A Limping U.S. Economy gets no help from WTO Ruling, Inflation or Entitlement Spending

Posted by PITHOCRATES - May 18th, 2011

The WTO Rules against the US/Boeing in favor of EU/Airbus

Government subsidies are costly.  In more ways than one (see WTO Airbus ruling leaves both sides claiming victory by the BBC posted 5/18/2011 on the BBC News Business).

“This report confirms for decades the European Union… [has] provided massive amounts of market-distorting launch aid and other subsidies that are inconsistent with WTO rules.”

However, Airbus’ Mr Enders claimed the decision meant Germany, France, the UK and Spain could continue providing funding for Airbus via public-private partnership arrangements…

Earlier this month in a separate case, Boeing was found guilty of receiving over $5bn of unlawful subsidies from Washington.

Ever price a Boeing 747?  If you’re looking to buy one today it’ll set you back some $300 million.  Each.  It’s a big plane with a big price tag.  But it’s a money maker.  Once upon a time she ruled the skies.  It was every airline’s long-haul choice.  Because it could carry more people than anything else out there.  And the more people you pack into an airplane the more money you make.  Economies of scale.  That’s why the Concorde is no longer in service.  It didn’t make money.  Seating only 100 people it couldn’t charge enough in ticket prices to offset the great costs of flying it and make a profit.  So it was only a prestige thing for British Air and Air France.  And a toy for the super rich.

The 747 soon faced competition from Airbus.  First the A330 and A340.  Then the double-decker A380Boeing lost sales to Airbus.  And not always fairly.  According to them.  The consortia that made up Airbus (Germany, France, the UK and Spain) subsidized Airbus.  Thus making Airbus planes more cost competitive than those from rival Boeing.  Why does this matter?  Look again at the price of a 747.  It’s the biggest U.S. export product.  And in a nation with a declining manufacturing base and an increasing trade deficit, anything that reduces sales of Boeing planes hits their balance of trade hard.  So much so that even the U.S. government tries to subsidize Boeing to help them compete against Airbus.

With the WTO ruling, Airbus subsidies will continue.  Cutting more into U.S. manufacturing.  And increasing the trade deficit.  Not good economic news for the Americans.  Among other bad news.

Unemployment and now Inflation

Ben Bernanke has been trying to resuscitate a flat-lining U.S. economy with free money.  Hasn’t improved the numbers much.  The unemployment rate just went up.  The economy isn’t looking good.  And now this (see Inflation concerns dominate April Fed meeting by the Associated Press posted 5/18/2011 on the Los Angeles Times).

The Federal Reserve last month began debating how it should start reversing policies that pumped billions of dollars into the economy during the recession. Some members said the Fed might need to start boosting interest rates this year to guard against inflation…

Some members thought the Fed would need to start signaling that record-low interest rates would need to rise. A few members believed the Fed might need to boost its key interest rate or start to sell some of the assets in its portfolio later this year. Both moves would lead to tighter credit and higher rates on consumer loans.

Inflation.  Like the Americans didn’t have enough to worry about with a declining manufacturing base, a growing trade deficit, high unemployment and a recession that doesn’t end.  And if that wasn’t bad enough, entitlement spending just keeps piling on the woe in large deficits.  That adds to the debt.  Forcing the Americans to borrow ever more.  So much so that Standard and Poor’s took notice and lowered their outlook for the U.S. economy.  Not a good thing when you’re trying to sell treasury bonds.  Things are getting a little difficult in the United States.

Entitlement Spending Heralding the end of the Republic?

Thankfully, America has a representative republic.  Where there are responsible, disinterested wise people between the people and the treasury.  Because the masses don’t understand public finance as well as these wise people, the wise can step in and protect the people from themselves.  For as Benjamin Franklin warned, once the people learn they can vote themselves the treasury it will herald the end of the republic.  So they, the wise, will step in and address the entitlement spending problem.  Per the responsible, disinterested Founding Fathers‘ design (see Healthcare ills infect 2012-bound Republicans by Patricia Zengerle posted 5/18/2011 on Reuters).

The Republican budget plan passed by the House of Representatives last month would repeal the Obama healthcare law, scale back spending on the state/federal Medicaid healthcare program for the poor and implement the plan from Ryan, chairman of the House Budget Committee.

With polls showing two-thirds of Americans prefer to keep Medicare in its current form, Democrats have been rushing to take political advantage…

“Candidates already are capitalizing on this issue and using it to say Republicans are outside the mainstream,” said Darrell West of the Brookings Institution think tank.

Or not.  Some will take the low road.  And politicize the crisis for personal gain.  Even knowing full well that today’s gains could very well destroy Social Security, Medicare and Medicaid for future recipients.  This would be the polar opposite of the selfless Founding Fathers.  Who tried to build a nation that would stand the test of time.  Unlike the selfish of today who are just looking out for themselves.

The Here and Now versus Tomorrow

Everyone knows there is an entitlement spending problem.  And some are more than willing to trade a hard future for an easier today (see FEULNER: Saving the American dream by Ed Feulner posted 5/16/2011 on The Washington Times).

America is on the verge of becoming a country in decline – economically stagnant and permanently debt-bound, heavily regulated and bureaucratic, less self-governing and less free…

To get our fiscal house in order, we must address Social Security, Medicare and Medicaid, the three so-called “entitlement” programs that together account for 43 percent of federal spending…

Almost half of the federal budget is entitlement spending.  And it’s growing.  Baby boomers are now retiring.  Living far longer into retirement than anyone guessed.  And because they’re living longer into retirement they’ve consuming far more health care than anyone guessed.  They cannot sustain this spending.  It’s why GM went bankrupt.  It was those generous union contracts that did her in.  Pensions and health care.  Spent on people no longer working.  Now America is GM writ large.  And anyone who thinks it can end differently is in denial.

Edmund Burke reminds us to think of our time on this earth not as an individual and temporary event, but rather as a partnership “between those who are living, those who are dead and those who are yet to be born.”

Those in Washington are not looking to the past or the future.  Apparently, all they care about is the here and now.  And as long as they get theirs they don’t care about tomorrow.  If you listen closely, that sound you hear is the tears of the Founding Fathers.  Or the cursing.  For I understand that George Washington had quite the temper.



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