Stocks mostly recovered from their 777 point plunge. By late afternoon on Tuesday, the Dow gained almost 500 points. But apparently, the credit markets have tightened significantly with many banks increasing the short-term lending rates. Mostly Central Banks are providing cash to the market right now, the banks are in, as they say, “hoarding mode.”

Amid all the hoopla surrounding the failed bailout, little was mentioned of the Commerce Department releasing August consumer spending and income data. Looking at these numbers, it’s pretty obvious why the majority of the Americans were less than enthusiastic about being asked for $700 billion. Inflation rose at its fastest annual pace in more than 13 years. US consumer spending was flat in August despite a larger-than-expected increase in personal income. But after adjusting for inflation and taxes, real disposable income fell 0.9% in August, the third consecutive monthly decline for U.S. adjustable income.

Manufacturing sector continues to be hard-hit: while payrolls of most private employers increased by $24.5 billion in August, payrolls in the manufacturing sector fell $1.6 billion from July.

The markets went down, down, down yesterday, as it became apparent that the Treasury bailout plan was not going to have enough votes in the House to pass. There is a variety of opinions about the reasons behind this spectacular failure, but one thing remains undisputed, there was no support for the plan among the public. American voters seemed to reject the notion that they have to bail out anyone—be it the investment bankers on Wall Street, or the people down the street who overextended themselves financially, living way above their means.

The Dow Industrial and other exchanges regained some of yesterday’s 8% at opening today. The President made another plea to the lawmakers to pass the plan in some shape this week, and they still might.

But, nobody can say with certainty what the effects of this bailout on the economy and the average American will be. Few people understand the details of the plan itself (even Secretary Paulson, failed to explain to the lawmakers’ satisfaction how the plan will be implemented), and fewer still trust the current Administration or Congress to fix the economy.

More importantly, the fundamental question remains: what economy are we trying to fix? There is no shortage of opinion pieces these days that describe what’s wrong with our economy thusly. This is the economy that has operated on debt for the last two decades. Since the shift from an industrial economy to the service economy, we are producing more and more sophisticated debt instruments that we trade back and forth for ever-increasing “value” instead of producing and trading goods. But we still like to purchase goods in our consumption-driven society, we just buy them from oversees with “money” we borrow, that our lending institutions are only too happy to lend us. How has this been possible for so long? We sell our debt to foreign countries, who for a long time assumed that we are good for it.

But it looks like the American economy is about to crash under the weight of our IOUs and soon our debtors will be taking a second look at our ability to pay back. The dropping value of our currency is the indication of that. The debt party is over. And we need to get back to the fundamentals: the financial system that exists to support our industry and other businesses and not to crank out phantom “financial products” and bamboozle the rest of the market participants into becoming addicted to easy credit not backed up by anything that human hands have touched.

Monday morning brings more news of “near-collapse” in the banking sector. This time, Wachovia Corporation is on the death-watch. Wachovia will be sold to the Citigroup, and more and more of Americans’ deposits will be concentrated in just a handful of banks. Let’s hope none of them fails next.

Meanwhile, lawmakers and the Administration have reached an agreement on what the bailout plan should look like. The plan will come up for vote today around 12:30 EDT. The pressure on many members of Congress is great to vote against the bill. Lawmakers are inundated by angry calls and correspondence from their constituents, who don’t like the idea of bailing out Wall Street one bit.

Sarah Palin, GOP’s VP candidate gave an interview to CBS evening news recently in the run-up to her debate with Democratic VP candidate, Joe Biden this week. The reviews of her performance have been, shall we say, mixed. From questions on foreign policy to the current economic crisis, Ms. Palin’s responses have been described as “nonsense” and “gibberish.”

Here’s what Palin said about trade, for instance: “And trade, we’ve got to see trade as opportunity, not as a competitive, scary thing. But one in five jobs being created in the trade sector today, we’ve got to look at that as more opportunity.”

Trade is not a “competitive, scary thing” says Sarah Palin… well, actually, it can be both. Take for instance, the melamine-tainted milk from China story we’ve been following for a couple of weeks. The use of this industrial chemical as an additive in agricultural products is rampant in China. Despite lip-service to international product safety standards from Chinese officials, nothing is done to stop it. Most of the products we buy for everyday consumption have been made from ingredients manufactured outside of our countries, even though a product can be technically labeled as a domestic product, as is the case in Canada. The consumer has no way of knowing if the products she buys at the supermarket or the pharmacy might have a dangerous ingredient that could sicken her, or her kids, or her pets. Companies around the world, like the British chocolate-maker Cadbury, are starting to recall their products with Chinese-made ingredients, because they are not willing to risk the health of their consumers.

