$US700 billion Is Not Spent On U.S Goods and Service

The US trade deficit has grown to $US700 billion, which of course is money not spent on US goods and services. This has killed off well paying jobs, has slowed the economy and created unemployment.

Net imports from China and oil account for a large proportion of the US deficit and it is this that America simply must fix to rev up growth.

Yet the problem is greater than that. Even with those problems addressed, if America doesn’t fix the banks, it won’t get the economy going. Properly functioning credit markets and solvent banks are needed.

The US economy is in crisis and to address that we need to look at three interconnected things: China, oil and the banks.

Jobs losses have been recorded every month since last December and nearly all the forecasters have the economy cycling down. Real incomes of average Americans have been falling and thousands of homeowners are going through foreclosure.

Cultural changes at our banks and securities firms are required. Into the trash bin should go performance based compensation schemes that encourage bankers to act for their own enrichment against the interest of shareholders and clients. The Wall Street culture of entitlement must be changed and compensation has to be aligned with other industries as well as shareholder interests.

Bankers have been betting house money in a strike-it-rich culture that simply has to end. It is a corporate governance issue and while the government can mandate change, even define broad outlines, Wall Street has to articulate the details.

To fix credit markets America has before it special Fed lending facilities and the newly proposed $US700 billion Treasury rescue program to restore liquidity. What America doesn’t have, and needs, however are “pay-to-play” requirements for banks and securities dealers participating in rescue programs.

Money centre banks should be required to securitise regional bank mortgages and business loans – this time creating plain vanilla bonds. This would minimize the cost to taxpayers by raising housing prices and would reduce risk.

Principles-based banking reform is also necessary. Accountability for loans throughout the lending and securitisation chain is needed and as part of this there must be responsible credit marketing and consumer education.

America needs to stop consuming more than it produces. America needs to stop running huge trade deficits and borrowing so much from the rest of the world to pay for it.

America needs to stop encouraging manufacturers to leave the country with a dollar artificially overvalued against the yuan and other Asian currencies.

http://seekingalpha.com/article/97702-3-things-america-needs-to-do-to-get-the-economy-back-on-track

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