caused the value of the dollar to remain so consistently high with respect to the rest of the world that the American worker, even with every physical advantage, is no longer "competitive" (i.e. can no longer sell his goods at a competitive price on the international market)?
The answer is that the American dollar is the "reserve currency" of the world. That is, it is effectively the backing for every other currency. This status was established officially at the Bretton Woods Monetary Conference in 1944 which set the basis for the post-WWII monetary order. The dollar was unofficially dubbed "liquid gold," and it has since evolved in a way that is consistent with that nickname due to many factors.
These include that the U.S. economy for several decades after WWII was by far the largest, most materially productive and most stable in the world. It is only natural that the currency which was backed by the economic (not to mention military and cultural) might of this "superpower" would become the most sought after in global trade. If one had a dollar, one could be confident of being able to spend it freely almost anywhere in the world. If a nation had an ample supply of dollars in its central bank, that signified in the eyes of the world that it was "solvent" (much as gold used to indicate the same),which bolstered the value of that nation's own currency as well. World trade in oil was conducted (and still is) only in dollars. The list goes on.
The demand for the dollar has been, and remains, huge; so much so that well over half of American money circulates outside the U.S. (which is not to say that confidence is not wavering). As we have talked about since the start of this series of columns, the dollar is a "debt"-based currency that is created and borrowed into existence through private banks. It is out of the combination of these two factors that the potential for the American government to sell trillions of dollars worth of bonds "backing the dollar" arises. The process manifests in a cycle that basically unfolds as follows.
Participants in the U.S. economy borrow hundreds of billions of dollars into circulation through the private banking system every year. This money injects tremendous buying power into the American domestic market (which is complemented by American's huge appetite for goods). Americans could use the money to buy the output of their own factories, but it is often less expensive to purchase what they want from foreign nations, partly because these nations are willing to sell their goods more cheaply in order to obtain in the exchange the dollars that they need. They must, for example, have dollars to buy oil on the international market.
So, the U.S. runs up a huge "balance of trade deficit", and our dollars flow to foreign countries; but, they can't stay there. They have to flow back. Otherwise they will cause inflation in their own domestic market such that they will lose their "competitive" trading advantage and the flow of dollars will stop, or reverse.
Generally, foreign central banks, to support the value of their own currencies, buy up the "debt" paper (i.e. Federal bonds and other "debt" contracts) by which U.S. currency comes into being. They become the recipients of the "interest" payments that are made to service the "debt" on the U.S. money supply, and the American people abandon their "uncompetitive" industries, and borrow more money in an attempt to keep up lifestyles.
What I have described above is, in very simplified terms, the cycle that the American productive sector has been caught up in and driven out of business by, as exemplified by the fate of the auto industry in Flint.
The ways this play out are vastly more complex that what could be covered in this short article. The key to not getting lost amidst all the bewildering intricacies is to keep in focus that this all starts with the fact that the entire world is slipping into "debt" because it borrows its money into circulation from an international banking oligarchy, and these complexities arise out of the incredible manipulations that all parties feel obliged to participate in simply to survive.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
In yesterday's column we noted that into the late 1970's the city of Flint, Michigan was the home of one of the largest automotive production complexes in the world, but after a concerted program by the management of General Motors to relocate these factories to other areas (like, for instance, the desert in Mexico) that in a physical and human sense had virtually no natural advantages over Flint (in fact were hugely disadvantaged), the workforce shrunk to only ten percent of its previous size in less that three decades.
The economic reason widely attributed in the media and claimed by the GM management to have compelled such a drastic move was that the Flint plants and workforce were somehow no longer "competitive" in the "global marketplace." By constructing a mental checklist of the relative physical and human advantages of the Flint-vs.-Mexico siting I attempted to demonstrate that this could not have possibly been the reason in actual physical or human terms. The only factor that did seemingly make the move economically compelling was the relative disequilibrium in the exchange ratio between the dollar (which currency American workers get paid in) and the peso (by which Mexican workers are paid).
If the value of the dollar remains high enough for long enough, this effectively becomes the reason that American workers cannot "compete," supposedly, with their foreign counterparts. That has evidently been the case for the last few decades, as the U.S. has run up enormous and mounting "balance of trade deficits." The perception that this "imbalance" was in effect, and would be for some decades at least, must, it would seem, have been a factor in the mindset of GM management (though perhaps not consciously in these terms) when they decided that they just had to move those plants to save the company.
The question then becomes, what has caused the value of the dollar to remain so consistently high with respect to the rest of the world that the American worker, even with every physical advantage, is no longer "competitive" (i.e. can no longer sell his goods at a competitive price on the international market)?
