Steve Forbes has a plan for America: end mark-to-market accounting, and strengthen the dollar. As so often, Mr Forbes seems to have confused what is good for him, personally, with what is good for the nation at large.
The dollar decline is not the cause of our problems; it is a symptom. To be sure, most of us professional prognosticators thought that it would be a cause of our problems. We expected that eventually the trade deficit would cause a decline in the dollar, and capital would start to flow outward again, tanking the markets. Instead what happened is that the market tanked and (presumably) foreign investors have started to withdraw their funds.
This is, to be sure, not making things any better. But the things that the government could do to prop up the dollar would make things worse. It could, say, ratchet up interest rates to make US assets more attractive. This would be fantastic for a market desperately trying to unwind its excess short-term leverage. It would also do delightful things to homeowners with resetting ARMs.
Also the way the Fed targets the money supply is to sell bonds. And what a market with to few buyers really needs right now is more product. Meanwhile, of course, business investment would fall even further. Hello, recession. And did I mention that our exports would tank even further?
There's an alternative: the Treasury could sell a lot of foreign currency. This would probably be pointless; because the US doesn't intervene in the value of the dollar, we have very little in the way of foreign reserves. The Treasury and the Fed together have about $70 billion in euros, yen, and Swiss francs. They have another $20 billion in foreign securities. Meanwhile, other countries have well over a trillion US dollars in cash and US securities.
Foreign central banks might try to help us, but with such a pitiful supply of foreign currency, we'd never stand up against the foreign investors trying to get out of our broken market, much less the fx speculators. George Soros alone bet 6.5 billion pounds sterling against the Bank of England nearly twenty years ago. There's a lot more money floating around out there today. Successful defenses of overvalued currencies are few and far between, and tend to involve measures a lot stronger than buying a few dollars.
The other proposal is even more daft. There's nothing to reassure markets in a liquidity crisis like reducing transparency.
The good news is, the weak dollar isn't the catastrophe that some people seem to think it is. While it is falling, it will trigger capital outflow, but when it bottoms, US capital markets will become attractive to foreigners. Meanwhile, our export industries will get more competitive. And while it will mean fewer cheap electronics (buy that flat panel now!), trade just isn't that big a component of the US economy. The really big problem is that it will make oil even more expensive. But the effect on gas prices will be relatively small compared to the Asian demand, terror worries, and supply-side restraints that have pushed it to $100 a barrel.
Psychologically, a weak dollar is a blow to our pride. But practically, it was going to have to happen, because Americans have been buying more than they sell for much too long. Among the various financial problems the world has today, this should be about the last one you worry about.
Spot on, every word of it. Frame this post.
And have a nice weekend.
Exports account for only about 15% of the US economy. The increase in exports that we're likely to see with a weak dollar is not going to take up the slack in all our other sectors.
Instead what happened is that the market tanked
Um, which market tanked?
Well said. There is one other factor to consider though, and that is the pricing of Oil in dollars. If the bottom falls out of the dollar it may become increasingly difficult to hold that line and as bad as it is now you probably don't want to be buying Oil in anything else.
Joel 15% of the US economy is a rather large figure. Also it will grow as the dollar gets cheaper.
Which doesn't mean I'd advocate deliberately trying for a weaker dollar, but I agree with Megan on this one that trying to intervene to strengthen it won't work, and the failed attempt would probably be harmful.
Oh please, oh please, oh please: tell us what you think of Steve Forbes' characteristically idiotic opinion that mark-to-market accounting is the bane of the economy.
The underlying economic model is flawed: Resource limitations prevent infinite growth. Lower the population, shrink the economy, shrink consumption and there will be (1) more to go around for a longer time (maybe virtually forever), and therefore (2) increased wealth. We desperately need to contract.
We also need to focus on the coming energy shortage. Paying for increasingly more expensive oil with a beat up dollar means exporting our wealth. We need to move to energy independence to maintain our standard of living.
Have to agree with Al - when is the stock market really going to tank? I'm waiting on the sidlines here, help a fellow out. Seriously, given the credit disruption and other problems, the market's reaction has been overall mild, though individual days have been interesting.
