Showing posts with label opportunity. Show all posts
Showing posts with label opportunity. Show all posts

Monday, October 23, 2017

China Sees Opportunity

For as long as I can remember, in every economics class of the latter 20th century and early 21st, we have been taught that the United States is the industrial leading behemoth that cannot be surpassed because of its sheer fiscal might. Every currency exchange in the world still compares its local currency to the US Dollar and the United States is still the target for every worldwide consumer innovation, as it is the largest most lucrative market in the world today.

But times are changing. Let's step back and understand the passing of the torch that saw the United States rise as the worldwide economic leader. People who don't study or pay attention to history, may not realize that by the turn of the end of the 19th century and the beginning of the 20th, Great Britain was the world leader in most major industrial and financial measurements. However, by this time the British Empire grew beyond its means. With its empire stretching across the globe and the financial stresses inflicted by various conflicts, that standing became very tenuous. The beginning of the end was the beginning of World War I, where Britain extended itself further fiscally, and just could not keep up with the rising growing economy of the United States.

Despite going through the Great Depression, the United States kept growing in every phase of its economy. The final straw that unseeded Britain from the top spot was the havoc World War II inflicted upon its people, infrastructure, and finances. Soon their colonies, once the cornerstones of their financial income, began to break away as independent sovereign nations. Then their industries began to be nationalized. Finally, their national budget proportionally became a shadow of its former self. This made the economy grow at a snail's pace and even contract at times.

The United States had none of these problems. The younger nation was buoyed by the end of the Civil War. The United States saw its greatest leaps in industrialization and natural resource discoveries push the growth margin higher than ever during the "gilded age", leading up to the start of the 20th century. By the time of the roaring 20s, the country was now an economic contender on the world stage. But because neither of the world wars saw any extensive damage to the United States infrastructure, there was no pause and no rebuilding cost. This freed up the United States to invest in its growth further and leap past its European competitors with a seemingly insurmountable advantage into first place.

It is a spot which we, as a nation, have not relinquished since. However, our supremacy on the world stage has diminished over time. Since the late 20th century, the United States government has continuously mismanaged its budget to the tune of a financially devastating fiscal deficit. As the GDP and per capita income increased, so did the manufacturing costs. As a result, we have transformed our economy into a service, credit, and consumer economy. All the while shipping our blue collar manufacturing jobs overseas. With that transition we have also given the technical expertise and the income, which was previously kept in house, to nations we never saw as our competitors, let alone our equals.

But this is exactly where China finds itself today. Having absorbed decades of manufacturing and assembly handover from Western nations, China has acquired both the infrastructure and the technical knowledge base necessary to compete on the world stage as equals. Furthermore, Chinese government has acquired sufficient sovereign debt of every Western nation, including the United States, to be able to have political and economic leverage it previously dreamed of.

But now, having accumulated sufficient wealth, China is transitioning. It finds itself at the exact same inflection point that the United States found itself in the late 19th and early 20th century, when it was breathing down Great Britain's neck. Except now it is China ready to overtake the United States as the leading economy in the world. Chinese government is well poised for the role, with a bank roll of foreign debt and a national cash surplus that now seems more attractive to global investors than ever before.

As the conflicts of the world swirl around, the safest place for foreign cash is still the United States, as it is being recognized for its past fiscal dependability. But the winds are changing, and the Asian powerhouse that is China sees opportunity in this crisis. Up until now, they have been able to manipulate its currency and keep the value of the Yuan down to keep its manufacturing infrastructure viable on the world stage, and its Yuan-denominated sovereign debt purchases high in value. But their per capita incomes and currency value is growing beyond these controls. Soon enough, China will find itself in transition to a consumer economy. And that's exactly when the United States will be faced with a similar fate that Great Britain faced in the 20th century.

What do you think? Will China become a major consumer economy within the next decade? Will foreign investors see it as the new capital safety market? Will the US Dollar Standard crumble within the next decade? Please Leave your thoughts below in the comments section.