The answer is that the American dollar is the "reserve currency" of the world. That is, it is effectively the backing for every other currency. This status was established officially at the Bretton Woods Monetary Conference in 1944 which set the basis for the post-WWII monetary order. The dollar was unofficially dubbed "liquid gold," and it has since evolved in a way that is consistent with that nickname due to many factors.
These include that the U.S. economy for several decades after WWII was by far the largest, most materially productive and most stable in the world. It is only natural that the currency which was backed by the economic (not to mention military and cultural) might of this "superpower" would become the most sought after in global trade. If one had a dollar, one could be confident of being able to spend it freely almost anywhere in the world. If a nation had an ample supply of dollars in its central bank, that signified in the eyes of the world that it was "solvent" (much as gold used to indicate the same),which bolstered the value of that nation's own currency as well. World trade in oil was conducted (and still is) only in dollars. The list goes on.
The demand for the dollar has been, and remains, huge; so much so that well over half of American money circulates outside the U.S. (which is not to say that confidence is not wavering). As we have talked about since the start of this series of columns, the dollar is a "debt"-based currency that is created and borrowed into existence through private banks. It is out of the combination of these two factors that the potential for the American government to sell trillions of dollars worth of bonds "backing the dollar" arises. The process manifests in a cycle that basically unfolds as follows.
Participants in the U.S. economy borrow hundreds of billions of dollars into circulation through the private banking system every year. This money injects tremendous buying power into the American domestic market (which is complemented by American's huge appetite for goods). Americans could use the money to buy the output of their own factories, but it is often less expensive to purchase what they want from foreign nations, partly because these nations are willing to sell their goods more cheaply in order to obtain in the exchange the dollars that they need. They must, for example, have dollars to buy oil on the international market.
So, the U.S. runs up a huge "balance of trade deficit", and our dollars flow to foreign countries; but, they can't stay there. They have to flow back. Otherwise they will cause inflation in their own domestic market such that they will lose their "competitive" trading advantage and the flow of dollars will stop, or reverse.
Generally, foreign central banks, to support the value of their own currencies, buy up the "debt" paper (i.e. Federal bonds and other "debt" contracts) by which U.S. currency comes into being. They become the recipients of the "interest" payments that are made to service the "debt" on the U.S. money supply, and the American people abandon their "uncompetitive" industries, and borrow more money in an attempt to keep up lifestyles.
What I have described above is, in very simplified terms, the cycle that the American productive sector has been caught up in and driven out of business by, as exemplified by the fate of the auto industry in Flint.
The ways this play out are vastly more complex that what could be covered in this short article. The key to not getting lost amidst all the bewildering intricacies is to keep in focus that this all starts with the fact that the entire world is slipping into "debt" because it borrows its money into circulation from an international banking oligarchy, and these complexities arise out of the incredible manipulations that all parties feel obliged to participate in simply to survive.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Tuesday, September 2, 2008
Column #32 THE LESSONS OF FLINT, MICHIGAN
(Week 6 - Tuesday, Sept. 2)
On this Labor Day week of 2008, it would be well to reflect on what happened to Flint, Michigan. This small city northwest of Detroit was for many years the site of one of General Motor's largest production complexes. It was here in 1936-'37 that what came to be known as the "Flint Sit-Down Strike" transformed the United Automobile Workers from a collection of isolated locals on the fringes of the industry into a major union, which, in turn, led to the unionization of the auto industry in the U.S.
The number of people employed by GM in Flint fell from a high of 80,000 in 1978 to about 8,000 today. We should pause to ask, what has been the cause of such a steep decline? Many reasons have been offered, but almost all boil down to a supposed "lack of competitiveness" on the part of American industry, and by implication, the American worker. This is a tragic misinterpretation of what is essentially a monetary problem, and the industrial laborer, the country, and indeed the world is paying a terrible price for it.
In his classic film "Roger and Me," Michael Moore pursued the CEO of GM, Roger Smith, to try to find out why his corporation was closing auto plants in Flint, and reopening them in seemingly illogical places like, say, the desert in Mexico. He never did successfully corner Mr. Smith for an answer, but we can assume that the rationale would have had something to do with "competitiveness." Let us take a look at which location is really more "competitive" from the stand point of the physical and human realities involved, leaving monetary considerations aside for the moment.