"Resource limitations prevent infinite growth. Lower the population, shrink the economy, shrink consumption and there will be (1) more to go around for a longer time (maybe virtually forever), and therefore (2) increased wealth. We desperately need to contract."
I'd say your analysis is daft, but I won't prevent you from contributing yourself to your first suggestion if you feel so strongly about it.
We don't "desperately need" to do anything. More people can produce more for more people. Also, larger populations create an ability for specialization, which increases prosperity per capita.
Think of it this way... if you were the only person on Earth, would you be materially better or worse off?
Well,
The one argument against fair value accounting that has some logic is the psychological impact of marking assets down creates a self-reinforcing cycle. Essentially, the write-downs cause a psychological panic, resulting in additional write-downs because each write-down sets the next bench-mark, causing an even greater sense of panic, as well as requiring margin calls and other creditor requests for capital calls. In essence, it is market psychology 101 triggering contractual obligations to return borrowed monies if certain thresholds are hit (such as if certain working capital or liquidity ratios fall below a certain level, creditors call their loans in order to get a claim on that capital before other credits wipe out the debtor).
However, the idea that keeping afloat a Ponzi scheme by lying about the value of assets is ridiculous. The fact is, people cannot afford their houses, period. That is why the write-downs are occurring, because people are realizing that we have a solvency crisis, not just a liquidity crisis. Face it, my wife and I make almost $100,000 combined, and there is no way we could possibly afford a place for what it costs us to rent (hence the wonderful rent to buy ratio which is completely out of whack). Until we get to the point where people can afford housing based on what they earn, and not on the ability to refi and move the debt around, there will be a solvency crisis.
What Forbes and Company wish to do, is to have the banks LIE to the public, by refusing to recognize their paper losses. (It would be akin to me claiming my car is still worth what I paid for, regardless of the actual market value for it). All this would do is result in what happened in Japan (and what is actually happening in China as well), where Banks are retaining bad debts, and lying about it. Well eventually, those debts come home to roost, and the fall would be that much harder than now, as we are going through what I thought Steve Forbes had wet-dreams over: letting the invisible hand take care of issues that regulation should not.
In this case - risk. Where regulation would have not even allowed these banks to leverage themselves to such an extent, the invisible hand is now punishing those who foolishly took on too much risk. Unfortunately, while regulation keeps the earnings power of bankers lower than unregulated market, unregulated markets spreads the losses to all due to the impact of such a severe correction on the overall economy.
Am I wrong in thinking that if the Chinese stopped buying Treasuries for a couple of months, that long-term interest rates would spike up and the dollar would stop dropping?
Is there some reason why they shouldn't do this, other than not wanting to be blamed for hurting the U.S. economy?
It's not the fed's job to maintain a high dollar value, but it is the fed's job to maintain low inflation, and it's doing a piss poor job of it. I don't care how much economic growth suffers, I don't care how much "external factors" are to blame, the fed should always raise rates enough to ensure that inflation is less than 3%/year. So while the fed shouldn't be raising rates to maintain the exchange rate, it should be raising rates to control inflation, and by defending its current policy of lowering rates with "think of the homeowners" rhetoric, Megan is following Ben Bernanke down a path of madness.
Where is Paul "screw your economy -- I'm going to stabilize your currency whether you like it or not" Volker when we need him?
Yo,
Everybody's got it all wrong. A statement like 'A caused B' is crazy! In a system as complex as the world economy, there is no direct line of causation! Everything is a cause and effect for everything else.
If you want stuff and services, you must provide stuff and services. We can easily trade stuff and services with money, which simply represents stuff and services we have produced. This of course breaks down when there is robbery, meaning somebody stole somebody else's work, or somebody can make work out of nothing (printing money).
So here it is: if we as a country get more stuff and services than we provide, then there is an imbalance. This is represented by our work deficit in our government and trade. Remember money represents work done. So somethings gotta give. It doesn't matter what the fed does. We gotta get into balance. Currently, foreigners, particularly in Asia, are making more stuff and services than they get. We get more than we make. This imbalance will be corrected.
Living standards in Asia will go up, and ours will go down. Period.
If one reads and listens to Mr. Forbes, rather than reading this drivel, one can see his arguments are the most sound.
The stock market that is priced cheap is much more likely to cause capital inflows than outflows, I would think.
Moreover, the notion that the trade deficit--a simple statement of whether the owners of dollars live in or outside the U.S.--has no effect on the economy. It could only have an effect if you assume Mr. Wu in China would do something different with his dollars (which he owns as shown in the trade deficit) than Mr Smith of California would if he had the dollars and there were no trade deficit. Whatever terrible thing Mr Wu could do if we have a trade deficit Mr. Smith could do if we didn't. So what, exactly, is the difference to the economy if we have a trade deficit or don't?
While you're mostly right about Mr. Forbes and his plan, mark-to-market accounting does deserve scrutiny. While there are valid reasons for allowing this practice, as the case of Enron illustrates, aggressive mark-to-market accounting can lead to Ponzi scheme earnings projections.
Little to worry about...except. And a big huge except. Once OPEC gets tired of pricing oil in a consistently declining dollar and they decided to price it in Euros. They've lost about 10% of their oil's value in the last couple weeks alone.
Price it in oil and suddenly we are buying less oil for more. And that will cause the dollar to sink even lower.
So it will be an issue.
On the other hand it's good for US companies that export. But many of our exports relied on imports to begin with...
The weak dollar is another sign of this declining empire.
You're bankrupt financially, intellectually and morally.
It's my wet dream to see the complete and utter collapse and of this criminal enterprise.
The weak dollar is another sign of this declining empire.
You're bankrupt financially, intellectually and morally.
It's my wet dream to see the complete and utter collapse of this criminal enterprise.
Yo JohnF,
To say that the deficits have no effect on the economy isn't very smart. Everything has an effect on everything else. I believe that people get caught up on money, but money in itself isn't anything. Providing goods and services is what an economy is! Money is a trading convenience not a fundamental thing. Official statistics are just trying to measure goods and services provided.
Let's start talking about goods and services. The simple fact is that when we import something, we are acquiring the fruits of work abroad. When we export something we do work and someone else gets the fruits of our labor. To represent this exchange, we use money so we don't do our work for nothing. We can use this representation of our work to get stuff. This is the whole motivation of capitalism. So a trade imbalance does represent something: it represents a work imbalance between countries. We try to talk about it in all these fancy terms, but an imbalance like the one we have will not last.
For example, Japan's auto industry is a main driver behind Japan's trade surplus because they actually send the cars they make overseas! They make cars that they don't drive but we do!!!! This is real goods and services being represented by the trade imbalance numbers! It is not so simple as people outside the USA simply holding dollars.
Yo JohnF,
To say that the deficits have no effect on the economy isn't very smart. Everything has an effect on everything else. I believe that people get caught up on money, but money in itself isn't anything. Providing goods and services is what an economy is! Money is a trading convenience not a fundamental thing. Official statistics are just trying to measure goods and services provided.
Let's start talking about goods and services. The simple fact is that when we import something, we are acquiring the fruits of work abroad. When we export something we do work and someone else gets the fruits of our labor. To represent this exchange, we use money so we don't do our work for nothing. We can use this representation of our work to get stuff. This is the whole motivation of capitalism. So a trade imbalance does represent something: it represents a work imbalance between countries. We try to talk about it in all these fancy terms, but an imbalance like the one we have will not last.
For example, Japan's auto industry is a main driver behind Japan's trade surplus because they actually send the cars they make overseas! They make cars that they don't drive but we do!!!! This is real goods and services being represented by the trade imbalance numbers! It is not so simple as people outside the USA simply holding dollars.
Yo JohnF,
To say that the deficits have no effect on the economy isn't very smart. Everything has an effect on everything else. I believe that people get caught up on money, but money in itself isn't anything. Providing goods and services is what an economy is! Money is a trading convenience not a fundamental thing. Official statistics are just trying to measure goods and services provided.
