Rising Like a Phoenix? US Economy…

27 Oct

World power swings back to AmericaThis may well just continue to work and turn the US economy around…

As long as conservatives don’t get elected to screw it up.

The fact is, it has now become cheaper to manufacture many products in the US than in China. Those companies who haven’t made plans to “inshore” yet may well be holding losing cards. This could have a net impact on the US economy of over 3 million new jobs in 3 years. Foreign based companies have figured it out, with both Asian and European companies flocking to build plants in America. You add that to the two major “bleeding edge” chip foundries being built right here in America – and there are some fundamental economic changes afoot.

No small contributor to this shift is that energy independence thing. The US isn’t very far from being able to be self-sufficient. There are humongous reserves of Natural Gas in the Midwest, and oil reserves beggaring those in the Middle East in the Gulf of Mexico. This should mean stabilized energy costs, no longer at the whim of some crackpot oil-can Dictator.

China’s counterfeiting and Intellectual theft issues are huge for tech industries, it is also impacting firm’s brand names. I for one, have never been convinced it was ultimately profitable to move any high tech or leading edge product production to China because of the theft issue. It really doesn’t matter if you can make a big screen TV 15 cents cheaper – if the manufacturer is making knockoffs, using your logo, and selling them $100.00 cheaper. I think it’s time to cut the George Bush (pick one) support system for China. They have a huge internal market, and there is no reason their economy should not be strong once the necessary changes are made in how their government works, and business is conducted are made.

World power swings back to America

The American phoenix is slowly rising again. Within five years or so, the US will be well on its way to self-sufficiency in fuel and energy. Manufacturing will have closed the labour gap with China in a clutch of key industries. The current account might even be in surplus.

Assumptions that the Great Republic must inevitably spiral into economic and strategic decline – so like the chatter of the late 1980s, when Japan was in vogue – will seem wildly off the mark by then.

Telegraph readers already know about the “shale gas revolution” that has turned America into the world’s number one producer of natural gas, ahead of Russia.

Less known is that the technology of hydraulic fracturing – breaking rocks with jets of water – will also bring a quantum leap in shale oil supply, mostly from the Bakken fields in North Dakota, Eagle Ford in Texas, and other reserves across the Mid-West.

“The US was the single largest contributor to global oil supply growth last year, with a net 395,000 barrels per day (b/d),” said Francisco Blanch from Bank of America, comparing the Dakota fields to a new North Sea.

Total US shale output is “set to expand dramatically” as fresh sources come on stream, possibly reaching 5.5m b/d by mid-decade. This is a tenfold rise since 2009.

The US already meets 72pc of its own oil needs, up from around 50pc a decade ago.

“The implications of this shift are very large for geopolitics, energy security, historical military alliances and economic activity. As US reliance on the Middle East continues to drop, Europe is turning more dependent and will likely become more exposed to rent-seeking behaviour from oligopolistic players,” said Mr Blanch.

Meanwhile, the China-US seesaw is about to swing the other way. Offshoring is out, ‘re-inshoring’ is the new fashion.

“Made in America, Again” – a report this month by Boston Consulting Group – said Chinese wage inflation running at 16pc a year for a decade has closed much of the cost gap. China is no longer the “default location” for cheap plants supplying the US.

A “tipping point” is near in computers, electrical equipment, machinery, autos and motor parts, plastics and rubber, fabricated metals, and even furniture.

“A surprising amount of work that rushed to China over the past decade could soon start to come back,” said BCG’s Harold Sirkin.

The gap in “productivity-adjusted wages” will narrow from 22pc of US levels in 2005 to 43pc (61pc for the US South) by 2015. Add in shipping costs, reliability woes, technology piracy, and the advantage shifts back to the US.

The list of “repatriates” is growing. Farouk Systems is bringing back assembly of hair dryers to Texas after counterfeiting problems; ET Water Systems has switched its irrigation products to California; Master Lock is returning to Milwaukee, and NCR is bringing back its ATM output to Georgia. NatLabs is coming home to Florida.

Boston Consulting expects up to 800,000 manufacturing jobs to return to the US by mid-decade, with a multiplier effect creating 3.2m in total. This would take some sting out of the Long Slump.