To begin our reckoning, let us note that to move the site of production, the factories that had already been constructed over generations and at great cost in Flint would have to be disposed of and rebuilt in Mexico. What is more, those plants are located in Flint for good reason. They are within reach, via the greatest inland waterways in the world, of the vast iron ore deposits of northern Michigan and Minnesota. They have convenient access to the high-quality coal deposits of Appalachia via a well-developed rail system. They are in proximity to a bountiful fresh water supply. Flint's factories are located in mature communities with good roads, housing, medical facilities, schools, utility infrastructure, and all manner of amenities. They are interlinked with a well-developed network of suppliers and services that have grown up over the years as adjuncts to the auto industry.
The desert in Mexico is clearly lacking in all of these. If one were to make a listing of the tangible features of the Flint-vs.-the-Mexican siting, one would find that virtually all of the advantages are squarely in the Flint column. The only plus I can see for a Mexican location is perhaps a limited potential for assembly for local Mexican consumption, but even that is dubious. In any case, what reason could one offer for forcing Upper Midwest residents to buy their vehicles from Mexico?
But, we are scolded by pundits and politicians, American workers can no longer "compete." We need to take a closer look at this. The workforce at the Michigan plants is already well qualified for the job by training, experience and cultural tradition. I know that Mexicans are fine and hard-working people as well, and are fully capable of learning and performing the same jobs as those in Flint, but I have worked in the American workplace all my life, including a number of factories (one staffed almost entirely by immigrant Mexicans), and Americans labor well and hard also. There is not much to choose from when comparing the fitness of respective populations.
This begs the question, "Given the overwhelming preponderance of bona fide advantages embodied in the Michigan option, why can a factory in Flint 'not compete' with one in Guadalajara?" The answer is deceptively obvious and simple; the worker in Michigan gets paid in dollars, while the one in Mexico collects his wages in pesos.
But, I hear it argued, the peso is worth less than the dollar. Says who? Where is there written some universal law that dictates such things? Currencies are abstract human creations controlled by the banking system. They would find their own reasonable levels relative to each other if they were not forced out of such equity by the insatiable need to feed the "interest" bubble now almost universally attached to all currencies.
The notion that there is some natural disequilibrium in the exchange ratio between the dollar and the peso that impels economic actions which are in such stark contradiction to any sensible assessment of physical and human realities as there were in Flint, ought to be a huge blinking red light to alert us to precisely where the problem lies. The root is with the currencies themselves. The problem is traceable to the creation and issuance of "debt"-based currency by a private banking system, and the ensconcing of the dollar as the privileged "reserve currency" for the world.
We will continue our look into the lessons of Flint, Michigan in tomorrow's column.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
On this Labor Day week of 2008, it would be well to reflect on what happened to Flint, Michigan. This small city northwest of Detroit was for many years the site of one of General Motor's largest production complexes. It was here in 1936-'37 that what came to be known as the "Flint Sit-Down Strike" transformed the United Automobile Workers from a collection of isolated locals on the fringes of the industry into a major union, which, in turn, led to the unionization of the auto industry in the U.S.
The number of people employed by GM in Flint fell from a high of 80,000 in 1978 to about 8,000 today. We should pause to ask, what has been the cause of such a steep decline? Many reasons have been offered, but almost all boil down to a supposed "lack of competitiveness" on the part of American industry, and by implication, the American worker. This is a tragic misinterpretation of what is essentially a monetary problem, and the industrial laborer, the country, and indeed the world is paying a terrible price for it.
In his classic film "Roger and Me," Michael Moore pursued the CEO of GM, Roger Smith, to try to find out why his corporation was closing auto plants in Flint, and reopening them in seemingly illogical places like, say, the desert in Mexico. He never did successfully corner Mr. Smith for an answer, but we can assume that the rationale would have had something to do with "competitiveness." Let us take a look at which location is really more "competitive" from the stand point of the physical and human realities involved, leaving monetary considerations aside for the moment.
To begin our reckoning, let us note that to move the site of production, the factories that had already been constructed over generations and at great cost in Flint would have to be disposed of and rebuilt in Mexico. What is more, those plants are located in Flint for good reason. They are within reach, via the greatest inland waterways in the world, of the vast iron ore deposits of northern Michigan and Minnesota. They have convenient access to the high-quality coal deposits of Appalachia via a well-developed rail system. They are in proximity to a bountiful fresh water supply. Flint's factories are located in mature communities with good roads, housing, medical facilities, schools, utility infrastructure, and all manner of amenities. They are interlinked with a well-developed network of suppliers and services that have grown up over the years as adjuncts to the auto industry.
The desert in Mexico is clearly lacking in all of these. If one were to make a listing of the tangible features of the Flint-vs.-the-Mexican siting, one would find that virtually all of the advantages are squarely in the Flint column. The only plus I can see for a Mexican location is perhaps a limited potential for assembly for local Mexican consumption, but even that is dubious. In any case, what reason could one offer for forcing Upper Midwest residents to buy their vehicles from Mexico?
