Will infrastructure networks catch up with rebounding U.S. economy?
Get with the times.
For a nation that carries the greatest net worth ever generated by a historically dominant economic entity, the United States’ dilapidated overall infrastructure comes close to resembling that of second-tier countries struggling to catch up with the 21st century by leapfrogging the 20th.
With a 320-million-strong population, an unparalleled gross domestic product of $15.6 trillion and an overwhelming entrepreneurial independent business/industrial core unequaled anywhere in the world, it’s disgraceful that America’s roads, dams, bridges, railroad tracks, plus a 50-state pipeline complex to distribute its energy requirements to all corners comprising its massive energy distribution needs, is in such disrepair.
The last time such a nationwide undertaking was pursued with leadership vigor was in the early stages of the Roosevelt administration with the formation of numerous alphabet agencies (Works Progress Administration, Public Works Administration, Tennessee Valley Authority, Civilian Conservation Corps, etc.). Although this newly developed infrastructure actually exceeded the nation’s needs at the time of the deep depression, it proved sufficient to support America’s amazing ability to fight a major war against the world’s two leading military powers, Germany and Japan. This Atlantic and Pacific world war could not have fulfilled America’s “arsenal of democracy” without the mobility provided by America’s superb highway and pipeline infrastructure.
A second shot in the arm to upgrade what was then the beginning of a post-war political unraveling was President Eisenhower’s revamp of a 50-state highway system primarily for military purposes of a prospective “Cold War” with the Soviet Union turning hot.
Since that massive undertaking is now 50 years in the past, precious little has been done. With the U.S. population doubling and demand for the transportation of its resource needs exceeding even this growth percentage, the consequences of this lapse are starting to make themselves felt in a recovering economy.
As President Obama was expected to use the $1 trillion stimulus vested in him in February 2009 by a dominant Democrat House/Senate combine for infrastructural improvement, simulating the FDR example should have given both production and employment a major lift, but precious little was done at the depth of the Great Recession.
Instead, much of this huge currency influx was diverted to renewable energy experiments, such as biofuels, solar, wind power and geothermal in an attempt to displace fossil fuels, while putting ever greater emphasis on pushing through a national health-care plan during the next 18 months.
This now has left the U.S. threadbare in distributing its critical energy, power, food and other necessities throughout the 50 states. While electric power distribution is the most critical — the lack of which is ushering in increasing blackouts and brownouts as summer beckons — obsolete bridges, highways, dams and railroad tracks also are demanding restorative action. As this is written, there are few signs such a massive infrastructure initiative is in the making.
America: Emerging global energy power?
While the American energy industry’s current primary concern is with the restrictions and harassment of the Environmental Protection Agency and relevant financial regulatory agencies, the world’s leading Mideast, African and South American producers of natural gas as well as crude oil are voicing increasing concern with the anticipated generation of U.S. fracking-produced oil and natural gas. The global oil titans anxiously are expecting a surge of fracking-produced U.S. fossil fuels to flood the world markets within the next decade.
Even OPEC, primarily comprised of Mideast Islamic oil monopolies, is concluding that not only will the U.S. become the world’s most significant fossil fuel (coal, oil, natural gas) purveyor worldwide, but that the U.S. will no longer be leveraged by Mideast foreign policies supporting the region, as America has been doing since World War II.
Only Saudi Arabia, with what is considered the world’s largest, but unaudited world reserves of 265 billion barrels, is not yet concerned. While able to pump as much as 10 million barrels of crude a day, the Saudis have a relative sparse population of 25 million people with which to share its loot and the world’s lowest extraction costs of less than $10 per barrel. While using its punitive oil foreign policy weapon only once as a result of Israel’s defeat of Egypt and Syria in the wake of its American-supported Yom Kippur War victory, Riyadh (the capital of Saudi Arabia) believes the forthcoming American oil tidal wave will not inhibit the Saudis’ full utilization of their capacity. Additionally, Saudi Arabia’s foreign policy today is pretty much in step with America and its allies.
While demand in the emerging world, especially China, India, Indonesia, Philippines, etc., likely will elevate demand from today’s 90 million barrels daily to at least 120 million barrels per day by the mid-2020s, the oil and natural gas producers most concerned with U.S. fracking are the relative newcomers in western and eastern Africa and Venezuela. The latter is especially concerned due to its adversarial U.S.-related policies; but it still is today the U.S.’ most prolific foreign supplier, exceeded only by Canada’s oil sands-generated crude.