As Cleveland Fed chief Sandra Pianalto said last week, US manufacturing is “very competitive” at the current dollar exchange rate. Whether intended or not, the Fed’s zero rates and $2.3 trillion printing blitz have brought matters to an abrupt head for China…

Volkswagen is investing $4bn in America, led by its Chattanooga Passat plant. Korea’s Samsung has begun a $20bn US investment blitz. Meanwhile, Intel, GM, and Caterpillar and other US firms are opting to stay at home rather than invest abroad…

Yet America retains a pack of trump cards, and not just in sixteen of the world’s top twenty universities.

It is almost the only economic power with a fertility rate above 2.0 – and therefore the ability to outgrow debt – in sharp contrast to the demographic decay awaiting Japan, China, Korea, Germany, Italy, and Russia.



Tags: , , , , , , , , , , , ,

5 responses to “Rising Like a Phoenix? US Economy…

  1. brotherbrown

    October 27, 2011 at 7:25 PM

    Best economic news I’ve read in 5 years…


  2. CNu

    October 28, 2011 at 7:08 AM

    Within five years or so, the US will be well on its way to self-sufficiency in fuel and energy.



    • btx3

      October 28, 2011 at 11:19 AM

      The issue never was an oil shortage – the issue is price. Now that retail prices have been artificially jacked through the roof, getting oil from those deep wells, or natural gas from the shale is economic and highly profitable.

      It’s the reason the US isn’t real concerned about the “Arab Spring”, and Europe is sweating bullets over it, and why the US was able to take a back seat in the recent Libya situation.


      • CNu

        October 28, 2011 at 6:59 PM

        The issue never was an oil shortage – the issue is price.


        {SMH} – Big Brother BT…, this topic has never been your strong suite.

        I’ll point out just one, single, clear and present weakness – and without further belaboring the point – leave it at that;

        The Energy Trap is a project of the New America foundation, a non-partisan think tank funded by the Rockefeller Foundation, which recently conducted a survey on just how the American public is holding up under the high cost of energy. The idea of the trap is that an increasing number of Americans are caught between the cost of gasoline and a systemic inability to stop driving their cars. In the last 60 years America has become a “motorized society” in which most of our citizens have become totally dependent on daily travel by car for their existence. Take away our cars and most of us would be hard pressed to reorganize our lives to provide for the essentials of life – earn an income, and provide food, shelter, and education for ourselves and our families.
        The current recession has compounded the troubles, forcing many to travel further afield to find employment – often in more than one underpaying job.

        The Energy Trap study found cases in which more than 50 percent of a family’s income was going into paying for and fueling the car. What is most alarming is that 30 years ago the spike in gasoline led to a 12 percent reduction in the demand for gasoline as consumers drove less, switched to smaller cars, and sort of adhered to the 55 mph speed limit that had been put in place to save gasoline. It is now more than three years since the $4+ price spike of 2008 and demand has only fallen some 3 percent.

        The problem starts with the nation’s collective gasoline bill which is on track to reach a new high of nearly $500 billion this year. This, of course, is only for gasoline; if we add in the other oil products we burn here in America each year – diesel for trucks and trains, jet fuel for planes, propane for heating, and numerous other uses the total is in the vicinity of $1 trillion.

        It is looking as if this year’s fuel bill will be on the order of $100 billion higher than last for gasoline and another $100 billion for other oil consumption. If we have to spend an additional $200 billion just to keep even, it is not hard to understand that the $200 billion increase in the cost of energy is coming out of other family expenditures.

        There are geographic and income level differences in the impact the energy trap is having on families with rural and lower income families bearing more of the burden.

        One of the regulars at (my new nomme de guerre) pointed out that we’re still the world’s leading food and weapons exporter, so that whatever happens to the rest of the interconnected world, it’ll happen to us far less rapidly and severely. Of course, he didn’t like the answer which underscored our absolute agricultural dependency on oil, natural gas, and phosphate inputs, and felt a little less sanguine about our superpower status in light of the fact that the per capita energy consumption of every man and woman in the U.S. armed services is ~16 times per capita civilian consumption, and u.s., civilian consumption is ~ 6 times per capita civilian consumption in say, oh, SWITZERLAND.


      • btx3

        October 29, 2011 at 2:11 PM

        I think the principal reason gas consumption isn’t dropping is – you have to have money to buy a new fuel efficient car. Our economy is the double whammy. Check out the prices on used Hondas! I know, I’m in the process of buying one for my bad driving little one.

        The whole Bushit economy was about profligate spending, and damn the energy use.



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: