What makes American economy great?

I think the U.S. is still very strong in the agricultural front. Doesn't Japan still get a lot of its from the U.S.? As far as service, tell me what cost more, the can opener that you buy in the dollar store or the britney spears CD you buy? U.S. pop culture is a huge money maker everywhere. The U.S. is still very productive in it's high tech industry. They manufactured the stuff overseas for cheap labors, but then sell it around the world to people who can afford it at a higher price. Insane margins.

It's definitely in a little bit of trouble because of the trade defecit and the inability of the past few presidents to right the ship. But it's mroe of a case like Ford closing down the U.S. plants and move them to Mexico. The companies are still own by Americans to make money for Americans. The money made overseas might be spend on domestic services.

While I think if the recent trend continues for the next 50 years, the U.S. might be faced with some serious needs and problems. But it should still be able to keep itself afloat for a while.

 

The US economy is the strongest in the world because we ARE a service economy.

The standard of living and GDP per capita is very high because of the productivity of each person (average) in the USA. Agricultural harvesting and more physical labor work is not as valuable as consulting, healthcare, technology and other areas the US is becoming the leader in.

As we shift to more service oriented business, our lifestyle, strength and economy will rise even more.

 

In short, Innovation and Dollar.

 

the first word is right. innovation. a market that fosters it...encourages it..in all sectors of the economy. and a culture that values hard work...even though that carries with it personal costs.

 

The innovation is where the true value is created. Software, new technology for hardware and information technology is the areas of strength.

If the technology and idea create chips the size of a penny that are more powerful than anything out there, that is the value, not having them assembled in Sri Lanka.

That is also a two-fold situation for us in the US. We live a higher standard of living but must be more productive in the workplace to ensure we can live up to the levels of this society. Service industries have the highest margins. Though Coca Cola has plants worldwide, its brain and the majority of its earnings are in the US. Though its not as tangible and direct as you would like, its whats causing the boom in our economy.

Service industry makes money, that is how we pay for goods. Do you know what Nike makes?? NOTHING. Nike is an image that is created and they pay plants to make the shoes as to their requirements. But their margins are the highest because they are the brains.

 

Don't discount the available credit in this country. I'm not sure how many countries have our credit system where someone with no savings, making $60k/year can buy a $200k house with not too much hassle.
Same thing with starting a business. If you have decent credit and cash equivalents of 20% of the loan value you ar ein business.

 

This an article pippendagimp posted a while back

http://www.feasta.org/documents/papers/oil1.htm


Cóilín Nunan: Oil, Currency and the War on Iraq


It will not come as news to anyone that the US dominates the world economically and militarily. But the exact mechanisms by which American hegemony has been established and maintained are perhaps less well understood than they might be. One tool used to great effect has been the dollar, but its efficacy has recently been under threat since Europe introduced the euro.

The dollar is the de facto world reserve currency: the US currency accounts for approximately two thirds of all official exchange reserves. More than four-fifths of all foreign exchange transactions and half of all world exports are denominated in dollars. In addition, all IMF loans are denominated in dollars.

But the more dollars there are circulating outside the US, or invested by foreign owners in American assets, the more the rest of the world has had to provide the US with goods and services in exchange for these dollars. The dollars cost the US next to nothing to produce, so the fact that the world uses the currency in this way means that the US is importing vast quantities of goods and services virtually for free.

Since so many foreign-owned dollars are not spent on American goods and services, the US is able to run a huge trade deficit year after year without apparently any major economic consequences. The most recently published figures, for example, show that in November of last year US imports were worth 48% more than US exports1. No other country can run such a large trade deficit with impunity. The financial media tell us the US is acting as the 'consumer of last resort' and the implication is that we should be thankful, but a more enlightening description of this state of affairs would be to say that it is getting a massive interest-free loan from the rest of the world.

While the US' position may seem inviolable, one should remember that the more you have, the more you have to lose. And recently there have been signs of how, for the first time in a long time, the US may be beginning to lose.

One of the stated economic objectives, and perhaps the primary objective, when setting up the euro was to turn it into a reserve currency to challenge the dollar so that Europe too could get something for nothing.

This however would be a disaster for the US. Not only would they lose a large part of their annual subsidy of effectively free goods and services, but countries switching to euro reserves from dollar reserves would bring down the value of the US currency. Imports would start to cost Americans a lot more and as increasing numbers of those holding dollars began to spend them, the US would have to start paying its debts by supplying in goods and services to foreign countries, thus reducing American living standards. As countries and businesses converted their dollar assets into euro assets, the US property and stock market bubbles would, without doubt, burst. The Federal Reserve would no longer be able to print more money to reflate the bubble, as it is currently openly considering doing, because, without lots of eager foreigners prepared to mop them up, a serious inflation would result which, in turn, would make foreigners even more reluctant to hold the US currency and thus heighten the crisis.