I guess I’m not the only one who finds outsourcing the quality of our food to countries that don’t hesitate to use industrial chemicals to increase profits and lie about it until they are caught red-handed, pretty scary indeed.

The Boston Globe’s Brian Mooney wrote a terrific piece summarizing the difficulties that U.S. producers of steel pipe and tube have faced when competing with China.  And he quoted AAM’s very own Mickey Bolt.

  Mickey offered a very good assessment of China’s subsidized trade practices: “In late 2005, early 2006, the Chinese were selling galvanized, finished, threaded pipe for about $580 a ton,” Bolt said. “My company [Wheatland Tube] was paying $600 a ton for steel and $200 a ton for zinc, and and they hadn’t turned on the furnace and a worker hadn’t walked in the door yet. The only way the Chinese could do that was by government subsidies, government interference in the market.”

Simply put, as Mickey succinctly observed, “we were competing with the Chinese government.”

This is the crux of the matter–U.S. companies playing by the rules while China cheats– employing subsidies, dumping, and currency manipulation in order to artificially lower their price.  No matter that all three practices violate accepted rules of world trade and distort the open market.  China aims to lower their price by any means necessary…

The flip side then, is that Congress and the Administration must enforce U.S. trade laws to address this cheating.  The U.S. has trade laws on the books, and they exist for a reason–namely, to ensure a fair market.

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On Wednesday night, ManufactureThis watched the premiere of the new version of Knight Rider, and was pleased to see one positive similarity to the original: the fact that the real star of the show, KITT, is an American car.

The new KITT.

The original Knight Rider featured a Pontiac Firebird TransAm in the role of KITT, but Pontiac stopped making the Firebird in 2002. I’m just saying, the TransAm was iconic in the days of Knight Rider, when they were built in Van Nuys, CA and Norwood, OH. In 1993, Pontiac shifted production to Canada after making them in America for 26 years. Now the car doesn’t exist…

The Original…RIP.

When the time came to choose a car to star in the new version, ManufactureThis is glad to see that the producers kept up the proud tradition by selecting the Ford Mustang as the new KITT. The Ford Mustang is made here in America in Flat Rock, MI (which we will henceforth be calling the CrimeFightingSuperCar-Basket of America) by union workers from the United Auto Workers.

Now, I don’t want to cast aspersions on other, foreign-made CrimeFightingSuperCars that are used to fight nefarious plots by super villains (coughBondcough), but doesn’t it seem to anyone else like the car is usually ancillary to the actual foiling of those plots? Moreover, doesn’t it seem like they get destroyed pretty often?

Foreign-made CrimeFightingSuperCar unable to stay on the road in Casino Royale.

CrimeFightingSuperCars that are Made In America, however, are always central to preserving our way of life!

You know by now that John McCain has suspended his campaign and called for postponing Friday’s presidential debate in Oxford, Mississippi.

ManufactureThis is hoping the debate proceeds as scheduled, because we think the next president should be able to walk and chew gum at the same time.

And here are some questions we’d like the candidates to answer on Friday evening:

How will you save American manufacturing jobs? 

What steps will you take to enforce our trade laws and hold cheating countries like China accountable?

What questions would you like to ask the candidates?

Reuters reports that Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to “prevent possible losses during the financial crisis.”

According to the South China Morning Post, the “decree appears to be Beijing’s first attempt to erect defences against the deepening U.S. financial meltdown after the mainland’s major lenders reported billions of U.S. dollars in exposure to the credit crisis reported on Thursday.”

  This would mark an interesting turn of events since United States gets much of its credit from Chinese banks.  It seems a fairly routine cycle: the U.S. government runs a deficit and attracts loans by selling bonds to foreign banks.  Likewise, U.S. consumers purchase goods from abroad.  The dollars they’ve sent to China help Beijing’s banks purchase domestic U.S. assets.

In this fashion, the U.S. economy has become intertwined with that of China–which leads one to wonder if such deep dependence on foreign credit is a wise course.

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The President stepped into the limelight last night to speak directly to the nation about the financial crisis and the proposed measures to rescue the U.S. economy. He sought to calm the public about the prospect of doling out $700 billion of their money by saying the government will purchase the assets to unburden the struggling financial institutions at a low price, hold them, until the value of the assets goes up, because “the government is the one institution with the patience and resources” to hold these assets “until markets return to normal,” and then sell them at a high price, so that the tax payers will be repaid. Sounds straight forward enough, but then again, President Bush is the master of simple explanations, that don’t quite turn out to be accurate in the long run.

