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Economic MAD approaching its logical conclusion?

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  • astonas
    replied
    Re: Economic MAD approaching its logical conclusion?

    Originally posted by Brooks Gracie View Post
    This analysis is simply wrong. The US suffered from Smoot-Hawley because it was the world's largest net exporter at the time. That situation is turned on its head now. The only things we export are now food and weapons. Tariffs are inapplicable to these goods. China wants to starve its people in exchange for being able to export plastic toys profitably?
    I'm intrigued by your thesis. What percentages of the U.S.'s exports do you believe is immune to the effects of a trade war? And could you also flesh out the idea that net importers do not suffer, but benefit, from a trade war? These assertions are not obvious to me.

    Leave a comment:


  • Brooks Gracie
    replied
    Re: Economic MAD approaching its logical conclusion?

    This analysis is simply wrong. The US suffered from Smoot-Hawley because it was the world's largest net exporter at the time. That situation is turned on its head now. The only things we export are now food and weapons. Tariffs are inapplicable to these goods. China wants to starve its people in exchange for being able to export plastic toys profitably?

    Leave a comment:


  • jk
    replied
    Re: Smoot-Hawley did not cause the crash or depression

    Originally posted by FRED View Post

    your yield curve implies that the discount rate is going to go up over 1000bps within the next 12 mos. exciting times? seems to me this can't happen without the dxy going to about 50 or lower, again within the next 12 mos. gasoline at $6-7/gallon. you really expect things to happen that fast? this process has heretofore unfolded at a stately pace. what's going to accelerate it so sharply?

    Leave a comment:


  • FRED
    replied
    Re: Smoot-Hawley did not cause the crash or depression

    Originally posted by FondoFinder View Post
    Hola,

    Would an expected yield curve going Back to the Future 30 years from now be asking too much?

    You guys have a car like that, right?

    The current yield curve is what it is:

    http://www.bloomberg.com/markets/rat...ment-bonds/us/

    but what would it look like based on Poom?

    Leave a comment:


  • FondoFinder
    replied
    Re: Smoot-Hawley did not cause the crash or depression

    Hola,

    Would an expected yield curve going Back to the Future 30 years from now be asking too much?

    You guys have a car like that, right?

    The current yield curve is what it is:

    http://www.bloomberg.com/markets/rat...ment-bonds/us/

    but what would it look like based on Poom?

    Leave a comment:


  • Chris Coles
    replied
    Re: Economic MAD approaching its logical conclusion?

    Originally posted by charliebrown View Post
    Its just too expensive to produce anything here, and I really don't know why.
    I live in the burbs of chicago, and am an engineer by trade. Lets say I live a suburban austere lifestyle.

    house is 200K, that is the oldest smallest house in my neighborhood. 1200sq ft. built in the 50's, finance 80% at 5%
    here are my austere costs
    mortgage $8000
    prop taxes $5000
    utilities $2000
    maintenance $1000 if your handy
    car $1500 if you buy cheap and drive it into the ground
    insurance $1000 auto/home
    health/med $3500 employer sponsored with 1K in out of pocket expenses.
    food $2500 family of 4 eating frugally.
    clothing $1000 bargain clothes, resale, etc.
    gasoline $1000 one tank a week.

    Ok, so we have 30K of expenses. Of course 30K is a big enough income to tax, so throw in payroll, federal, and state income tax and we might be looking at 33K - 35K in gross wages for this minimal existence.
    There is no cable, no cell phones, no ipads, no enterainment no meals out, no education expenses only food, clothing, shelter transprotation and medicine. Heaven help you if you get sick and have out of pocket expenses.

    Now how many chinese workers will this employ?

    This is only the wage side of the equation.
    What about my employer's cost of me working?
    Insurance, employers portion of health, unemployement payroll taxes etc.
    What about their cost of capital, utilities real-estate, cost of machines etc.

    At these prices how can we compete?
    The cost structure needs a reset.
    At these cost structures the US, indeed the entire Western economy competed very well indeed until the idea fell about that the way to make money was not to employ Western savings invested into Western manufacturing companies; but instead, that more money was to be made by the INVESTING INSTITUTIONS by taking those savings and investing them into OTHER nations economies.

    Everyone with a mindset to believe "we are stuffed" forgets that in every nation, everything has to be replaced with new. The Western economy has an enormous market potential; internally, within it's own borders. The problem is one of lost prosperity to pay for all those replacements from Western manufacturing companies.

    We always were that far out of line with the Asian economic model. Wages always were that far out of kilter. It always did cost that much more to manufacture in the US or Europe. What went wrong is simply that most of us stopped buying our own products.

