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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: skinowski who wrote (88072)10/28/2007 6:41:41 AM
From: KyrosL  Read Replies (1) of 110194
 
<What can we give them in return for all those cheap goods?>

I am optimistic about America's future, even if bearish in the short to medium term. There are numerous steps that America and China can take to fix the lopsided trade balance and there are hopeful signs that the fall of the dollar is starting to help.

There was an article in this week's Barron's about overvalued Chinese stocks. It turns out that US Steel is far more profitable than its Chinese counterpart. One reason is access to ore near its American plants. This is one example that shows that American manufacturing has a bright future, if the dollar stays down or falls even further.

American politicians will figure out what politicians in most other developed countries have: discourage consumption by imposing hefty consumption taxes. We can make these taxes more palatable by reducing income taxes to make them revenue neutral. Europe is able to run a slight trade surplus using this tactic: they have a 20% value added tax on nearly every consumable good or service. It's a great way to discourage consumption and encourage savings.

As China establishes the rule of law, its rampant piracy of American intellectual property will diminish.

Finally, China will have to cut its gargantuan savings rate to satisfy a growing list of urgent needs by its rural poor, if it wants to avoid another revolution.
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