Let's start talking about goods and services. The simple fact is that when we import something, we are acquiring the fruits of work abroad. When we export something we do work and someone else gets the fruits of our labor. To represent this exchange, we use money so we don't do our work for nothing. We can use this representation of our work to get stuff. This is the whole motivation of capitalism. So a trade imbalance does represent something: it represents a work imbalance between countries. We try to talk about it in all these fancy terms, but an imbalance like the one we have will not last.
For example, Japan's auto industry is a main driver behind Japan's trade surplus because they actually send the cars they make overseas! They make cars that they don't drive but we do!!!! This is real goods and services being represented by the trade imbalance numbers! It is not so simple as people outside the USA simply holding dollars.
The last thing I should worry about???? Are you NUTSSSSSSSSSSSS!! I'm an expatriate American living in Europe, for god's sake, and you can sit there telling me not to worry about the EXCHANGE RATE!! It's the ONLY thing that matters to many of us poor Americans who are constrained, for various reasons such as a abominable health insurance system, to live overseas. Go to.............quel paese!!
This blow to my pride has me buying gold as a battery. Where did M3 go?
Let's start talking about goods and services. The simple fact is that when we import something, we are acquiring the fruits of work abroad. When we export something we do work and someone else gets the fruits of our labor.
This is not entirely true. In a large number of cases
e.g Pharma and software, the exporting country only adds a very small amount of value to the product. Nearly all the work is done here but the customs service treats these products in exactly the same manner as Saudi oil. They are incapable of apportioning value. When we import Saudi crude 100% of the value of the product goes overseas and the trade figures are wholly correct. In many other cases this is not the case. In my opinion todays world economy make the trade figures highly misleading.
Concern about the week dollar has nothing to do with wounded pride. If one examines the history of minted currency, there are many examples (from Babylonian times up to the modern era) of authorities attempting to alleviate economic or political concerns through debasement of the respective currency. There is not a single example that this has ever succeeded. This does not mean that making a currency expensive is a good thing, but rather that having a cheap currency is never a substitute for good fiscal policy.
Pricing oil in dollars is a problem? Why?
As long as currencies are tradeable oil will cost the same no matter what the currency (given that transaction costs are small - which they are).
Say for purposes of illustration a bbl is $100 or Eu50. Suppose The Eu is worth $2.
What difference does it make which currency the oil is priced in?
For the life of me I have never been able to figure that one out.
"For example, Japan's auto industry is a main driver behind Japan's trade surplus because they actually send the cars they make overseas! They make cars that they don't drive but we do!!!! This is real goods and services being represented by the trade imbalance numbers! It is not so simple as people outside the USA simply holding dollars."
-- Joe McFarley
Bad example. Toyota, Honda, Nissan, and Mazda are the four biggest purveyors of Japanese cars in the United States, right? Not quite. Of those four manufacturers, the only one that doesn't make the bulk of it's American sales from cars manufactured in the United States, Canada and Mexico is Mazda. That likely has everything to do with the fact that Mazda is one-third owned and effectively controlled by FoMoCo, who doesn't need more manufacturing space on this continent. 'They' aren't making the cars that we drive, 'we' are. This is why the weak dollar has no effect on the price for the bulk of the cars that you can buy from a Japanese manufacturer. The Germans have learned that lesson and have followed suit with their own plants. Congratulations, you have inadvertantly hit upon why the weak dollar is good for manufacturing in America and helped prove Ms. McArdle's point for her. In tripicate, no less!
Francesco,
Now you understand the real price of health insurance. You were expecting to free ride and got caught.
Things are tough all over.
With the destruction of the dollar, shouldn't there be some concern about the reputation and eroding creditworthiness of the US? Could someone explain why this is not/should not be a concern?
It's my wet dream to see the complete and utter collapse of this criminal enterprise.
Real sex is more fun. Really.
However, if the American economy collapses it will take the world with it. Along with a lot of the poor and downtrodden of the world.