    He who pays the piper calls the tune.

    We need to drum into everyone's heads they simply have to save and invest back into their own local community so that local companies owned by the local population supply your LOCAL needs.

    You do not believe me? Try looking at Germany. They are not in the same trouble; why? Because they buy their own products from their own producers.
    "The existence of highly dynamic and successful small and medium-sized enterprises (SMEs) is one of the characteristic features of the German economy. The German economy is characterised in particular by approximately 3.3 million small and mid-size enterprises and self-employed persons in handicrafts, commerce, tourism, services and the liberal professions. SMEs represent 99.3 % of all German businesses subject to turnover tax, effect 44.8 % of all taxable sales, account for 57 % of total gross value added in industry, place 46 % of gross investments, create 69.3 % of jobs and offer 80 % of training places.1 "
    http://www2.gtz.de/wbf/4tDx9kw63gma/SMEPromotion_Germany.pdf

    The problem is simply that, as of today, ALL of the hidden prosperity; the savings sitting waiting to be invested back into the local economy, has instead been drawn into the FIRE economy and is not being re-invested back into the Western economy.

    Leave a comment:


  • FRED
    replied
    Re: Smoot-Hawley did not cause the crash or depression

    Originally posted by FondoFinder View Post
    The arguments in the article below make sense until nobody shows up for US treasury auctions. When will that happen, and why? When and if, I want my, I wany my TBT

    Does Itulip publish an expected yield curve based on their economic model?

    http://www.financialsense.com/contri...ng?q=node/1884
    Going back how far?

    Leave a comment:


  • FondoFinder
    replied
    Re: Smoot-Hawley did not cause the crash or depression

    The arguments in the article below make sense until nobody shows up for US treasury auctions. When will that happen, and why? When and if, I want my, I wany my TBT

    Does Itulip publish an expected yield curve based on their economic model?

    http://www.financialsense.com/contri...ng?q=node/1884

    Leave a comment:


  • charliebrown
    replied
    Re: Economic MAD approaching its logical conclusion?

    Its just too expensive to produce anything here, and I really don't know why.
    I live in the burbs of chicago, and am an engineer by trade. Lets say I live a suburban austere lifestyle.

    house is 200K, that is the oldest smallest house in my neighborhood. 1200sq ft. built in the 50's, finance 80% at 5%
    here are my austere costs
    mortgage $8000
    prop taxes $5000
    utilities $2000
    maintenance $1000 if your handy
    car $1500 if you buy cheap and drive it into the ground
    insurance $1000 auto/home
    health/med $3500 employer sponsored with 1K in out of pocket expenses.
    food $2500 family of 4 eating frugally.
    clothing $1000 bargain clothes, resale, etc.
    gasoline $1000 one tank a week.

    Ok, so we have 30K of expenses. Of course 30K is a big enough income to tax, so throw in payroll, federal, and state income tax and we might be looking at 33K - 35K in gross wages for this minimal existence.
    There is no cable, no cell phones, no ipads, no enterainment no meals out, no education expenses only food, clothing, shelter transprotation and medicine. Heaven help you if you get sick and have out of pocket expenses.

    Now how many chinese workers will this employ?

    This is only the wage side of the equation.
    What about my employer's cost of me working?
    Insurance, employers portion of health, unemployement payroll taxes etc.
    What about their cost of capital, utilities real-estate, cost of machines etc.

    At these prices how can we compete?
    The cost structure needs a reset.
    Last edited by charliebrown; 10-20-10, 06:31 PM. Reason: hit save by before I was done

    Leave a comment:


  • Polish_Silver
    replied
    Smoot-Hawley did not cause the crash or depression

    The idea that the SH tarrif caused the crash or depression has very little behind it.
    See Rober Shiller "Irrational Exuberance"

    http://books.google.com/books?id=x1P...page&q&f=false


    During the 19th century, the federal government got most of it's revenue from tariffs. This did not prevent economic growth or significant international trade.

    Clearly, the Yuan peg gives China a trade advantage, or they would not keep
    printing Yuan to buy T-bonds!

    Leave a comment:


  • llanlad2
    replied
    Re: Economic MAD approaching its logical conclusion?