There is though one major obstacle to this happening: oil. Oil is not just by far the most important commodity traded internationally, it is the lifeblood of all modern industrialised economies. If you don't have oil, you have to buy it. And if you want to buy oil on the international markets, you usually have to have dollars. Until recently all OPEC countries agreed to sell their oil for dollars only. So long as this remained the case, the euro was unlikely to become the major reserve currency: there is not a lot of point in stockpiling euros if every time you need to buy oil you have to change them into dollars. This arrangement also meant that the US effectively part-controlled the entire world oil market: you could only buy oil if you had dollars, and only one country had the right to print dollars - the US.

If on the other hand OPEC were to decide to accept euros only for its oil (assuming for a moment it were allowed to make this decision), then American economic dominance would be over. Not only would Europe not need as many dollars anymore, but Japan which imports over 80% of its oil from the Middle East would think it wise to convert a large portion of its dollar assets to euro assets (Japan is the major subsidiser of the US because it holds so many dollar investments). The US on the other hand, being the world's largest oil importer would have to run a trade surplus to acquire euros. The conversion from trade deficit to trade surplus would have to be achieved at a time when its property and stock market prices were collapsing and its domestic supplies of oil and gas were contracting. It would be a very painful conversion.

The purely economic arguments for OPEC converting to the euro, at least for a while, seem very strong. The Euro-zone does not run a huge trade deficit nor is it heavily endebted to the rest of the world like the US and interest rates in the Euro-zone are also significantly higher. The Euro-zone has a larger share of world trade than the US and is the Middle East's main trading partner. And nearly everything you can buy for dollars you can also buy for euros - apart, of course, from oil. Furthermore, if OPEC were to convert their dollar assets to euro assets and then require payment for oil in Euros, their assets would immediately increase in value, since oil importing countries would be forced to also convert part of their assets, driving the prices up. For OPEC, backing the euro would be a self-fulfilling prophesy. They could then at some later date move to some other currency, perhaps back to the dollar, and again make huge profits.

But of course it is not a purely economic decision.

So far only one OPEC country has dared switch to the euro: Iraq, in November 2002,3. There is little doubt that this was a deliberate attempt by Saddam to strike back at the US, but in economic terms it has also turned out to have been a huge success: at the time of Iraq's conversion the euro was worth around 83 US cents but it is now worth over $1.05. There may however be other consequences to this decision.

One other OPEC country has been talking publicly about possible conversion to the euro since 1999: Iran2,4, a country which has since been included in the George W. Bush's 'axis of evil'.

A third OPEC country which has recently fallen out with the US government is Venezuela and it too has been showing disloyalty to the dollar. Under Hugo Chavez's rule, Venezuela has established barter deals for trading its oil with 12 Latin American countries as well as Cuba. This means that the US is missing out on its usual subsidy and might help explain the American wish to see the back of Chavez. At the OPEC summit in September 2000, Chavez delivered to the OPEC heads of state the report of the 'International Seminar on the Future of Energy', a conference called by Chavez earlier that year to examine the future supplies of both fossil and renewable energies. One of the two key recommendations of the report was that 'OPEC take advantage of high-tech electronic barter and bi-lateral exchanges of its oil with its developing country customers'5, i.e. OPEC should avoid using both the dollar and the euro for many transactions.

And last April, a senior OPEC representative gave a public speech in Spain during Spain's presidency of the EU during which he made clear that though OPEC had as yet no plans to make oil available for euros, it was an option that was being considered and which could well be of economic benefit to many OPEC countries, particularly those of the Middle East6.

As oil production is now in decline in most oil producing countries, the importance of the remaining large oil producers, particularly those of the Middle East, is going to grow and grow in years to come7.

Iraq, whose oil production has been severely curtailed by sanctions, is one of a very small number of countries which can help ease this looming oil shortage. Europe, like most of the rest of the world, wishes to see a peaceful resolution of the current US-Iraqi tensions and a gradual lifting of the sanctions - this would certainly serve its interests best. But as Iraqi oil is denominated in euros, allowing it to become more widely available at present could loosen the dollar stranglehold and possibly do more damage than good to US economic health.