The genie gives the man a wish. He promises to give his neighbor double. The man asks the genie to poke one of his eyes out.
===
BTW penniless Mexicans are flooding across the border to join the criminal enterprise. How do you explain that?
A weaker dollar would increase American exports much more if your merchants learned how to export, and how to want to export. I'm a Canadian repeatedly frustrated with Americans who won't sell to me, even when they have a great easily googled web-site, a great product at a great price, now even better.
Scenarios, 1-3:
1. Why not, sez I. Sez he, we can't ship there. Yes you can sez I, FedEx delivers here once a year, when the snow melts. Oh, that's not often enough, sez he as I groan. I do not explain that my city has 1M consumers in it and more money than most American cities of the same size. The guy wouldn't get it.
2. Why not, sez I. Sez he, the market is too small. Sez I, do you refuse to sell to California? Huh, sez he.
3.Why not, sez I. Sez he, we are bound by dealer agreements and we can't compete with Canadian dealers. Sez I, is that the Canadian dealer trying to sell me a [no description because I don't want trouble] for $3000.00 which you will sell me for $1,000.00? Yes, sez he, as he and I groan together. Hey there American manufacturer, we have interweb tubes now and we know the Canadian dealer you signed an exclusive with is ripping us off, tarnishing your reputation and making your product mostly unsellable.
The last one has a happy ending. I'm taking delivery of 2 of [them] in Eureka Montana.
We also need to focus on the coming energy shortage. Paying for increasingly more expensive oil with a beat up dollar means exporting our wealth. We need to move to energy independence to maintain our standard of living.
What energy shortage?
We get 5,000 times as much energy as we use. It comes from the sun.
And then there is this:
WB-7 First Plasma
There is plenty of energy. We are not smart enough to take advantage of it yet - economically. However, we are getting smarter every day.
BlacquesJacquesShellacques,
The paperwork is expensive. If it was just a matter of putting things in a box and sending them no problem.
However, there is an opportunity there for you. Why not import in bulk (spreading the transaction costs) and sell to Canadians? Americans do that sort of thing a lot. It is called an entrepreneurial culture.
Re: More people can produce more for more people. Also, larger populations create an ability for specialization, which increases prosperity per capita.
We have more than enough people to produce everything we need, and to specialize in a million different ways. Indeed, our problem is that a very large fraction of humanity is now still out in the cold. The world's population has more or less doubled since I was born. We had sufficient numbers to support an advanced technological civilization in 1967, so if the world's population does fall back to, say, three billion I suspect we will do just fine with that number.
Re: The fact is, people cannot afford their houses, period.
Change that to "some people" and it's correct. We need to remember that more than 90% of all mortgages are not in default, nor likely to be.
Re: Face it, my wife and I make almost $100,000 combined, and there is no way we could possibly afford a place for what it costs us to rent
I think you may have misstated that. Since you can afford the rent now, you could afford house payments at the same level. What you probably meant to say is that you would find any house you could afford to buy unacceptable or indaquete.
Hmm... "What's good for Forbes is good for America"?
As a slogan, it could use some work, but I think we're on the right track.
Good Lord I hope the Empire doesn't fall now; I have invested far too much money in businesses that produce Legionnaire equipment.
I hope this situation makes people realize how disasterous the Clinton administration's currency policies were. The origins of our current predicament are in Clinton's Treasury department who sold gold and bought dollars to try and push a dollar that was already too strong up further. Their handling of the Asian financial crisis was a long term disaster for the US. They should have blocked the capital in flows that pushed the dollar sky high and created many of the bubble markets. For as the market was reaching stratospheric heights, the very basis of US competitiveness was being undermined by decimated export profits.
On the other hand it's good for US companies that export. But many of our exports relied on imports to begin with...
Well, that's because US companies got priced out of those markets to begin with due a overvalued dollar.
Well said. There is one other factor to consider though, and that is the pricing of Oil in dollars. If the bottom falls out of the dollar it may become increasingly difficult to hold that line and as bad as it is now you probably don't want to be buying Oil in anything else.
