The stage was set several decades ago. The secular (recurring) trade deficit first occurred vis-a-vis Japan in the 1970s. Astute policy-makers should have woken up to the obvious and crucial fact that the United States was no longer competitive. A choice was to be made: consumption vs. savings and investment. However, the United States does not have an industrial policy, nor a long-term economic strategy, so the easiest path was taken. Thanks to the Nixon Administration's rejection of the Gold Standard, the Japanese took their profits in dollars and used that money to start buying chunks of the United States - primarily real estate. Therefore the U.S. started selling off pieces of itself to fund consumption. Yet, not withstanding this new ominous trend, by the close of the 1970s the United States was still the world's largest creditor...
Fast forward a few decades and the Japanese have been replaced by the Chinese, as the vendor of choice. Throughout the intervening period U.S. policymakers have failed to address the competitiveness issue, and the combined National debt now stands at 4xGDP ($48 trillion)!!! i.e. the U.S. is now the world's largest DEBTOR nation. But the Ponzi has gone into overdrive in the past decade. U.S. Corporations have found a unique one-time way of massively increasing their profit margins. It's a widely used trick that has leveraged the world's economy to an unprecedented degree of risk, yet has deceptively lulled everyone into believing that it's actually a good idea. The concept: Lay off workers in the U.S. and outsource to China. Cut labor costs by 90%. Every major Corporation has done this in the past 10 years and realized phenomenal profit margins. This is Industrial arbitrage: buy low in China and sell the same goods in the U.S. at high prices, for enormous profits. Unfortunately it's a short-term strategy, as those workers (aka. customers) laid off in the U.S. have been forced into lower and lower paying jobs. The majority of American workers now have no protection, because the minimum wage is at a decades' low, unionization membership is at a decades' low and the trade policy is wide open - come in and take what you want. But don't despair, because the Chinese, like the Japanese before them, have been propping up their largest customer by recycling their profits back into the U.S. economy, funding mortgages, home equity lines of credit - all manner of debt instruments. The American consumer has been given all of the money he needs to leverage up to the maximum extent possible, regardless of (in)ability to repay.
The stage was set decades ago. The policymakers came to a fork in the road. One was a difficult little travelled path of long-term re-education and retrenchment to regain national competitiveness to the benefit of the majority of Americans. The other was the road of continued uninterrupted pleasure and consumption on an ever-more concentrated and grotesque scale, that would eventually benefit a small minority of Americans, and then none at all.
And of course, they took the path most easily travelled...AND IT WILL MAKE ALL THE DIFFERENCE...
