Icebergs Ahead for the S.S. United States?

by Patrick J. Buchanan – March 19, 1998

To see how rapidly de-industrialization is taking place, take a look at the aging queen of American industries: automobiles. From 1995 through 1997, the United States had a trade deficit in autos and auto parts with Japan of $95 billion, with Canada of $33 billion, with Sweden and Britain of $10 billion, and with Mexico of $41 billion. Mexico today exports more cars to the United States than the U.S. exports to the world! Let’s hear it for NAFTA…

Daily, the U.S. stock market sets records. Unemployment has not been this low since Richard Nixon stood at 70 percent approval. Inflation, says the Federal Reserve, is “eerily calm.”

Yet, as the U.S. economy sails serenely at flank speed through placid seas, other economies like Japan’s are dead in the water. The tigers of Asia founder; Indonesia seems destined for Davy Jones’ locker. And there are troubling blips on the radar screen of the S.S. United States that suggest there may be something to these rumors of icebergs ahead.

Consider:

* In 1997, a banner year, personal bankruptcies hit 1.3 million, a record, and personal debt soared 7 percent. Home-mortgage debt hit a record $3.76 trillion and consumer debt a record $1.27 trillion.

* Personal savings have fallen below 4 percent of disposable income, a post-Depression low.
As never before, Americans are living on borrowed money. Yet the vaunted Clinton recovery, now 7 years old, is by U.S. standards close to an end — and quite unimpressive.

Consider:

* U.S. growth since 1992 is but two-thirds of what it was in the Reagan era and less than half what it was in the 1960s.

* Employee compensation in Bill Clinton’s time has grown by less than one-half of 1 percent per year, compared to 3 percent in the 1950s and 2 percent in the Kennedy, Johnson and Nixon years.

* Productivity growth in the Clinton era, 1 percent per year, is below the Reagan recovery and far below the 1950s and 1960s.

* Despite happy talk of how well college graduates are doing, the real median income of men with bachelor’s degrees, $44,000 in 1986, is now below $39,000.

* Almost 15 million jobs have been created since 1992, but only 4.3 percent of these (629,000) were in manufacturing. Almost all the rest were in service industries and government.
If it has been a pleasant voyage, though no record setter, let us take another look at those iceberg reports. The crisis in Asia has only just begun to run its course. Asian currencies may have taken their beatings, but the secondary explosions — in bankruptcies, lost jobs and closed factories — have only started. Asia is one-fourth of the world’s economy, and the news coming out is not good:

* Since Tienanmen Square, Beijing’s annual trade surplus with the United States has gone from $5 billion in 1989 to $50 billion in 1997.

* The Asian surplus in manufactures last year hit $163 billion. If the Chinese currency is devalued and the Japanese yen continues its slide, America will be flooded. Indeed, it is already happening:

* In January, our merchandise trade deficit set a stunning all-time record of $18.8 billion.

* In 1997, imported manufactured goods rose to a record 53 percent of U.S. manufacturing, and our merchandise trade deficit set an all-time record. We have not seen deficits like these since pre-Civil War and colonial days.

When a nation runs a trade deficit, it owes the money not to itself but to foreigners. The United States is now the world’s No. 1 debtor nation with a foreign debt over $1 trillion, and to finance imports, we are borrowing $3 billion to $4 billion every week.

To see how rapidly de-industrialization is taking place, take a look at the aging queen of American industries: automobiles. From 1995 through 1997, the United States had a trade deficit in autos and auto parts with Japan of $95 billion, with Canada of $33 billion, with Sweden and Britain of $10 billion, and with Mexico of $41 billion. Mexico today exports more cars to the United States than the U.S. exports to the world! Let’s hear it for NAFTA.

The bright spot in the 1997 U.S. trade picture was a $32 billion surplus on sales of $177 billion in advanced technology products. But, as Charles McMillion writes in New Technology Week, dead Asian markets for U.S. exports and ferocious export drives in Korea, China and Japan could sharply lower that surplus this year.

With the Dow-Jones average over 8,700, many U.S. companies are selling at 20 and 25 times earnings. If earnings were suddenly cut in half by a spreading Asian flu, some stocks would be selling at 40 to 50 times earnings, which is not only high but astronomical. The bulls’ counter-argument: Where else can the hot money go? Where else can all that retirement cash of the baby boomers park?

Since 41 percent of Americans now have savings, hopes and dreams wrapped in the stock market, let us pray that those who talk of “ten thousand on the Dow!” or 15,000 are right, and the fellows babbling about icebergs just don’t know how to enjoy life.