    Penguin
    But I know a good screwing when I am getting one. I see plant after plant after plant move over there. I see our industry get weaker and weaker and weaker. I hear all kinds of rationalizations why we should accept the kind of trade policies that our earlier generations would have put an end to immediately. You think they would have accepted our trading partners instituting a VAT and currency pegs without retaliation?
    Don't fall for the hype. You have to remember that one of the reasons that wages in the US are high in comparison is because of the debt servicing. As a result companies move over there. If the cost of doing business and the cost of living weren't so high, the US would be more competitive.As Hudson says:-
    the problem is that America has let easy bank credit bid up housing prices for its workers and loaded down their budgets with debt service that, by itself, exceeds the wage levels of most Asian workers.This financialization is largely responsible for the U.S. trade balance moving into deficit (apart from food and arms exports). Homeowners typically pay up to 40 per cent of their income for mortgage debt service and other carrying charges, 15 per cent for other debt (credit card interest and fees, auto loans, student loans, etc.), 11 per cent for FICA wage withholding for Social Security and Medicare, and about 10 to 15 per cent in other taxes (income and excise taxes). To cap matters, the financial burden of debt-leveraged real estate and consumption is aggravated by forced saving pension set-asides turned over to money managers for financial investment in these debt-leveraged financial instruments, and “financialized” wage withholding for Social Security. All these deductions are made before any money is left to buy food, clothing or other basic goods and services.
    The Western consumer is maxed out and will remain so until the debt is wiped out. Once (if) it is, then the playing field will be more equal and hopefully Western and particularly US efficiency will have a chance of out-competing the Indians (shouldn't be difficult) and the Chinese (who knows?).
    If you need a perfect example of why devaluation doesn't work, look at the UK. It's been devaluing for a century, sold all it's utility companies to foreigners (and lots of land), has maintained high asset values and rents and consequently manufactures nothing. The UK is the perfect example of the toll-booth economy Hudson warns of. The UK population has been annexed without even realizing it.You should be hoping that Churchill is right and "you can always count on Americans to do the right thing - after they've tried everything else."

    Leave a comment:


  • Penguin
    replied
    Re: Economic MAD approaching its logical conclusion?

    Oh I read it, I just don't agree with it... not all of it anyway. :p

    I can definitely see where Hudson make the case that the machinations of the Federal Reserve and treasury to state that 'we Americans' are guilty of managing the currency. Guilty as charged. The way the Fed and Treasury conduct policy is extremely accommodative to investers, speculators, and it allows American based banks in the loop to exercise power in foreign lands that causes a lot of hard feelings and consternation. As he points out.

    But he is in left field if he believes that currency pegs and VAT schemes aren't hurting American industry and our middle class. And if he believes that they aren't tilting the field towards our trading partners then I call willful blindness on him. He refuses to see what is in front of him. Of course they do. That is what they were designed to do. That is why they are their chosen policy. That is why these governments refuse to modify them. They work.

    I am not an economist, I am a research scientist. An engineer. And I don't claim to know all that these guys do. I do not.

    But I know a good screwing when I am getting one. I see plant after plant after plant move over there. I see our industry get weaker and weaker and weaker. I hear all kinds of rationalizations why we should accept the kind of trade policies that our earlier generations would have put an end to immediately. You think they would have accepted our trading partners instituting a VAT and currency pegs without retaliation?

    I see a black hole of poor people world wide consuming our middle class. The whole idea of free trade was sold to those of us in the middle class as a way to lift their standards of living. We would pay a bit for it but in the end we would all be better off. I see us rupturing jobs, losing industry, sending American built expertise over without regard to the system that nurtured it one whit. Why should we go along if these countries aren't going to play be the same rules? Why should we not insist on tearing the whole global trade apparatus down brick by brick if in the end all it amounts to is an excuse for the monied traders to scoop out gobs of the capital as it is moved from America to these faraway lands?

    Why shouldn't we? What is in it for us?

    As far as I can tell this whole globalization scheme was nothing more than a poorly thought out economists wet dream. Supposed improvements and efficiencies have melted away in the light of taking the theory and putting into practice. I know we used to be the most protectionist country on the planet and had the highest standard of living. I look around and while I may not know the answer I can sure as hell see that this ain't what we were sold on. And as far as the reserve currency goes they can have it. As a complete novice it looks to me like the only way the whole system works is if the country issuing the reserve currency allows its industry to be pillaged and its citizenry to be swamped in debt. Otherwise the whole thing comes crashing down.

    It seems like everyone loves to criticize the Fed and Treasury for their sins in managing the currency. Fair enough, I love to do so myself and they are a den of thieves if ever there were one. But when it comes to foreign powers pulling trade shenanigans everyone immediately goes blind. Oh no! ~those~ people couldn't be perpetrating a sin! They aren't Americans you silly boy! :p

    SO guys like me who work in industries that make things that must compete in world trade find ourselves on a playing field where we have the criminal class at the FED and Treasury screwing me at home and foreign powers putting it to me in trade practices while the PTB smile and take their kickbacks from the criminal class. I am beginning to wonder why I shouldn't turn into Pat Buchannan and say to hell with the whole trifling bunch! :-)

    Will

    Leave a comment:


  • Chomsky
    replied
    Re: Economic MAD approaching its logical conclusion?

