nytimes.com/2010/09/19/weeki … .html?_r=1 (topical article on USD/Yuan exchange rate)
Yet again there is a fatalistic conclusion that it is the result of macroeconomic forces or that any change will not come from browbeating. If you see you are getting a bad deal that is causing huge problems you go and fix it, not stand back! The way everybody treats China with kids gloves is a joke. As we all know, Asians don’t respect people who don’t fight their corner.
(US centric for a second)
Some are lost forever because productivity went up. Some are lost temporarily because they aren’t needed now but may be needed in the future (real estate and construction are examples). Some are lost but could come back when the economy eventually recovers (retail jobs).
Demand is down so businesses aren’t hiring. Demand is down because the economy was humming along thanks to a negative savings rate for so long which was unsustainable. Eventually someone will stop lending you money and there will be a correction. That time came and now consumers have cut back to pay down debt and rebuild savings. When we see sustainable spending levels that have around a 5% savings rate, consumer confidence will have risen to the point that businesses will look to expanding their workforce. Real estate and construction will take a long time to recover because there is a glut of properties on many markets right now.
That’s all assuming that tax rates stay the same. That’s where we can get away from US centric and look more worldwide. Higher tax rates encourage businesses to take actions to avoid them. They’ll move jurisdictions, they’ll hire temporary employees instead of full time employees, work their currently employees more rather than hiring new ones, not expand so they can stay beneath the line where higher taxes kick in, etc.
The debt situation in many countries is a serious hindrance to the economic crisis abating. Tax revenue is down in many locales because of the Recession. With lower revenue, but the same spending, the difference is made up in debt. If the government can’t borrow the difference, they are left with a decision to raise taxes or fire workers. Governments don’t like to fire employees, especially when they are unionized. They would rather raise taxes, but that reduces the available funds for businesses to use for hiring new workers, expanding, buying more product to sell, etc. Spreading the wealth through taxes will lead to fewer jobs than if you had low taxes and small government.[/quote]
Again you misread me and you have a habit of doing that. I never said ‘raise taxes’ was the answer although I do agree the top few % should pay more simply because they can afford it and they have had the whole financial system working in their favour for the last decade. What I mean by spreading the wealth is that wealthy folk and American and international companies should be encouraged/prodded to invest their money into job creating opportunities in the US - they should be saying you want access to our marker–invest local , then regular folks have more cash in their pocket and a strong domestic economy can be sustained. With a strong economy America or other countries can dictate terms to other countries (WTO or not withstanding) and nobody will say boo, they all want access to that big market (exactly as China does now, BTW China probably has higher rates of corporate and income tax than the US!).
The debate about adjusting taxes here and there is largely bogus, the main market for American produced goods and services is in America proper…seems to be something that escapes most people’s attention. Don’t always look at giant multinationals as a good example of what is good for the US. The current set-up favoured multinationals too much compared to companies that focused mainly on the domestic market in the US and it is easy to see the result. Remember the US population is growing quite rapidly and relatively youthful…it is different than many other developed countries in it’s trajectory and that is why I am an optimist looking at the US economy in the long-term (after a period of adjustment).
China’s official corporate tax rate of 25% is lower than that of the U.S. with its combination of federal, state and payroll taxes on business. Even given that, no small or medium-sized business in China pays the official corporate tax rate because there are a myriad ways to get around it. Effectively it’s more like 10% – less than the payroll tax alone in the U.S.
I was surprised when I started doing business in China how restrictive its tariffs are on finished goods – versus the U.S. with its single-digit or no tariffs on the same finished goods. Automobiles for example. It’s almost impossible for an American factory to produce a car for export to China due to the tariffs alone. If anything needs to be done now it’s that the U.S. should take a hammer to China’s unfair tariffs rather than erect tariff barriers of its own as the days when a country could turn itself into an isolated fortress against global economic forces are long gone. Particularly when that country is a high cost producer whose products and services can no longer compete on the global market.
How similar is it in the end to the car market in the US regarding trade barriers notwithstanding your point on US’ relatively simpler tariffs? Isn’t it why Honda, Toyota builds factories in the US just as Ford in China? or is that different?
How similar is it in the end to the car market in the US regarding trade barriers notwithstanding your point on US’ relatively simpler tariffs? Isn’t it why Honda, Toyota builds factories in the US just as Ford in China? or is that different?[/quote]
Two big differences. Japan is a high cost producer (also factoring in transportation costs and lead times) and its currency is strong so Japan would be dead in the water now if it didn’t have US factories even given low US tariffs. Another factor was the mere threat of protectionism which the Japanese wisely chose to defuse. There was a time when American workers would symbolically smash Hondas and Toyatas to bits to protest job losses to Japanese auto workers. That all went away when Japan built factories in the US South.
On the other hand Japan has erected effective barriers to US cars being sold in country without having to resort to tariffs. Consequently they need some hammer time too. I speak from personal experience having imported US built products into Japan and having to deal with time-consuming and expensive customs red tape – which even my Japanese colleagues chalked up to trade restraint.
I’m halfway through The End of Wall Street, a terrific book by former Wall St Journal reporter Roger Lowenstein, in which he describes the cause of the financial crisis, starting shortly after 2000 and building up with crazily increasing home values, increased speculative buying of real estate, mortgage lenders lowering standards to profit off it all, by loaning 100% of the alleged property value, no documentation required, speculators eagerly taking advantage of the “opportunity,” banks eagerly acquiring the mortgages, Morgan Stanley, Lehman Bros., etc., aquiring tens of billions of dollars of such mortgages repackaged as CDOs, Moodys and the other investment agencies selling out their objective responsibilities, shirking responsibility, and giving those crappy subprime investments good ratings (because they get paid to issue the ratings and don’t want to lose business), and all sorts of suckers who have no idea how crappy the investments were relying on the good ratings and investing in such junk, with it all insured by AIG, who put hundreds of billions of dollars on the line, till the whole lousy house of cards tumbled down. Amazing how many supposedly very bright, skilled, experienced professionals got suckered in by their greed and foolishness, including the CEOs of all those top companies (although they all got obscene and totally undeserved severance packages in the tens of millions of dollars for destroying their companies, bankrupting millions, and almost destroying the US financial system).
It’s a great book and I’m happy to be reading something so contemporary, because I often read books a few years old. In fact, this book just lays the groundwork for so many crazy stories in the news today. Stories such as. . .
More than 25% of all houses sold today in the US have been foreclosed upon, and prices are dropping
news.google.com/news/more?pz=1&c … k1klA8XQbM
Lawmakers order most of the nations’ top lender to halt many tens of thousands of foreclosures due to very questionable facts and procedures
news.google.com/news/more?pz=1&c … 9xI58U5TpM
AIG describes how it plans to repay the vast fortune it borrowed from taxpayers
nytimes.com/2010/10/01/busin … ?_r=1&dlbk
Ireland’s government to spend over $50B bailing out its top banks
news.google.com/news/more?pz=1&c … 8LfukFxtKM
Moodys downgrades Spain’s credit rating
news.google.com/news/more?pz=1&c … 3GxYdUCiqM
What a freakin’ mess. Those bastards. I’ve been living here on the other side of the world, minding my own business for so long, that I wasn’t fully aware of how crazy the greedy, irresponsible, foolish, corrupt mania was in the US a few years ago, that built up this bubble of hundreds of billions of dollars in pure fantasy speculation, then collapsing, pitching the whole world deep in a hole that will take many long years to climb out of. No wonder the economy still sucks. No wonder unemployment is sky high in the US. No wonder the US is completely bankrupt (and California even worse). Pisses me off. I didn’t even take part in the stupid game. I didn’t even flip a few houses and profit off the imaginary gains. But I will pay for their stupidity the same as everyone else. :fume:
If you want a better understanding of how we got into this mess, I highly recommend that book I’m reading.
Debt Market Strips U.S. of Triple A Rating
[quote]The cost of insuring against a default on U.S. government bonds via so-called credit default swaps rose 28% in the quarter ended Sept. 30, the firm said.
That puts the United States’ third-quarter performance behind only two other nations, both of which are struggling with the early stages of sovereign debt crises: Ireland, whose CDS prices rocketed 72% to a record amid growing questions about the costs of a massive bank bailout, and Portugal, whose costs jumped 30%.
What’s more, the decline leaves U.S. debt trading at an implied rating of double-A-plus for the first time in memory. . . .[/quote]
We’re going to have to dig a lot harder if we’re ever going to get out of this hole Bush and the Republicans put us in.
I know the sound of blowing one’s own trumpet is rather a droning sort of sound. Never the less I must say that it must bare some relevance that I was predicting this stuff over five years ago without the help of the T.V. news, Bloomberg, the pink paper or any other mainstream news source. I was telling people to sell their houses and go into gold.
The only single reason I was doing this was because I had done quite a lot of reading on the founding and operation of The Federal Reserve. It led me on to the Bank of England, the Euro dollar, fiat currency, the Egyptian connection to fractional banking invention, the second world war and its funding and international politics to date.
It was my own conclusion that the majority of the worlds problems, whether financial or otherwise , generally revolve around the banking sector, and mostly because of debt and its control.
The issuance of debt has been paramount for the world’s most powerful private central banks over the years and has recently culminated in a ramping up of their debt leveraging practices such as Mother Theresa describes as they now desperately try to control their runaway currencies. Their grip is slipping as their currencies spiral out of their own control and add to the power of gold hoarders.
Some claim it is an engineered practice as fiat currencies always end up being worth nothing, but in the meantime allow banks to absorb precious metals at knock down prices, as well as land holdings and other commodities. I’m confident that they do this, although I’m not certain that they always like the up and down nature of their own business. I’m certain they like it even less at the minute as past busts wouldn’t loose as much power to other countries and rival banking institutes, unlike what’s happening now. Britain and America are letting the reigns slip to their financial steeds, which are presently making haste towards Asia and their arch rivals.
I’m only blowing my own trumpet here, as five years ago when I was going on about this people were calling me a conspiracy theorist. These days it seems more and more people are starting to willing to accept that this is now the case. Eventually of course nobody will be chortling in the back at what people like me have had to say. I only keep saying all this stuff as I wish that people understand how to better retain their savings and not loose them all to inflation. I understand that I’ve always sounded like a nutter though. Even when I told my wife to sell all her stocks before the collapse, and she wouldn’t as no single banker supported my theory. She lay in bed three years later sobbing as she has then lost over half of her life savings. My father also failed to heed warning and has now lost around a third of the power of his money in three years. The list goes on, but I just want to make the point that I know how nuts what I have to say seems as the majority won’t accept it until it slaps them in the face.
Accept what as the case? That central banks, fractional reserve banking, and fiat currency are to blame for the economic crisis? Not really. Nobody of any importance really believes that, and none of those things are going away, nor should they.
Accept what as the case? That central banks, fractional reserve banking, and fiat currency are to blame for the economic crisis? Not really. Nobody of any importance really believes that, and none of those things are going away, nor should they.[/quote]
I also don’t quite grasp what you’re trying to say sulavaca. I don’t believe the present global economic crisis is due to the existence of fiat currency, if that’s what you’re saying. And I don’t deny that Bernanke seems to do the wrong thing every time. But. . .
The problem this time (as opposed to the prior, tech bubble, for instance), i understand, is largely due to extreme greed and foolishness in everyone from homebuyers, to mortgage lenders, commercial banks, investment banks (even up to the CEOs of such institutions, extremely bright experienced professionals acting like idiots), rating agencies (selling out their responsibilities for profits), stock funds, investors; ridiculously overinflated housing prices; ridiculously overextended credit (the debtors and creditors are both to blame); lack of sufficient laws and supervision; with everyone thinking housing prices would go up forever, so one could continue borrowing far more than is prudent to purchase such properties, or to live a posh lifestyle using such overpriced properties as security for the loans, etc., all a completely artificial bubble of greed, stupidity and stupid lending practices that was bound to collapse eventually, as it has.
Krugman describes much of it well in today’s NYT.
[quote]American officials used to lecture other countries about their economic failings and tell them that they needed to emulate the U.S. model. The Asian financial crisis of the late 1990s, in particular, led to a lot of self-satisfied moralizing. Thus, in 2000, Lawrence Summers, then the Treasury secretary, declared that the keys to avoiding financial crisis were “well-capitalized and supervised banks, effective corporate governance and bankruptcy codes, and credible means of contract enforcement.” By implication, these were things the Asians lacked but we had.
We didn’t.
The accounting scandals at Enron and WorldCom dispelled the myth of effective corporate governance. These days, the idea that our banks were well capitalized and supervised sounds like a sick joke. And now the mortgage mess is making nonsense of claims that we have effective contract enforcement — in fact, the question is whether our economy is governed by any kind of rule of law.
The story so far: An epic housing bust and sustained high unemployment have led to an epidemic of default, with millions of homeowners falling behind on mortgage payments. So servicers — the companies that collect payments on behalf of mortgage owners — have been foreclosing on many mortgages, seizing many homes.
But do they actually have the right to seize these homes? Horror stories have been proliferating, like the case of the Florida man whose home was taken even though he had no mortgage. More significantly, certain players have been ignoring the law. Courts have been approving foreclosures without requiring that mortgage servicers produce appropriate documentation; instead, they have relied on affidavits asserting that the papers are in order. And these affidavits were often produced by “robo-signers,” or low-level employees who had no idea whether their assertions were true.
Now an awful truth is becoming apparent: In many cases, the documentation doesn’t exist. In the frenzy of the bubble, much home lending was undertaken by fly-by-night companies trying to generate as much volume as possible. These loans were sold off to mortgage “trusts,” which, in turn, sliced and diced them into mortgage-backed securities. The trusts were legally required to obtain and hold the mortgage notes that specified the borrowers’ obligations. But it’s now apparent that such niceties were frequently neglected. And this means that many of the foreclosures now taking place are, in fact, illegal.
This is very, very bad. For one thing, it’s a near certainty that significant numbers of borrowers are being defrauded — charged fees they don’t actually owe, declared in default when, by the terms of their loan agreements, they aren’t. . . .[/quote]
nytimes.com/2010/10/15/opini … ef=general
Ugghhhh. 
Which is my point exactly. This exagerated scenario is only possible through the printing and issuance of fiat currency in a fractional banking evironment.
I think Suvlaca has a point but it is within a wider context of economic changes and cultural changes. We can see many countries in Asia don’t seem to suffer this fate…they control their credit better or have the benefit of sucking foreign investment from the Western world as globalisation advances along with technology.
I don’t think fiat currency and fractional reserves “caused” this latest recession; it was more to due with the deregulated environment in which the mortgage slice and dice worked its way (on a massive scale) into the system unchecked. fractional reserves I think just exacerbates risk and bubbles, because there’s more liquidity by definition (that isn’t asset-backed for example by gold). I don’t see the world going back to a gold standard anytime soon (and that would take away lot of credit expansion we’ve come to rely on and perhaps going back to fighting wars over physical gold); maybe we could have a world fiat currency but without fractional reserves?
(economics isn’t my best subject; i may have gotten some of the terms wrong)
[quote=“Jack Burton”]I don’t think fiat currency and fractional reserves “caused” this latest recession; it was more to due with the deregulated environment in which the mortgage slice and dice worked its way (on a massive scale) into the system unchecked. fractional reserves I think just exacerbates risk and bubbles, because there’s more liquidity by definition (that isn’t asset-backed for example by gold). I don’t see the world going back to a gold standard anytime soon (and that would take away lot of credit expansion we’ve come to rely on and perhaps going back to fighting wars over physical gold); maybe we could have a world fiat currency but without fractional reserves?
(economics isn’t my best subject; i may have gotten some of the terms wrong)[/quote]
The mortgage problem is only latest iteration of the credit binge and financial deregulation that has consumed most Anglo countries. At the bottom of it is the loss of many industries and jobs to globalisation and technology advancement…this is steadily eroding domestic earnings along with the promotion of a buy now-pay later culture.
It’s also an ideological failure in the business schools and government regulators, an inability to see the long term and the whole, the ‘’‘free’ and unregulated market was a dud idea JUST as much as communism.
[quote=“headhonchoII”][quote=“Jack Burton”]I don’t think fiat currency and fractional reserves “caused” this latest recession; it was more to due with the deregulated environment in which the mortgage slice and dice worked its way (on a massive scale) into the system unchecked. fractional reserves I think just exacerbates risk and bubbles, because there’s more liquidity by definition (that isn’t asset-backed for example by gold). I don’t see the world going back to a gold standard anytime soon (and that would take away lot of credit expansion we’ve come to rely on and perhaps going back to fighting wars over physical gold); maybe we could have a world fiat currency but without fractional reserves?
(economics isn’t my best subject; i may have gotten some of the terms wrong)[/quote]
The mortgage problem is only latest iteration of the credit binge and financial deregulation that has consumed most Anglo countries. At the bottom of it is the loss of many industries and jobs to globalisation and technology advancement…this is steadily eroding domestic earnings along with the promotion of a buy now-pay later culture.
It’s also an ideological failure in the business schools and government regulators, an inability to see the long term and the whole, the ‘’‘free’ and unregulated market was a dud idea JUST as much as communism.[/quote]
Yes, I definitely would point to the deregulated environment under the guise of “free market” especially with the landmark nullification of Glass-Steagall. But it’s also quite interesting to see that European banks was as much a victim (of its own mortgage CDO crap) as US banks. Since supposedly, European corporate governance is different in that it has more stakeholders (workers, community, etc.) whereas the US corporate governance model is focused only on the shareholder. Lots of people talked about this difference in corporate governance and pros and cons, and it’s funny to see it didn’t seem to make a difference in this last recession. (maybe i have incomplete data).
The massive fraud of the last ten years in the United States wasn’t the cause of its economic meltdown but rather a consequence of something deeper. That fraud, which permeated American society like a cultural phenomenon, certainly magnified the economic pain and dislocation though.
The essential cause is that the U.S has been getting inexorably poorer the last twenty-five years because it’s no longer creating the wealth necessary to sustain its high standard of living. In its desperation to maintain its standard of living America first concocted the dotcom bubble of fake wealth creation and then lurched into the dotflip and fraudulent financial instruments schemes when that bubble inevitably burst. The way was led by America’s financial elite who had run out of legitimate options for preserving their own princely lifestyles and Übermensch public images and gladly participated in by legions of members of the middle class who sensed only too well that their options for pulling in 60,000 a year were becoming fewer and fewer with each passing year.
Imagine for a moment what the U.S. economy would look like now if the dotcom, dotflip and fraudulent financial instruments schemes had never occurred. In reality it wouldn’t look much different from the current U.S. economy: high structural unemployment, massive and growing government debt, more and more people slipping out of the middle class into endemic poverty with no hope of future prospects. So what you’re seeing now is the real U.S. economy rather than a “downturn” and all the efforts to stimulate it to return to some former mythical “self” using money borrowed from abroad are for naught.
Focusing then on the systemic fraud of the last decade as if it were causal is a strategic mistake because it masks the true cause of America’s decline – its declining ability to create the wealth necessary to preserve its lifestyle and thus keep its people behaving rationally. Expect more of the same and even worse in the United States in coming decades because even if America were able to come to grips with its true self – which it isn’t – it lacks the fortitude and integrity to actually do anything meaningful about its structural problems and so they will only get worse with time and unfavorable demographics. Consequently it’s fated to go through a period of creative destruction which will be far more painful for the American people than it has to be and which will last as long as it takes for equilibrium to be reestablished according to the inexorable laws of economics.
The other big problem with gold that no one seems to be pointing out is that it doesn’t create anything or generate an income. It’s extremely hard to try to calculate the future value of gold then, and there’s an enormous amount of speculation in buying it. I’d be very interested to know, even after adjusting for inflation, if gold has returned the same kinds of returns as Berkshire Hathaway, for instance. This is a really important point, because whilst some people love the fact that gold doesn’t change, that’s also its worst point. Every piece of gold is exactly the same piece of gold that existed right back into times before people even wanted gold. It has not been responsible for finding a cure for a disease or inventing and manufacturing a device that saved people time or in some other way improved their lives. It has created absolutely nothing of value in the thousands of years that people have been fighting over it and trying to stash it away. I can guarantee that in ten thousand years from now, no piece of gold will have found a cure for cancer, manufactured that cure, marketed it and saved lives.
Likewise, the other issue with gold is that the market for it is not entirely immune from manipulation. By buying up or flooding the market with a lot at any one time, people can still screw others around. It’s a little far-fetched, but remember the movie Goldfinger, also?
Yes, regarding gold, there is simply not enough of it to prevent massive speculation…China has only something like 2% of central bank reserves in gold, if it was to put 15% of central bank reserves in gold it would need more than the annual production of the entire world. Essentially the more central banks purchase gold the higher the price jumps but the more worthless it is as a stable store of wealth as the price could jump multiples and drop multiples in months…
This points to a big gold bubble coming down the line due to its scarce liquidity but it will pop like any other as people realise it is also a highly speculative and risky asset. It might still be a good time to buy some as QEII starts but it is getting riskier all the time
That’s my whole point though. You can look at a company and make predictions about where it is going to be in a short while, or perhaps even a long while (though of course, you’d want a margin of safety in case your valuation is off), based upon its financial statements. Yeah, there can be shenanigans in fiddling the financial statements, but generally not. Another way to go the stock market route is to get caught up in the mass of lemmings going over the cliff just because everyone has a feeling about something, or is listening to macro-economic predictions. This is speculation. It’s the same with gold.
