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From An Industrial Economy To A Paper Economy – The Stunning Decline Of Manufacturing In America
by Tyler Durden
Sep 6, 2016 6:30 PM
Submitted by Michael Snyder via The Economic Collapse blog,
Why does it seem like almost everything is made in China these days? Yesterday I was looking at some pencils that we had laying around the house and I noticed that they had been manufactured in China. I remarked to my wife that it was such a shame that they don’t make pencils in the United States anymore. At another point during the day, I turned over my television remote and I noticed that it also had “Made In China” engraved on it. With Labor Day just hours in the past, I think that it is quite appropriate to write about our transition from an industrial economy to a paper economy today. Since the year 2000, the United States has lost five million manufacturing jobs even though our population has grown substantially since that time. Manufacturing in America is in a state of stunning decline, our economic infrastructure is being absolutely gutted, and our formerly great manufacturing cities are in an advanced state of decay. We consume far more wealth than we produce, and the only way that we are able to do this is by taking on massive amounts of debt. But is our debt-based paper economy sustainable in the long run?
Back in 1960, 24 percent of all American workers worked in manufacturing. Today, that number has shriveled all the way down to just 8 percent. CNN is calling it “the Great Shift”…
In 1960, about one in four American workers had a job in manufacturing. Today fewer than one in 10 are employed in the sector, according to government data.
Call it the Great Shift. Workers transitioned from the fields to the factories. Now they are moving from factories to service counters and health care centers. The fastest growing jobs in America now are nurses, personal care aides, cooks, waiters, retail salespersons and operations managers.
No wonder the middle class is shrinking so rapidly. There aren’t too many cooks, waiters or retail salespersons that can support a middle class family.
Since the turn of the century, we have lost more than 50,000 manufacturing facilities. Meanwhile, tens of thousands of gleaming new factories have been erected in places like China.
Does anyone else see something wrong with this picture?
At this point, the total number of government employees in the United States exceeds the total number of manufacturing employees by almost 10 million…
Government employees in the United States outnumber manufacturing employees by 9,932,000, according to data released today by the Bureau of Labor Statistics.
Federal, state and local government employed 22,213,000 people in August, while the manufacturing sector employed 12,281,000.
The BLS has published seasonally-adjusted month-by-month employment data for both government and manufacturing going back to 1939. For half a century—from January 1939 through July 1989—manufacturing employment always exceeded government employment in the United States, according to these numbers.
You might be thinking that government jobs are “good jobs”, but the truth is that they don’t produce wealth.
Government employees are really good at pushing paper around and telling other people what to do, but in most instances they don’t actually make anything.
In order to have a sustainable economy, you have got to have people creating and producing things of value. A debt-based paper economy may seem to work for a while, but eventually the whole thing inevitably comes crashing down when faith in the paper is lost.
Right now, the rest of the world is willing to send us massive amounts of stuff that they produce for our paper. So we keep producing more and more paper and we keep going into more and more debt, but at some point the gig will be up.
If we want to be a wealthy nation in the long-term, we have got to produce stuff. That is why the latest news from Caterpillar is so depressing. In addition to the thousands of layoffs that had been previously announced by the industrial machinery giant, it appears that a fresh wave of layoffs has arrived…
Hundreds of mostly office employees received layoff notices at one of the largest Caterpillar Inc. facilities in the Peoria area this week, just as the company announced plans to close overseas production plants and eliminate thousands more positions.
A total of 300 support and management employees at Building AC and the Tech Center in Mossville this week received job loss notifications that included severance packages, 60 days notice and mandated Illinois Worker Adjustment and Retraining Notification Act letters.
During this election season, you will hear many of our politicians talk about how good “free trade” is for the global economy. But that is only true if the trade is balanced. Unfortunately, we have been running a yearly trade deficit of between 400 billion dollars and 600 billion dollars for many years…
When you have got about half a trillion dollars more going out than you have coming in year after year that has severe consequences.
Let me try to break it down very simply.
Imagine that I am the United States and you are China. I take one dollar out of my wallet and I give it to you and then you send me some stuff.
After a while, I want more stuff, so I take another dollar out of my wallet and send it to you in exchange for more products.
But that stuff only lasts for so long, and so pretty soon I find myself taking another dollar out of my wallet and giving it to you for even more stuff.
Ultimately, who is going to end up with all the money?
It isn’t a big mystery as to how China ended up with so much money. And when we can’t pay our bills we have to go and beg them to let us borrow some of the money that we sent to them in the first place. Since we pay interest on that borrowed money, that makes China even richer.
This is why I am so obsessed with these trade issues. They truly are at the very heart of our long-term economic problems.
But most Americans don’t understand these things, and they seem to think that our debt-based paper economy can just keep rolling along indefinitely.
In the end, history will be the judge as to who was right and who was wrong.
Russia And China Finally Sign Historic $400 Billion “Holy Grail” Gas Deal
There was some trepidation yesterday when after the first day of Putin’s visit to China the two countries did not announce the completion of the long-awaited “holy grail” gas dead, and fears that it may get scuttled over price negotiations. It wasn’t: moments ago Russia’s Gazprom and China’s CNPC announced, that after a decade of negotiations, the two nations signed a 30 year gas contract amounting to around $400 billion. And with the west doing all it can to alienate Russia and to force it into China’s embrace, this is merely the beginning of what will be a far closer commercial (and political) relationship between China and Russia.
So far there have been no public pricing details on the deal which accrording to Gazprom CEO Aleksey Miller is a “commercial secret”, and which is believed to involve Russia supplying 38 billion cubic metres of gas per year to China via a new eastern pipeline linking the countries.
