We are currently in the second-stage of a mercantilist produced collapse

During the first stage (from 1995 to 2005) the mercantilist government loans lowered our interest rates causing our asset values to go up. We felt rich and were able to borrow for consumption and for house and mall construction. The foreign money pouring in enriched our financial industries. We closed our eyes to the fact that we were losing about 20% of the our manufacturing jobs while investment was stagnating in our trade-competitive sectors.

During the second stage, which we are now in, our lack of past investment in our trade-competitive sectors, such as manufacturing, is causing the dollar to decline. Foreign governments, and it’s not just China, have been increasing their dollar purchases to keep their currencies undervalued relative to the dollar while at the same time they maintain other barriers to our imports including tariffs as well as artificial barriers, such as the Chinese prohibiting the riding of Harley Davidson-size motorcycles on many of their roads.

The mercantilist countries, especially China, will continue to finance our trade deficits while they steal our remaining industries. China is currently working on getting US market share from the following industries:

• Currently the Chinese government is financing the purchase of GE Appliance to get GE’s market share. After that purchase, they will close many US factories.
  
• Currently tariffs and other barriers in the growing markets of the world have put our vehicle parts and vehicle production industries on the ropes. If nothing is done, it is quite likely that GM and Ford will go bankrupt.
  
• Airbus is moving its production to China which should allow China to steal our aircraft production industry.
  
• China is building 3 factories to compete with our heavy mining equipment companies, including Bucyrus, while protecting their new industry behind both a currency-manipulation barrier and a tariff barier.
  

More and more governments are voluntarily participating in these dollar purchases. (After all, it is not often that a country voluntarily gives away its productive resources!)

This stage will not end until China has finished stealing our remaining industries. The US trade deficit will continue to increase even while the dollar gradually falls.

The third stage will commence at the time that China chooses to start selling their dollars. My guess is that it will occur approximately one year before China challenges the United States over Taiwan.

The third stage will leave the United States in poverty with a collapsed currency, high interest rates, and high inflation. It will leave China as the dominant economic and political power in the world.

As we note in our book, Trading Away the Future, it is not too late for the United States to avoid the impending collapse. The United States still has enough industry left to build upon, should we take action now. If we wait ten years, then it will be too late.

All we would need to do now is to insist upon balanced trade with our mercantilist trading partners. The result would be a huge increase in investment in our remaining industries. America would resume the path toward prosperity.

Howard