Originally Posted by Mr5150
IMO what matters is the loss of jobs and the trade deficit. After 30 years of shipping jobs overseas, the US is debtor nation and guess who owns most of the debt?
Hint: K2 skis are made there.
In theory there is no "loss of jobs" over the long run. We lose manufacturing jobs to countries that can produce widgets for far less than us, but then we import the goods at a fraction of what they would cost if produced here. We win because the consumer spends less and we don't "import inflation." Or new companies start here that employ our citizens and manufacture overseas. In theory, there is also a shift to working in services after workers are trained. As the third-world becomes rich, they will need the things we take for granted. This means some USA firms will benefits enormously.
The problem now isn't just the debt, it is the interest on the interest to maintain it and it is spiraling out of control. The good news is that everyone in congress is aware of this (they aren't that stupid). The question for investors is whether we inflate or deflate out of the problem. I go with inflation since a generalized deflation on top of our deflated real estate prices will kill us for another decade on top of the decade we need to get out of this mess.
The solution is simple. First, Bernanke does what he can to keep asset prices from collapsing. Next, congress extends out the age to receive maximum Social Security benefits. Then they do the unthinkable and overhaul the tax system (the KC Fed did the work for this a few decades ago). Expect a value-added tax to be added on top of the income tax, which will largely be phased out. The VAT will exempt food, medicine and basic clothing to make the Democrats happy, and will be instituted only after the marginal tax rates for the rich decline making the Republican happy. It will pick up billions from the "underground economy" which, in theory, doesn't pay taxes now because they are off the radar. Volker already "leaked" this out by mistake, or at least that is what the press said. Expect more leaks to sensitize the American people that this is coming.
What does this mean for skiers? Not much since the average skier who lives outside a ski area makes a damn good living and can afford the habit. And those that live in ski towns will still get discounted annual lift passes so they can afford to ski. This economy bites for the ski area owners, though. Luxury real estate sales (the only way ski areas make money) will suck wind for perhaps a decade or more. Lessons, retail (rents) and business travel (conventions) will never go back to the levels of four years ago because the wealth loss in The Great Recession isn't coming fully back anytime soon.
Is it bad if a US manufacturer has a factory in China? Hell no. The quality should be the same assuming the workers are fairly sober when they put the skis together. In fact, we'll be buying Chinese cars within a few year in the USA. At first a lot of people predicted Japanese cars wouldn't make it here (too small), Korean cars would be viewed as s____boxes, German cars would be too expensive, etc. But the naysayers were wrong because we aren't the only country in the world that can put out a quality product.