It is amazing so many people simply don't understand the dire implications America's slowing economy will have on the world. Some market watchers look towards China coming out of its covid-19 lockdown to step into the role of becoming the global economic engine. Considering China's dependence on exports to the US, they are giving China far too much credit. Envisioning a slowdown in America, the world's largest economy, not spreading grief across the globe is difficult.
Other countries manufacture the goods Americans buy which makes America a key component in their economies. Without the American consumer, factories across the world will see orders slow. Any such slowing in orders reduces the need for raw goods from developing nations in both South America and Africa. This causes a lot of stress on their economies.
Following the 2008 financial crisis, China sidestepped a major slowdown by stimulating its economy. This resulted in runaway growth that built far more factories than it needed and resulted in a great deal of malinvestment. Currently, China is pumping money into its economy however, the law of diminishing return has taken hold. It is questionable whether China will be much help this time in elevating a global slowdown.
It is difficult to underestimate the role of the American consumer in the overall scheme of things and we have the trade deficit to prove it. This highlights the flaw in a system based on people buying things they often really don't need. What is deemed as demand tends to be a squishy area made up of waste and poor judgment. This is the first place consumers cut their spending.
|Not Much Has Changed Over The Years - America Is Addicted To Imported Goods|
The fact is that America with its massive trade deficit is carrying much of the world on its shoulders. This includes not only China and Mexico but countries such as Japan, Germany, South Korea, and even Germany. These countries are sucking the wealth right out of us. As noted in a prior article here on AdvancingTime, https://brucewilds.blogspot.com/2017/11/follow-money-trade-deficit-with-mexico_21.html when you follow the money the United States' huge trade deficit with Mexico becomes even more disturbing as you begin to understand where the money eventually ends up.
|But Where Does That Money Go?|
When you start thinking about all the money and jobs we shift into Mexico each year you would think by now Mexico would be rolling in cash. Interesting trade deficit data concerning Mexico reveal a fact most people miss. A bit of research quickly confirms that the money Mexico receives by way of trading with America quickly passes through its lands and flows to Asia. It could be argued that when all is said and done we are still transferring our wealth to the far east only by the scenic route. In addition to the United States being a huge importer of goods from China, Mexico also runs a massive trade deficit with China. In 2019 Mexico recorded a trade deficit with China of roughly 85.9 billion US dollars.
Sadly, for those living off exporting to America, this spells trouble. When the US consumer falls into a state of protracted economic funk their priorities will take a hit. In times of economic duress expect American consumers to turn to keeping a roof over their heads, food, and basic transportation rather than buying much of the junk we import each year.
In the following video, https://www.youtube.com/watch?v=RyKDD1gnaoI Robert Kiyosaki talks about what he sees as the possible looming global economic downturn. Best known for his book "Rich Dad Poor Dad" Kiyosaki's unique approach to personal finance and wealth-building has earned him a loyal following. He believes traditional education fails to teach people about money and that true financial freedom comes from understanding how to make money work for you. He promotes the idea entrepreneurship is the path to financial independence rather than simply settling for a traditional 9-to-5 job.
While I believe in many of his views, where I differ strongly with Kivosaki is that he does not point out that other fiat currencies are far worse than the dollar. Currencies are where many people store much of their wealth and even if they are debased and lose much of their value this is likely to continue. This is because long ago they replaced bartering as a means of trading goods and services. Currencies act as a primary medium of exchange in the modern world.
Short of America suffering a massive military defeat, it is difficult to see any rival ripping away the dollar's role as the world's reserve currency anytime soon. As American consumers cut their spending, the combination of more wasteful government spending, more debasing of currencies, and a slowing of global economies has the potential to usher in a major "inflationary" global slowdown. The world has not decoupled from the American consumer.
(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)