But, we are scolded by pundits and politicians, American workers can no longer "compete." We need to take a closer look at this. The workforce at the Michigan plants is already well qualified for the job by training, experience and cultural tradition. I know that Mexicans are fine and hard-working people as well, and are fully capable of learning and performing the same jobs as those in Flint, but I have worked in the American workplace all my life, including a number of factories (one staffed almost entirely by immigrant Mexicans), and Americans labor well and hard also. There is not much to choose from when comparing the fitness of respective populations.
This begs the question, "Given the overwhelming preponderance of bona fide advantages embodied in the Michigan option, why can a factory in Flint 'not compete' with one in Guadalajara?" The answer is deceptively obvious and simple; the worker in Michigan gets paid in dollars, while the one in Mexico collects his wages in pesos.
But, I hear it argued, the peso is worth less than the dollar. Says who? Where is there written some universal law that dictates such things? Currencies are abstract human creations controlled by the banking system. They would find their own reasonable levels relative to each other if they were not forced out of such equity by the insatiable need to feed the "interest" bubble now almost universally attached to all currencies.
The notion that there is some natural disequilibrium in the exchange ratio between the dollar and the peso that impels economic actions which are in such stark contradiction to any sensible assessment of physical and human realities as there were in Flint, ought to be a huge blinking red light to alert us to precisely where the problem lies. The root is with the currencies themselves. The problem is traceable to the creation and issuance of "debt"-based currency by a private banking system, and the ensconcing of the dollar as the privileged "reserve currency" for the world.
We will continue our look into the lessons of Flint, Michigan in tomorrow's column.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Monday, September 1, 2008
Column #31 SOLUTION TO THE "BALANCE OF TRADE DEFICIT"
(Week 6 - Monday Sept. 1)
The "balance of trade deficit" is a net outflow of money caused by this country buying more goods from foreign nations than we sell. Like the Federal "deficit" and "debt," it has its root in the private-bank-loan transaction by which our money is created, but to trace out how it works takes a longer explanation. The reader is urged to follow this thread of thought carefully.
The "interest" payments that must be continuously made in order to maintain a money supply borrowed from a private banking system cause, from the perspective of the consumer, a net loss of purchasing power, because he does not receive anything of value in exchange for it. The result is that not all the money that is paid to people who produce the goods in the domestic economy shows up as buying power on the consumer side of the production-balances-consumption market equation (I am using a very broad definition of "goods" here that includes all goods and services).
This causes goods to pile up as unsold inventory in the marketplace, which means that orders for more goods will decrease and workers will be laid off. Those still employed will experience the same cycle of having part of the money from their paychecks being siphoned off for "interest" payments, which, in turn, causes a deficiency of purchasing power, that results in still more goods piling up as unsold inventory, even at the reduced rate of production. More workers will be laid off. If this vicious cycle is allowed to continue unchecked, the country will enter an economic "recession," or even "depression."
This winding down of the physical economy parallels the contraction of the money supply described in previous columns, both of which are the result of the requirement to make "interest" payments on the private bank loans.
The apparent answer to both the physical and financial shortfalls would seem to be the same; that is, find a way to bring more money into the circulation. The option that has been talked about in these columns so far (short of making the transition to a public monetary system) is for masses of people to borrow ever greater quantities of money into circulation from the banking system. There is, however, one other possibility that I have not yet talked about; that is, achieve a "positive trade balance" with other nations.
One way that unsold inventory piling up in the domestic marketplace can be disposed of is to sell it to foreigners. What is more, such sales would bring money into the domestic money supply that has been lost to "interest" charges. It looks like a win-win solution, except for one factor. That is that virtually all other currencies around the world are also borrowed into existence from private banks, so the domestic economy of every other nation exhibits the same problem, and, therefore, the same need for a "positive trade balance."
Ideally, world trade is a zero-sum game. Everyone can't have a "positive trade balance" with everyone else. The "positive balances" must of a mathematical certainty equal the "negative balances." For the last few decades, the U.S. has been losing in the balance-of-trade competition. Therefore it has been running up a huge "balance of trade deficit" that can only be made up for by taking on more "debt," particularly in the form of the selling of bonds backing the "Federal debt" to other nations.
We have gotten away with this so far because the U.S. dollar is the "reserved currency" for the world. This means that it is the currency that every other nation has to hold a quantity of to back up their own currency (which is why it is sometimes called "paper gold"), as well as insure their own buying power in the international marketplace (e.g. trade for oil is conducted only in dollars).