    Originally posted by Penguin View Post
    The dollar has certainly fallen since our first bubble bust hangover. Arguments can, and have, been made ad nauseum where the dollar should be valued were it and other currencies left untouched by central bank manipulations. But the yaun was revalued in excess right before China was given most valued trading partner status. It was a big boost for them then and it has continued unabated since that time. It is this particular currency peg that has caused the most shifting of production from the US to China. And it has hurt Europe's trade balance with China as well. All the result of a hard, fast currency peg. It was a mistake to begin with and it was a major contributor to the 'Chinese Miracle' that we have been subjected to over the years.
    You ought to read your Hudson.

    http://www.itulip.com/forums/showthr...s-%28Hudson%29

    Leave a comment:


  • Penguin
    replied
    Re: Economic MAD approaching its logical conclusion?

    EJ & Fred,

    I read this when you posted... started to make a reply, decided not to, started to make a reply... well you understand.

    While I don't disagree that the tax system in America needs reforming. Badly. I would offer that the terms and policies of trade also need reforming. Even more badly. While there are certainly a lot of very bad policies right here at home that need cleaned up I would offer that this is no excuse for ignoring those on the trade front.

    The dollar has certainly fallen since our first bubble bust hangover. Arguments can, and have, been made ad nauseum where the dollar should be valued were it and other currencies left untouched by central bank manipulations. But the yaun was revalued in excess right before China was given most valued trading partner status. It was a big boost for them then and it has continued unabated since that time. It is this particular currency peg that has caused the most shifting of production from the US to China. And it has hurt Europe's trade balance with China as well. All the result of a hard, fast currency peg. It was a mistake to begin with and it was a major contributor to the 'Chinese Miracle' that we have been subjected to over the years.

    And you add to that a VAT system that subsidizes exports and taxes imports. A system designed specifically to generate a positive trade flow for the country exercising it while avoiding sanctions from the WTO. This is the entire reason for going to a VAT system: to generate positive trade flows. And yet another example of underhanded trade policies that our 'free trade at all costs brigade' here in the states chooses to blithely ignore. The Asians and the Europeans have both employed this tax system to great benefit while no one in power raised a voice and pointed out the obvious unfairness of this to Americans who make things for a living.

    I have said it before and I will say it again: Free Trade as it has been exercised here in the states means nothing more than allowing our trading partners to employ mercantilist policies while we unilaterally disarm.

    There have been those who benefited greatly from this arrangement. Global corporations who could, and did, move production overseas. Wall Street investment bankers who recycled these trade flows into asset bubbles and treasury purchases. Politicians who were spared the wrath of displaced workers as the inflating credit bubble masked a weakening and, eventually, enfeebled industrial base. These same politicians who were able to run extraordinary deficits by selling treasury debt. etc, etc, etc.

    The losers? American based production and those who depend on it.

    I agree with itulip on most issues. And I have to give you credit (groan) for helping to educate me on the basics of the political economy that we are all having to deal with. But at the same time I have to point out that as much as we like to rail against the powers that be here and point an accusatory finger at our own home grown FIRE economy, it is also true that our trading partners are not playing by the same rules that we are. Just because we Americans have a criminal class running things in our markets and halls of power does not mean that the productive side of the economy is not as much a victim of them as our trading partners... plus our trading partners are screwing this productive side as well.

    Will

    Leave a comment:


  • Chris Coles
    replied
    Re: Economic MAD approaching its logical conclusion?

    There is a much wider issue here. EJ touches on the edge of it by introducing new thinking like reducing the tax burden on very small business; but the main issue is to avoid the ramifications of the drive towards protectionism.

    The answer is surely to take the debate towards local community enterprise and away from globalisation.

    Both China and the US need to recognise the benefits of increasing the prosperity of the grass roots of their respective local communities. Thereby setting into motion the replenishment of the prosperity of the poor. By that means, they can both direct that new prosperity towards the creation of local community enterprise, creating products to reflect the increased prosperity of their own "local" markets and thus offsetting the effects of currency imbalances.

    China should respond by taking the US Treasuries it holds and internally exchange them for Vanishing Bonds to be used to create a raft of new businesses right at the grass roots of their nation; to substantially increase their local community prosperity.

    In that way, the US would then be forced to recognise that that is the only way forward; the reinvigoration of the prosperity of the poor.
    Last edited by Chris Coles; 10-02-10, 05:48 AM. Reason: spelling

    Leave a comment:

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