A Break in the Bad News

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Now that we’re in the second half of 2012, a little encouraging news would be good right now, wouldn’t it?  Bad news is all over the place...

We all know that the Eurozone is still sinking--and stinking--and that the prospects for a European recovery are slim at the moment.

And in the US, the ferocious summer heat has scorched the corn crop so food prices are rising.  I discussed rising food about a year ago in The Gorrie Details, and so it goes…

Meanwhile, oil prices have stayed high in a bizarre twist of lower oil prices and higher pump prices…

Why? Some say that prices have risen due to Iran’s ambitions in the Strait of Hormuz, uncertainty in the market, and of course, because of the Fed’s loose money policies.  All good reasons…but bad news, nonetheless.

This will really hit the US ‘recovery’ hard.  (If you noted the tangy taste of sarcasm in the prior sentence, you would be correct.  Give your self ten points, a chocolate, or some other form of minor but immediate gratification.)

Is the US economy in recovery? Would love to say ‘yes’ to that with a straight face and a clear conscience, but just can’t manage that today.  The honest answer is, well…‘no.’

Why would I say this?

Just by asking very basic, economic indicator type questions, like…

"Has the housing market hit bottom?"  In some places, maybe so.  But in most others?  Not so much.

Is real unemployment falling?  Again, not really.  There are some areas that have lower levels than the national average, but overall, the picture is not good.  Even Fed Chief Ben Bernanke says that the US outlook has grown darker.  Note the spate of city bankruptcies in California, for example.

Positives are present, too

But in the midst of this whirlwind of negativity, there are, in fact, some positives, too.

I know this may be a surprise to some, but some of the best economic news for the US is coming out of…China.

‘What’s that,’ you say?  Isn’t China stealing our jobs, our technologies, and our military secrets and attacking the dollar around the world?

Yes, yes, yes, and yes…but that’s not all that’s happening.

Seems that along the road to global domination, China’s labor costs have begun to rise.  Seems that some of its workers want a raise here and there.  What a shame.  Not only that, but China’s modus operandi of theft of technology, factories, and subsequent cutting out of US firms once they relocate there seems to be wearing just a little thin with some…

Then, of course, there is the rising level of lousy quality in a variety of products that are unsellable here in the US.  Add to that the growing shipping costs, the rising value of the yuan, and the foot-dragging of Chinese manufacturers to correct their mistakes, and guess what?

American firms are rediscovering the wisdom and benefits of making stuff right here.

Now, it’s not as if there is a tsunami of firms leaving China today…but there are ripples.  And, as Bloomberg points out in a recent article, the companies repatriating their manufacturing come in all sizes, from small firms with just a few million dollars in revenues all the way up to huge multi-nationals like GE.

The key question here would be “Is this a short term phenomenon or the beginning of a long term trend?”

China’s problems help US

If you ask me—and I’m glad you did—I would say that we will see more businesses pulling out of China for one very simple reason:  China is finding it harder to effectively and efficiently manage its economy, and therefore, rising costs and quality issues will grow worse over time, not better.

This is happening for several reasons.  One main reason is that China is cracking down on privately owned companies. They are taking them over—nationalizing them—into state-owned enterprises.  When that happens, profit margins and quality of product both fall, and costs, graft and corruption all rise.

Why would China be doing this?  For one simple reason:  In order for the Communist Party to hold onto power.    A similar thing happened in the US at the end of the 19^th century.  President Teddy Roosevelt broke up the powerful oligarchs because they threatened the authority of the US government.  There are differences in process and degree, of course, but the objectives are alike.

There are many other reasons that China will become not only less important to the US in the near future, but actually far less powerful than it is today.  I will be discussing those reasons for a China collapse in my new book, The China Crisis, which will be out in the spring of 2013.

In the meantime, it is wise to acknowledge and address the problems that face the US economy and the country as a whole, and not discount their importance or impacts.  But at the same time, it is also wise to see the opportunities that are also before us, and pursue them with purpose and vigor.  Our economy faces great challenges ahead; but we must be sure that those challenges do not destroy our confidence, creativity, and decisiveness in seizing every day, every hour, and even every minute of chance and fortune that presents itself to us; and not rely on someone else to do it for us.

And those are…The Gorrie Details.

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