The U.S. environmentalists are ecstatic about the handshake, non-binding agreement between Presidents Barack Obama and Xi Jinping to reduce carbon dioxide emissions. In reality, the Chinese have merely agreed to follow their existing energy strategy of replacing coal with natural gas and nuclear power. President Obama proposes a 28 percent reduction in carbon dioxide emissions, which will impede U.S. economic recovery and deflect action from our underlying economic problems that neither the new Republican Congress nor the president will touch: flawed debt and trade policies.
The Fed announced recently that it was ending the largest ever Keynesian experiment of quantitative easing that created fiat money to buy U.S. Treasury bonds and mortgage backed securities. More than $4 trillion of stimulus had little effect on the economy. After six years, 29 states have fewer jobs than in 2008.
Economic growth was concentrated in the energy industry. At the center of the recovery Texas added 1.1 million jobs benefiting from developments in fossil fuels production technology. Without Texas the country would be 350,000 jobs below the 2008 peak. North Dakota's Bakken oil field plus natural gas fracking in Oklahoma, Ohio and Pennsylvania added to job growth as well as reviving the steel fabrication industries for drill pipe and rail cars to transport crude from North Dakota. In addition to job creation, the new crude and natural gas production has drastically reduced the foreign exchange drain that is starving the nation's economy. This increased domestic crude production has caused a 25 percent drop in crude oil prices over the last four months, which will benefit every consumer directly and indirectly with lower energy costs.
In spite of the increased U.S. petroleum production, where imports fell to the lowest level since 2009, the deficit is growing wider. September imports of manufactured products from China increased 13 percent to an all time high, and the trade deficit rose to $35 billion — also a record. Exports to Europe swung from a 4 percent increase in August to a 7 percent drop in September.
Our trading partners practice mercantilism — maximizing exports and restricting imports — while we naively continue a free trade policy. We allowed imports of consumer goods without reciprocity which resulted in massive job losses since 1970. The U.S. continually runs a current account deficit, which was $400 billion over the last 12 months. Germany and China dominate European and Asian economies with current account surpluses of $280 billion and $170 billion respectively during the same period. Simplistically, the moribund U.S. economy is suffering an annual loss of cash that is about equal to gains by the world's two strongest economies.
Our national debt continues to expand uncontrolled and is now reported as $18 trillion with an additional $50 trillion in unfunded liabilities for Social Security and Medicare. Holding $3 trillion in U.S. paper in 2008 China was worried about the dollar's future viability. In the last six years, they have transformed their blocked yuan into an international currency, developing agreements with Latin American and East Asian trading partners and oil producers to settle trade balances in yuan rather than U.S. dollars. They recently opened the Asia Infrastructure Investment Bank to compete with the World Bank and intend to replace the dollar with the yuan as the world's reserve currency.
Losing World War I, Germany was forced to pay massive reparations while dealing with internal economic stimulus, and the Reichsbank used an early version of the Fed's quantitative easing practices. In two years they created hyperinflation which drove the Mark to 4 trillion per dollar; economic chaos ensued, the Weimar Republic collapsed, and the Nazi party gained power and set the stage for World War II.
There are options for us. Accelerated development of conventional domestic energy resources and transportation facilities — oil, gas, coal and nuclear power; Tesla electric automobiles; and high speed electric rail — will eliminate energy imports.
In 2003, Warren Buffett proposed a method to eliminate the growing U.S. foreign exchange deficit in manufactured goods. The proposal in no way inhibits trade — there are no quotas, tariffs or limits on foreign investment in U.S. manufacturing. Senators Byron Dorgan and Russell Feingold converted Mr. Buffett's proposal to a bill named the Balanced Trade Restoration Act. It was not enacted.
Energy independence plus the Buffett balance trade proposal will eliminate the foreign exchange deficit, increase U.S. employment, reduce the internal debt and strengthen the dollar. Following the president's green initiatives coupled with free trade will impede economic growth: China will continue to strip wealth out of the U.S. with low cost labor and eventually dominate the world order; the yuan will become the world's reserve currency replacing the dollar; and ultimately we become Weimar II. With a weakened U.S., global conflict is far more dangerous than CO2.