Here I Stand

Here I Stand

Tuesday, November 20, 2012

Why the World Depends on the United States

Why the world depends on the United States (and the national debt isn’t really THAT big of a deal)
There has been a lot of talk in this election year about how so much of our national debt is owned by China that we are now in their pocket. Couple that with the mountain of debt that we have racked up – trillions upon trillions of dollars, and many people, especially in the far right wing category, would have you believe that the country is doomed. Now I am not saying that the vast national debt is a good thing, or that we are spending so much more than we are bringing in is a acceptable, but in the grand scheme of world economics and politics, it is really not that big of a deal.
The truth of the matter is that the world depends on the United States – true, China and a few other global powers are gradually eroding that dependence, but it is still there. A basic understanding of global economics tells us that there is a subtle balance in the world of monetary policy and international trade. I have posted before about how a decreased value of the US Dollar could actually be a good thing for a struggling economy, as it invites more foreign investment – firms looking for good deals, and American imports seem less expensive. This is of course, temporary, as any major shift in pricing is, and will be balanced out as the wave of investment and exports gradually drive the price of the dollar back up. Anyway, I digress.
China is a world power for many reasons, but primary among this is their international economy. Who buys all of the stuff that they make? India, Brazil, Europe, yes, all of these countries, but mainly the international economy of China is supported by the United States. Our rampant consumerism drives the world economy. Our oil usage, rivaled only by China’s, keeps money flowing to a part of the world that has really no other resource. Our largest export is financial services – we manage the money of most of the world (shame on you for thinking it was Swiss bankers this whole time… it is actually on Wall Street, and commissions on almost all of those trades go to US pockets, and pay US taxes) China is investing in the US not because it wants to exert influence over us (it does, but no one really has that power beyond a few concessions that their presence on the UN Security council would have gotten them anyway) but because it has a vested interest in the United States, and in its continued success. No, they are not actively rooting for us, but neither do they want to see us fail. Global hegemony does not really benefit anyone, and no one but a naive and childish tyrant would seriously pursue anything like that. Fortunately, the only ones out there who might think it is a good idea really can’t do anything about it.
Everything in the world is based on the US Dollar. Sure, things may have appeared to have shifted to the Euro in recent years, but look where a lack of monetary policy and nationalized economic regulations have gotten them? Dropping continuously in value until the Euro is currently not much higher than the Dollar – that exchange rate is basically artificially inflated anyway, and only because the US really doesn’t feel like arguing the point.
And the US credit rating… who does the World Bank think they are downgrading us like that? The truth of the matter is that all commerce in the world is based on the idea that the United States will pay its debts. This downgrading is pure posturing on the part of an international body that only exists at the whim of the United States anyway. If the United States all of a sudden went bankrupt, or, more realistically, declared that it could not pay its debts, the global economy would see a major hiccup. No one would really know what to do, and the result would be a debt forgiveness on a massive scale just to keep the US afloat, and supporting the global economy.
There has been talk of China “Calling in their debts” or owning more land in the US than the US government. Both of these scenarios are preposterous. China and other countries make too much money off of our debt, and the major stock holder of the United States has and will always be, the American people. Look at the number of treasury bonds and government securities that are bought and sold on a daily basis. Some are, of course, bought by Chinese companies and investors, but the majority are purchased by private citizens of the US like you and me (typically through proxy’s like mutual funds, 401(k)s, managed pension plans, and the like) if, for some inexplicable reason, China were to say “okay, pay up” the United States can, and probably would, simply answer “no”… and without any real recourse or action that China could take. Sanctions would be ruinous for both our nations, and military action is so futile and out of the question it barely merits mentioning. The same goes for the Chinese government owning land in the US. It is an investment to them, not a proprietary issue. They do not own us, and we have not been mortgaged to China.
I apologize if this appears xenophobic. It is only meant to be truthful. If America fails, the world fails, and the market has a way of correcting itself to keep anything like that from happening.
Am I frustrated by rampant spending at the expense of future budgets and infrastructure? Absolutely! Do I think that we can go on hemorrhaging money the way we have without some recourse? Of course not! But neither do I fall in with the doom sayers, cynics, and partisan politicians who would have us believe that our country is in its death throes due to a national debt. We are able to continue borrowing money on the international scene because we are a good investment. The day that stops being the case is the day we have slipped so far that we are no longer a credible world power. In this dire situation, which under a worst case scenario, would be many terrible decisions and no sooner than several generations from now, we would be forced to work with what we have, using the resources of American ingenuity, worth ethic, and capitalist values to pick our country up by its boot straps and once again gain prominence. This would be a terrible and extremely painful situation, that would take years to recover from – maybe even a generation or so, but it would not destroy us. We would get through it and thrive once again. That is just how we do things.
Though it is certainly ill advised and a poor idea, borrowing and spending money we do not have will not destroy this country. The only thing that will do that is when we fail to produce, when we fail to show our worth as a nation, when we are no longer held in awe and esteem – because make no mistake, we are. Even by our enemies. When foreign powers stop lending us money and stop investing in our infrastructure; THAT is when we need to worry – not when we are extended a seemingly endless, and potentially foolish, line of credit by the world at large.
The world depends on the United States. It has for nearly a century. If we fail, the world fails. Both the great depression and our current recession have had an impact on a global scale that prove just that. Of course, there are rivalries, intrigues, plot twists, and manipulations galore, but ultimately, we are all in this together.

