The biggest problem with our economy is that we are a consumer nation and no longer a producer nation. Our wealth is all paper wealth. It is not based on tangible commodities that we produce at home. America, however, is still the world's market. And that has implications worldwide.
Presently, American companies make their goods in foreign factories, increasingly using foreign, low paid labor. Those goods are then imported back into the United States at cheap prices and Americans buy them, their dollars flowing back out to overseas employees. Of course, American companies do also pocket a profit. That's why they outsource. The cheaper wages they can pay elsewhere provide higher profits for investors at home.
But high paying manufacturing jobs have dried up in the U.S. Now, increasingly, even decently paying service jobs are being outsourced. As our labor force shrinks, so does the market for the goods and services because most foreign workers can't afford them either. Their economies rely on the export dollars they get from the U.S. They don't necessarily buy the goods they produce. We do.
Americans are increasingly not only consumers but borrowers. Most of our purchases are made on credit cards and by going into debt with loans. In addition, ours is a debtor nation, because of our huge deficit.
Recently, South Korea merely suggested that it was going to diversify its currency investments. Since the American dollar is already falling because of all this debt, it caused a plunge in the markets for a few days. More and more, the U.S. is at the mercy of creditor nations who lend us the money to finance our consumption of goods. The same nations that are our creditors are also the nations that actually produce our goods. They have the manufacturing base that we no longer have in our country. And we are in debt to them.
Someday this house of cards is going to fall and fall hard.