All of this is bad news for the US economy and the dollar. The fear for Washington will be that not only will the future price of oil not be right, but the currency might not be right either. Which perhaps helps explain why the US is increasingly turning to its second major tool for dominating world affairs: military force.

 

In other words we produce something that almost everyone else wants and it doesn't cost us anything.

The dollar.

When other countries stop wanting it, we are in deep doo doo.

 

One thing about the Euro... it seems a popular alternative to the dollar especially since these days Europe seems to be more of an international "team player" than the US. However, the US will always be a single "entity" with a common leadership and economy. Europe is a collection of countries that (for the most part) speak different languages and have different cultures. There is no guarantee that the EU will hold up over time or that it's membership will be stable. There is no risk like that with the US.

Plus the US economy is in better shape then most of Europe's (at least the major countries like Germany and France). We have lower interest rates and lower unemployment and better growth. Germany recently posted the highest unemployment rates it's seen in long time (ever?).

So, the Euro gives the rest of the world a bargening chip with the US that they never had but I don't think (at least I hope) that the Euro will ever be as trustworthy as the dollar is unless things significanly change in the future (i.e. Europe almagamates under one government).

 

It's more popular than the dollar because its value is not dropping like a stone.

 

Economics 101 tells us the basis of any economy are Land, Labor and Capital. Historically the US has had an umlimited supply of land since the nation was founded only 300 years ago on a vast and virtually uninhabited continent. We have had a stong labor component because as an empty nation, we could allow almost unrestricted immigration to provide a self-renewing source of cheap labor. And, though the US did not invent Capital Markets, no nation has every exploited the capacity for exponential growth provided by stocks, bonds and banking like we have.

Also,liberal laws on bankruptcy promote risk taking, The federal government's supports growth in the housing markets through quasi-governmental guarantees and in general it is in the culture of American government to promote economic development .

We have a stable govermental system that is unlikley to be overthrown. We are superpower that is unlikely to ever be invaded. And we have a comprehensive and somewhat independent oversight system that keeps our banks regulated so they are unlikely to ever fail en mass.

That all could change over the course of history however, for the forseeable future, two or three generations it, probably won't. There will be cycles within this period though that from the short term perspective will look like crises.

 

Our dollar and its reserve currency status affords the American people a higher standard of living than can be normally achieved, but without it and our debt burden, we would still be a world leader in wealth and prosperity. In the mid 90s, there were some economists who warn against eliminating too much debt because that would endager our reserve currency status. A trillion dollar plus debt creates supply in American bonds, and investors like the appeal of America's economy and stability. It's one of the reasons why our dollar is overvalued right now. Another reason, the inept and corrupt accounting of Asian banks, is partially the cause of why the dollar's value hasn't plummeted. They hold too much in reserve that any slight moves in diversifying funds will create a panic driven sell-off. Meanwhile, American consumers are spending and passing the buck to their children and children's children....

The three pillars of our future economy will be innovation, sustaining the entreprenuerial spirit, and improving education.

Foreign born college students have been the staple of the American economy and will continue to do so if America offers the atmosphere freedom and flexibility to pursue an individual's dreams. Typically it has been that America innovates, Japan improves, and Europe largely follows. It's why a lot of our inventions have been designed by nationalized immigrants.

The introduction of China as a manufacturing giant, and India as an IT giant does change things, but America has shown the tendency to adapt. The Rust Belt in the early 90s was a pronounced response to the competitive wave of international manufacturing and the loosening of world trade. However, the internet and innovations from making money out of established ideas helped restructure many of those lost jobs. The net revolution was made possible by improvements in our infrastructure, like roads, ports, and optical lines, and also by the venture capitalist spirit that is fostered by our entrepreneurs.

Future changes will be new competitive threats in emerging countries like Argentina, Brazil, Indonesia, and India along industrialized countries in the fields of nanotech and biotech. Our education system and infrastructure needs an overhaul to keep our country competitive. Yet it will seem like a waste of money to our present politicians because of the lack of tangible gains. If the gains were tangible, innovation would have a whole different meaning.

 

Hmm, that might be a bit of a self perception out of proportion with reality there But a good post.


My favorite quote that came out of the Texas Saving and Loan scandals of the mid 80's was by some scalawag developer, it went " if you owe the bank 2 million dollars, they own you. If you owe the bank 200 million dollars , you own the bank"

I guess if we owe the peoples of the world trillions of dollars we own them. They have as interest in maintaining the stability of the dollar as we do. China certainly does, even to the point of artificially pegging their currancy to ours.

 

I also want to add that the finacial industry and other industry with infrastructured will be in big demand as consultants once the other developing country gets more developed.