Low wages increase corporate profits: (short term) good for stockholders, bad for employees.

In the long run, an economy based on low domestic wages and international outsourcing is doomed to collapes. Consumers can’t afford to buy enough to keep the economy afloat.

The question is, how much worse? Our economy, deficit spending, debt, etc. are propped up by the willingness of foreign investors and foreign governments to buy our dollars – on the mistaken assumption that we’ll one day be able to pay them back, with interest. What happens when that mythology is shattered and the world realizes that the American dollar, and by extension the American economy, are no longer worth investing in? Or even when they simply run out of money to invest? Our debt and deficit will then have to be monetized (i.e. paid off by printing more money). This means high inflation, which will spur the investors and central bankers worldwide to try and sell before their investments lose value, which means more inflation as the market is flooded with dollars that nobody wants. Basically, the value of the dollar is nothing more than a market bubble. When that bubble breaks, whether next year or in twenty years, we’re looking at hyperinflation that will snap this economy like a twig.

We might even prolong the myth of the American dollar long enough to come out of this recession. Or, we might not. If we do, all we accomplish is prolonging the day of reckoning and increasing the severity of the collapse.

I’m an optimist by nature, but also an amateur economist. We’ve gotten ourselves into a fix, and the political will doesn’t exist anywhere to get ourselves out of it. Nobody wants to face the problem.

I’m not expert in economics, but that seems to me like a VERY bad idea. More credit? That’s sugar-coated wording for MORE PERSONAL DEBT.

During this current economy, the last thing people should be doing is racking up even more credit card debt. Sure, if millions of Americans go out en masse and buy a ton of junk at Walmart and KMart and put it all on their credit cards, that might give a short spike to the economy, increasing “consumer spending” and demonstrating an increase in “consumer confidence.” But that’s also incredibly dangerous because when you buy junk on credit cards, you have to pay that money back plus interest. And if the economy isn’t doing well and people are already having to shovel every penny that comes there way towards paying the minimum balances on their credit cards, increasing that debt is only going to make matters worse in the long run.

Maybe the economists advising both presidents Obama and Bush know something I don’t, but it seems to violate common sense.

And on a related note, it seems like people who do have the money to spend (not on credit, but from their actual checking accounts) AREN’T spending. They may not be drowning in debt, but they are worried job security. (And some aren’t, but for whatever reason might think it’s unwise to be buying things during a recession, thus keeping the money from moving.) So they’re keeping their money in the same banks that are issuing credit to people who can’t afford it. And that money is being invested by the banks on Wall Street so that the banks can make that money grow (and pay the tiny 1% interest to the savings accounts).

I’m curious, Joe, what your thoughts are about all this.