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Net U.S. manufacturing investment was 0.08% of GDP in 2010
Howard Richman, 9/23/2011

Net investment in U.S. manufacturing (gross investment minus depreciation) was 0.08% of GDP n 2010 up from 0.02% in 2009, according to statistics released in August by the BEA. By way of comparison, in 2008, net investment in U.S. manufacturing was 0.41% of GDP, in 1996 it was 0.95%, and in 1981 it was 1.54% of GDP.

The fall in net manufacturing investment has been parallelled by a fall in net exports (exports minus imports), as shown in the graph below:

ManInvandTradeDef80to10.gif

It is our hypothesis (in our 2008 book) that falling net exports and falling net manufacturing investment were caused by foreign central bank accumulations of dollar reserves. Some economists mistakenly think that the money that these central banks lend to the United States, as a byproduct of these reserve accumulations, encourages investment in American production by driving down interest rates to near zero levels. Not so. Despite the lower interest rate, they reduce manufacturing investment by taking away investment opportunities.

The fall in both net exports and net manufacturing investment has been especially pronounced since 1996 when foreign central banks, led by the Asian Tigers, began their massive accumulations of dollar reserves. Since 2000, the People's Bank of China's dollar reserve accumulations have dwarfed everyone else's accumulations combined. 

These massive currency manipulations took away investment opportunities in the U.S. manufacturing sector. As a result, American manufacturing workers have not been getting the improved tools that would let them compete successfully in the global market place.

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  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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