Monday, November 19, 2012

Bad Business Decision of the Day: Carl's Jr. CSU-Long Beach Student Union

Bad Business Decision of the day: Carl’s Jr. CSU-LB Student Union
After work and before class the other day I went to Carl’s Jr. At school to grab a bite to eat. I ordered my food and asked for a small coke. The guy informs me that they are out of small cups, and they can only sell me a medium. Well, if they are out of small cups, through no fault of my own, should they not offer me a free upgrade? This seems logical, as it is clearly the responsibility of the establishment to provide what the customer wants, right? Apparently, this is incorrect. I was informed that the cashier cannot do that, as then they would be “losing money” on the deal, because clearly, the $.30 difference between the cost of a medium and the cost of a small eats too much into their profit margin. This makes sense… until you take into account that the profit margin on soft drinks is already ridiculously high, and one of the largest money makers for the fast food industry, and restaurants in general. There is typically a 5-600% markup on even a small coke.  This is the reason many fast food joints put in self service soft drink fountains – it streamlines the business process enough that they are still turning hire profits by allowing their staff to concentrate on speed of service and food processing (which has a dismal margin of around 6-8%) keeping in mind the free refills that this offers, it still does not erode profits enough for it to be regulated or controlled at the local level.
The free refills are of note, as I would have received roughly the same amount of coke no matter what size I purchased or was issued. The question then becomes, am I willing to pay the marginal cost between the small and the medium, for a product that is already marked up and I am loathed to pay restaurant pricing for in the first place? The answer is no, no I am not. I take a water and leave. The cashier, and likely the manager as well, who instructed him to try and sell people medium drinks instead of the smalls they requested are being penny wise and pound foolish – they missed out on a sale of $1.69 in order to push a sale of $1.99. They are left with only the sale of the very low margin food, without the extremely high margin soft drink to augment it. Moreover, with the marginal rate difference between what I wanted and what they tried to sell me, and the loss of the sale, it will take six more sales of an inflated medium soft drink (meaning people who wanted a small, but are willing to pay extra for the medium… not people who are buying a medium anyway) in order to make up for my one lost sale. They completely missed the big picture on this, and in the extremely low margin world of fast food, losing sales can quickly be compounded.
Customer loyalty is one of the most important features in the restaurant industry – it is far cheaper to keep a customer than to create a new one. I am not saying that I will never eat at a Carl’s Jr. again, but I was a bit disappointed in the lack of customer care. I will admit that the amount of ownership, however misguided, exhibited by the employee was impressive, but when you set up shop on the campus of a highly rated business school, be prepared for critiques of your business.