Iran/Iraq, which both economically and ideologically seem to be getting on the same bandwagon, can count on remaining a major supplier to China, India and Turkey. While writing off the U.S. for future export development, the Mideast oil powerhouses are especially concerned with America’s advantage of light-sweet crude, which is easier to refine. This will allow the U.S. to make available to most of the world its better alternative against the heavy-sour variety emanating especially from the Mideast oil fields.
Consequently, a future outlook for America as the No. 1 world fossil-fuel provider looks extremely bright, providing future U.S. governments will be cooperative rather than antagonistic to making this bright future happen.
“Insourcing,” the embryonic reversal of the massive U.S. manufacturing outflow that hit its peak in the 1990s and early in this century, is rapidly losing what little steam it had built up despite all the hoopla indicating a return to “Made in America” would become a significant antidote to the nation’s increasing structural unemployment.
Despite increasing costs from abroad, which includes shipment of goods to the U.S. from relocated American factories or U.S.-owned foreign subsidiaries, plus greater American sensitivity to top quality and inventory levels, the weak global recovery has muted worldwide demand. This has limited the scope and relevant employment additions of products returning to U.S.-based manufacturing sites.
The disappointing breadth and depth of the “insourcing” reversal also has impacted the torrid growth of exports, which together with fossil-fuel energy development have proven the mainstay of America’s economic comeback in 2011 and 2012. Also keeping the U.S. economy’s “head above water” have been the unexpected rebound in consumer demand, as well as the reasonably strong surge in housing and automotive sales.
While artificially low interest rates, abetted by the Federal Reserve’s ongoing purchase of U.S. treasuries as well as banks’ stagnant mortgage debenture derivatives, this positive economic impact is starting to slow as commercial interest rates are starting to inch up all over the world. Additionally, the anticipation of the Feds’ tapering its purchase of $85 billion-a-month treasury bonds and mortgage debentures now is expected to wane in 2013’s second half rather than in 2015 as originally anticipated.
Further adding to the continuity of unemployment are new entries into the employment market. These are not able to be absorbed due to the limitation of job openings, which will continue to magnify the overhang of unemployment. As the U.S. delves ever deeper into the sophistication of advanced technology as well as the embryonic beginnings of the cybernetic age, productivity is adding an increasing counterweight to personnel absorption.
With government agencies, especially the EPA, and financial regulations acting as employee-prevention organizations, it would take an unexpected reversal of today’s global economic outlook to substantially brighten the U.S. unemployment picture in the foreseeable future.
U.S. trade deficit shrinkage
While most of the nation’s economic concerns are riveted on continuing high unemployment, the slowing but still increasing deficit and a manufacturing sector that can’t accelerate, little credit is being given to U.S. exports, which are continuing to roar at a record $2 trillion annual pace, representing more than one-eighth of America’s world- leading gross domestic product.
But even though U.S. exports reached record all-time highs in late 2011, they have recently suffered slippage from their previous high point. March’s slight year-over-year drop in exports was the first since November 2009 (the depth of the Great Recession). A comparable 5.6% drop in U.S. imports was even worse, punctuated by shrinking offshore energy needs from abroad. Both exports and imports had been on a double-digit uptick in 2011 as world trade seemed to have reversed from the ravages of the worldwide slump.
To put the current international commerce into perspective, the World Trade Organization says global trade has averaged 5.3% a year the past two decades. Last year, international trade commerce as a whole rose only 2% and already has been downgraded to 3.3% from 4.5% in 2013. In the first post-recession recovery year, global trade jumped a torrid 14%.
Although U.S. exports have retained their $2 trillion annual average, late April trade-deficit figures, which now are averaging $40 billion at most compared to $65 billion in the 2007 pre-recession year, show both imports and exports are slowing.
The inevitable export flattening out due to the “European community” recession and the Chinese manufacturing slowdown has already had a depressing impact on U.S. manufacturing regeneration. This is reflected by a less than 50 index on the monthly Institute of Supply Management Report. Anything under a 50 is considered a drop-off.
China’s comparable numbers also dropped to 49.2, the lowest since last October. Even Chinese exports, including those from U.S. facilities’ production in that nation, resulted in slight drop-offs to America, but sharp downturns in shipments to Europe. This does not bode well for economic improvement in the months ahead, but there is enough internal development to keep American businesses’ heads above water.
However, the lingering fear of the Federal Reserve Board’s “tapering off” in the months ahead of $85 billion-per-month of U.S. Treasury debt offerings and mortgage-backed derivatives may prove premature.
While the end of the 2013 fiscal year is fast approaching, the relative tranquility of America’s economic dynamics and no further deterioration of unemployment may wake up to a more sinister reality by the Oct. 1 beginning of the new fiscal year.