If the dollar became publicly-issued, the rest of the world's currencies would be obliged to follow suit and become publicly-issued as well. If that happened, the people of every nation would have the ability to redeem the full value of everything they produced in their own domestic marketplace, because to maintain their money supply they would no longer be losing the buying power that is currently leaking away due to having to pay "interest" to the banks.
What is more, it would also be possible to calculate an equitable trading value for every currency in the world such that balance of trade surpluses and deficits would disappear. All trade is essentially goods-for-goods, and there is no reason why that could not be reflected in equitable exchange rates between the currencies that facilitate their exchange.
What stops this equitable exchange from happening now is the "debt" that attends the creation of all major currencies, and renders any hope for a just, stable and sustainable world impossible. This opens up a whole new area of discourse that there is not room to do justice to here (will be explored in future columns), but I hope it gives the reader at least a glimpse of what is possible if we were to return to sound monetary practices.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites: http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
The "balance of trade deficit" is a net outflow of money caused by this country buying more goods from foreign nations than we sell. Like the Federal "deficit" and "debt," it has its root in the private-bank-loan transaction by which our money is created, but to trace out how it works takes a longer explanation. The reader is urged to follow this thread of thought carefully.
The "interest" payments that must be continuously made in order to maintain a money supply borrowed from a private banking system cause, from the perspective of the consumer, a net loss of purchasing power, because he does not receive anything of value in exchange for it. The result is that not all the money that is paid to people who produce the goods in the domestic economy shows up as buying power on the consumer side of the production-balances-consumption market equation (I am using a very broad definition of "goods" here that includes all goods and services).
This causes goods to pile up as unsold inventory in the marketplace, which means that orders for more goods will decrease and workers will be laid off. Those still employed will experience the same cycle of having part of the money from their paychecks being siphoned off for "interest" payments, which, in turn, causes a deficiency of purchasing power, that results in still more goods piling up as unsold inventory, even at the reduced rate of production. More workers will be laid off. If this vicious cycle is allowed to continue unchecked, the country will enter an economic "recession," or even "depression."
This winding down of the physical economy parallels the contraction of the money supply described in previous columns, both of which are the result of the requirement to make "interest" payments on the private bank loans.
The apparent answer to both the physical and financial shortfalls would seem to be the same; that is, find a way to bring more money into the circulation. The option that has been talked about in these columns so far (short of making the transition to a public monetary system) is for masses of people to borrow ever greater quantities of money into circulation from the banking system. There is, however, one other possibility that I have not yet talked about; that is, achieve a "positive trade balance" with other nations.
One way that unsold inventory piling up in the domestic marketplace can be disposed of is to sell it to foreigners. What is more, such sales would bring money into the domestic money supply that has been lost to "interest" charges. It looks like a win-win solution, except for one factor. That is that virtually all other currencies around the world are also borrowed into existence from private banks, so the domestic economy of every other nation exhibits the same problem, and, therefore, the same need for a "positive trade balance."
Ideally, world trade is a zero-sum game. Everyone can't have a "positive trade balance" with everyone else. The "positive balances" must of a mathematical certainty equal the "negative balances." For the last few decades, the U.S. has been losing in the balance-of-trade competition. Therefore it has been running up a huge "balance of trade deficit" that can only be made up for by taking on more "debt," particularly in the form of the selling of bonds backing the "Federal debt" to other nations.
We have gotten away with this so far because the U.S. dollar is the "reserved currency" for the world. This means that it is the currency that every other nation has to hold a quantity of to back up their own currency (which is why it is sometimes called "paper gold"), as well as insure their own buying power in the international marketplace (e.g. trade for oil is conducted only in dollars).
If the dollar became publicly-issued, the rest of the world's currencies would be obliged to follow suit and become publicly-issued as well. If that happened, the people of every nation would have the ability to redeem the full value of everything they produced in their own domestic marketplace, because to maintain their money supply they would no longer be losing the buying power that is currently leaking away due to having to pay "interest" to the banks.
What is more, it would also be possible to calculate an equitable trading value for every currency in the world such that balance of trade surpluses and deficits would disappear. All trade is essentially goods-for-goods, and there is no reason why that could not be reflected in equitable exchange rates between the currencies that facilitate their exchange.
What stops this equitable exchange from happening now is the "debt" that attends the creation of all major currencies, and renders any hope for a just, stable and sustainable world impossible. This opens up a whole new area of discourse that there is not room to do justice to here (will be explored in future columns), but I hope it gives the reader at least a glimpse of what is possible if we were to return to sound monetary practices.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites: http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
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