According to Itar-Tass, the compromise between Russian gas export monopoly Gazprom and Chinese National Petroleum Corporation (CNPC) on Russian gas price is estimated at $75 billion, citing the Deputy Head of the National Energy Security Fund Alexei Grivach. The differences on the price for 38 and 60 billion cubic meters supplies a year were $1.5 billion and $2.5 billion, he added, so the subject of the negotiations is quite a significant one.
Gazprom expected a base price of $400 for 1,000 cubic meters, an expert of the Eurasian Development Research Center of the Chinese State Council said in April, whereas the CNPC’s proposal was $350-360 for 1,000 cubic meters.
A memorandum of understanding was signed in the presence of Russian President Vladimir Putin and President of China Xi Jinping on the second day of Putin’s two-day state visit to Shanghai. The price China will pay for Russian gas remains a “commercial secret” according to Gazprom CEO Aleksey Miller. Gas will be delivered to China’s via the eastern ‘Power of Siberia’ pipeline.
RT producers were informed of the landmark energy deal prior to its signing after a conversation with Miller.
Under the long-term deal, Gazprom will begin providing China’s growing economy with 38 billion cubic meters of natural gas per year for the next 30 years, beginning in 2018. The details of the deal were discussed for more than 10 years, with Moscow and Beijing negotiating over gas prices and the pipeline route, as well as possible Chinese stakes in Russian projects.
Just ahead of Putin’s visit to Shanghai, Russian Prime Minister Dmitry Medvedev gave reassurance that the agreed price would be fair.
“One side always wants to sell for a higher price, while the other wants to buy for a lower price,” Medvedev said. “I believe that in the long run, the price will be fair and totally comparable to the price of European supplies.”
A major breakthrough in negotiations came on Sunday as Gazprom chief Aleksey Miller sat down with his CNPC counterpart, Zhou Jiping, in Beijing to discuss final details, including price formulas.
Although Europe is still Russia’s largest energy market – buying more than 160 billion cubic meters of Russian natural gas in 2013 – Moscow will use every opportunity to diversify gas deliveries and boost its presence in Asian markets.
“I wouldn’t look for politics behind this, but I have no doubt that supplying energy to the Asia Pacific Region holds out a great promise in the future,” Medvedev said.
In October 2009, Gazprom and CNPC inked a framework agreement for the Altai project which envisions building a pipeline to supply natural gas from fields in Siberia via the western part of the Russia-China border.
In March 2013, Gazprom and CNPC signed a memorandum of understanding on Russian gas supplies to China along the so-called eastern ‘Power of Siberia’ route. When both pipelines are activated, Russia can supply Asia with 68 billion cubic meters of gas annually.
Last year, China consumed about 170 billion cubic meters of natural gas and is expected to consume 420 billion cubic meters per year by 2020.
Regardless of what the final price ended up being, and whether or not China got the upper hand in the negotiations, the final outcome is there and it is real: as a result of his disastrous foreign policy in the past two months, Barack Obama finally pushed Russia into China’s hands, culminating with a deal that was ten years in the making and was never certain, until the Ukraine crisis.
And yes, this was all predictable from day one. Here is what we said precisely two months ago:
If it was the intent of the West to bring Russia and China together – one a natural resource (if “somewhat” corrupt) superpower and the other a fixed capital / labor output (if “somewhat” capital misallocating and credit bubbleicious) powerhouse – in the process marginalizing the dollar and encouraging Ruble and Renminbi bilateral trade, then things are surely “going according to plan.”
For now there have been no major developments as a result of the shift in the geopolitical axis that has seen global US influence, away from the Group of 7 (most insolvent nations) of course, decline precipitously in the aftermath of the bungled Syrian intervention attempt and the bloodless Russian annexation of Crimea, but that will soon change. Because while the west is focused on day to day developments in Ukraine, and how to halt Russian expansion through appeasement (hardly a winning tactic as events in the 1930s demonstrated), Russia is once again thinking 3 steps ahead… and quite a few steps east.
While Europe is furiously scrambling to find alternative sources of energy should Gazprom pull the plug on natgas exports to Germany and Europe (the imminent surge in Ukraine gas prices by 40% is probably the best indication of what the outcome would be), Russia is preparing the announcement of the “Holy Grail” energy deal with none other than China, a move which would send geopolitical shockwaves around the world and bind the two nations in a commodity-backed axis. One which, as some especially on these pages, have suggested would lay the groundwork for a new joint, commodity-backed reserve currency that bypasses the dollar, something which Russia implied moments ago when its finance minister Siluanov said that Russia may refrain from foreign borrowing this year. Translated: bypass western purchases of Russian debt, funded by Chinese purchases of US Treasurys, and go straight to the source.
Here is what will likely happen next, as explained by Reuters:
Igor Sechin gathered media in Tokyo the next day to warn Western governments that more sanctions over Moscow’s seizure of the Black Sea peninsula from Ukraine would be counter-productive.
The underlying message from the head of Russia’s biggest oil company, Rosneft, was clear: If Europe and the United States isolate Russia, Moscow will look East for new business, energy deals, military contracts and political alliances.
The Holy Grail for Moscow is a natural gas supply deal with China that is apparently now close after years of negotiations. If it can be signed when Putin visits China in May, he will be able to hold it up to show that global power has shifted eastwards and he does not need the West.
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To summarize: while the biggest geopolitical tectonic shift since the cold war accelerates with the inevitable firming of the “Asian axis”, the west monetizes its debt, revels in the paper wealth created from an all time high manipulated stock market while at the same time trying to explain why 6.5% unemployment is really indicative of a weak economy, blames the weather for every disappointing economic data point, and every single person is transfixed with finding a missing airplane.
To conclude with the traditional geopolitical balance of power summary: Putin wins (again), Obama loses (again), and the monument to the dollar’s status as world’s reserve currency gets yet another tarnishing blow.