Saturday, February 18, 2017

Opportunity Blueprint

In modern times, we find ourselves a highly divided country with an alarming (and continuously growing) disparity in terms of income between the classes of our society. Incomes diverge, as expenses grow. It hasn't always been that way, but this is where we are and we have to resolve these issues before our nation collapses along the fault-lines of growing division.

First of all, let me say this clearly - it is all about money. There literally is nothing else that divides us at the core except for money. Racism, anti-antisemitism, xenophobia, islamophobia, etc. are all just the byproducts of the basic problem where people fear for their financial well being due to a perceived threat or a poverty-stricken reality makes people desperate enough to believe.

While these threats are just untrue and ridiculous at the core, the division we see across our nation are real. Furthermore, the proposed solutions to the economic divergence/disparity among the classes couldn't be more different and polarizing from both Democrats and Republicans. But without a meaningful admission of the core problem, neither of these one-sided proposals have any viable way of solving the root of the problem.

The government earns money from taxing the citizens' incomes, purchases, sales, gifts, etc. The majority of the revenue comes from income tax. The economy strives when the citizens are capable and motivated to spend their disposable incomes. As a result, it drives corporate profits and government revenues up. Finally, businesses see a reason to keep people employed and hire more staff to expand in order to meet the demand.

It has long been a predominant Republican belief that applying a flat tax across all tax brackets will raise enough revenue to balance the budget. However, taxing the lower classes and those below the poverty line would not only drive people into a further financial despair, it would also require additional Federal spending to accommodate those suffering from such a tax program. The general population will have less disposable income, the businesses will lay off staff due to waning demand and the government will be left with an ever-declining revenue. It is a losing scenario.

It has long been a predominant Democrat belief that spending government funds to hire people and create government sponsored projects are ways to increase employment and, subsequently, increase the government's revenue stream. While this appears to be a good plan in theory, it is a totally different result in practice. When you are spending tax revenue on hiring public and creating projects that do not have a corresponding demand, you are in fact cannibalizing the government funds. Yes, the unemployment decreases and the government revenues increase. However, your spending outpaces the revenue received. It is a net negative effect and a losing scenario as well.

What I propose is a return to near-parity in terms of net income. What does that mean? Net income is the total amount of money a person takes home from their wages after all taxes (including income tax) are paid. How would someone increase the incomes of the poverty line and lower classes? Simple, it would involve a two-fold plan of income re-balancing in an employer-employee environment.

First, the government would need to institute an enforceable guideline for compensation of companies' lowest paid employees to be no less than a certain reasonable percentage of the highest earning employee (usually the CEO). This way, each company is required to distribute its profits more fairly and each employee earns enough to where the taxes no longer cripple them below a living wage (that would otherwise require them to borrow in order to survive).

Second, the government would need to protect American companies and workers from outsourcing and in-sourcing scenarios. A lot of companies began to chase profits in the 1990s with cheap overseas labor that resulted in higher profit margins. However, this all came at taxpayer expense as hundreds of thousands of Americans lost their source of a living wage. The government loses revenue from taxes on those incomes and is now forced to spend their depleting revenue to support the newly unemployed. It is time to stop the bleeding. United States is still the leading consumer economy in the world. As such, it can dictate what US companies' foreign manufactured goods can pay in taxes - recognizing that one such product or service bought, is one American product or service left with declining demand. To solve this problematic economic minefield, the government needs to gradually phase in a tax of (5%, 10%, 15%... n%), where n% equals the difference in cost between a comparable American product (or service) + 2%. This will level the playing field for US produced goods and services, while providing American companies operating overseas with enough time to move back their operations, avoid losing government incentives and hire American workers.

The end result will be a greater level of net income for majority of Americans, a new degree of income parity between the highest and lowest earners, protection for American workers' incomes, increased disposable income spending, increased government revenue, reduced unemployment benefits spending and a more stable economy. 

And maybe, just maybe, when we are in a new era of wholesale economic revival, our divisions will greatly diminish as our incomes and interests converge.