As Secretary Paulson continues to press his case to the lawmakers, his “Cashmere Hat in Hand” (as Dana Milbank at the Washington Post put it), he still prefers to stay away from the particulars and too much explanation of what’s going on, he’d prefer the Congress to just leave it up to him. “I don’t like to be in this position, asking for things and, you know, answering to the American taxpayer,” said the Treasury Secretary while testifying before Congress.

But, you know, Mr. Secretary, if you want us to give you $700 billion, aren’t we owed an explanation? What exactly are we buying with the said $700 billion? What exactly are these assets that the Wall Street is urgently trying to unload worth? Examples are the Bear Stearns bonds. There were 37 kinds of these bonds that BS created by bundling Alt-A (read “subprime”) loans. The bonds were ranked by varying levels of risk and sold to investment banks, hedge funds and insurance companies. Many of these B.S. bonds– initially with a triple-A rating!–were downgraded to junk bonds just last week. Who knows what the rest of them will be worth next week? And this is the “troubled assets” of just one company, and these types of bonds were not even the most complicated investment products peddled by Wall Street honchos. With who-knows-how-many-more mortgages that represent the intrinsic value of these “investment products” going into foreclosure in the coming months, how will we ever determine what to pay for them today, and who can be certain that they will ever be worth more than they are “worth” now?

The unsettling financial developments are happening in the climate of an already weak labor market. The Labor Department reported today that the initial unemployment claims rose 7% in the third week of September. Most economists agree that we will surpass the latest unemployment figure of 6.1% reported for August, as the job losses in the financial sector contribute to the overall numbers of unemployed.

Lack of oversight, untamed greed… you think I’m still talking about the Wall Street debacle? No, it’s the Chinese tainted milk scandal that has affected more than 60,000 people and claimed lives. NPR reported this morning about a milk station operator who first blew the whistle on the practice of adding industrial chemicals to dairy products in China in 2005. According to the report a kilo of milk could sell for four times its value after chemicals were added. When asked how the practice of doctoring milk could have continued for so long, the whistleblower, Jiang Weisou, blamed a conspiracy of silence, a lack of corporate oversight and untrammeled greed.

  A study released this week by the U.S. Business and Industry Council (USBIC) found that economic growth in many key battleground states has been sadly lacking in the past 10 years.

The study examined 1997-2007 growth rates for major economic sectors in eight industrial states that will figure prominently in this year’s national elections: Illinois, Indiana, Michigan, Missouri, North Carolina, Ohio, Pennsylvania, and Wisconsin. 

According to the study’s author, Alan Tonelson, these states saw only sluggish growth in manufacturing.  Nationally, manufacturing was also the single slowest-growing sector, rating barely a third of the overall national growth rate.

By contrast, the fastest-growing sectors in these states’ economies and the U.S. economy from 1997 to 2007 were healthcare and social assistance, real estate, construction, administrative and waste services, and government.

What’s clear is that manufacturing has faltered in the battleground states, taking with it many good-paying jobs– a ripe issue for the fall election. 

The USBIC report deserves wide attention because it goes beyond the well-established point that manufacturing is losing record numbers of jobs.  It focuses on the performance of the industries that actually create the jobs to begin with, and finds that their growth rates have been dismal as well.  This focus on growth rates also puts the lie to outsourcers’ arguments that domestic manufacturing ‘only’ faces a jobs crisis — that results overwhelmingly from high productivity.  The productivity comeback can’t possibly explain the sector’s apparent growth crisis.
 
The USBIC report also makes clear that manufacturing and other sectors of the industrial state economies most heavily affected by globalization and U.S. trade policy have been the growth laggards by far.  The growth winners are mainly sectors like health care, construction, real estate, and government — which have almost nothing to do with the global economy or trade policy — or sectors still only modestly affected by globalization — like finance, retail and wholesale trade, and professional and technical services.
 
So clearly whatever growth these politically critical states have achieved during the last decade have come in spite of U.S. trade policies, not because of them.

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  China has amassed $1.8 trillion in foreign currency reserves, the happy byproduct of their continuing global trade surplus.

A big checkbook means lots of disposable income, though, and it seems that Beijing has spent some of it recently on their vastly ramped up space program.  On Thursday they will launch their third manned space mission.

If U.S. consumers want to know where their money is going, they need look no further than the skies above Beijing.

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