The pricing of oil in US dollars has been one of the reasons the dollar had been staying too high, foreign countries were building up reserves. Of course this completely makes it impossible for the Fed to get a handle on the amount of money that needs to be out there, because if they didn't increase the money supply then the US would have been undergoing massive deflation.
For example, Japan's auto industry is a main driver behind Japan's trade surplus because they actually send the cars they make overseas! They make cars that they don't drive but we do!!!! This is real goods and services being represented by the trade imbalance numbers! It is not so simple as people outside the USA simply holding dollars.
Bad example. Toyota, Honda, Nissan, and Mazda are the four biggest purveyors of Japanese cars in the United States, right? Not quite. Of those four manufacturers, the only one that doesn't make the bulk of it's American sales from cars manufactured in the United States, Canada and Mexico is Mazda.
They import a lot of key parts made in Japan to protect their intellectual property. That's why every drop in the dollar radically cuts into the Japanese carmakers profitability. If the yen were to reach around 95/US$, Japanese car makers would be running at a loss with their current manufacturing operations. US car makers would finally get pricing power they need to recapture market share and generate profits to cover their development expenses.
>
Eric L.
^Perhaps this fool will be one of the first to go off the cliff with the rest of the lemmings?
>
Eric L.
So, let me get this straight, we should shrink our economy and shrink our consumption, but move to energy independence to maintain our standard of living? Obvious contradictions are obvious.
I have to admit I don't see where there is any flaw in the current 'model', considering it mirrors ecology: populations in biological systems always expand or contract based on the constraints placed upon them. In fact, many chemical systems behave in much the same way, e.g. chemical equilibria. It's not a 'model', it's a fact.
You've got a bum for a husband. He's run up the credit cards, the house is a wreck, your car is in disrepair, and you've just been fired.
This may be a blow to your pride but cheer up. You're new lower expectations on salary will land you a new lower paying job. Sure you didn't get rid of your spend like a sailor on leave husband but that's ok, you need him to run your finances.
Not only did he spend like a sailor but he lied to you about the finances via faking the interest rates. That made you think you had more money than you actually did, plus made it hard for you to tell you were eating into your capital.
If it wasn't for him you'd actually try to save some money and as he points out, "That's bad for the neighbors because they won't be able to sell you their stuff. I'm needed to keep the cash flowing."
Sure the market will fix past mistakes of the government as Megan points out, but she advocates continuing the policy of letting the proven bad hubby run the finances. Not only that she doesn't even recognize how it happened. Any pointing out to her how it happened brings the retort that the ones who know expect there never to be a rainy day.
There are rainy days always but this is a artifically created rainy day. Not only that but personal rainy days generally come to people staggered so that some are able to help others in time of need. If my bank goes under for bad finances at least you can help or perhaps I can put my money in more than one bank. These artifical rainy days affect everyone simultaneously.
We are looking at nothing more than the fact that America artificially maintained its standard of living by borrowing to make up for the deficit caused by the off-shoring of higher paying jobs overseas.
In addition, the very people taking those jobs make just enough to add to consumers of critical resources, but not enough to actually create demand for Western goods (or their own goods exported to the West that matter).
Unfortunately, this creates a double-whammy. Not only will American's economists allow foreign countries to reduce our wages, but these foreigners will also now compete for the very resources we need to maintain our standard of living.
Who benefits: those with wealth already. Welcome to the new serfdom, and welcome to hell.
So you didn't like my Japanese car manufacturing example because it has flaws. Well, there are no perfect models in economics. I wanted to show you that the trade imbalance numbers do represent cars (real objects) for which there is an imbalance. These numbers actually do try to represent something.
I think the main problem with economics is that people get caught up in number talk. What the numbers represent is what is important. Because we have these ridiculously high imbalances in the US, we do have imbalances in real goods and services.
Another example, the world economy has a trade balance of zero! It has to be that way. We can't borrow from no one and we can't have a trade imbalance with no one. So, if we have large imbalances, we have them with someone. In a pure laissez-faire economy, it would quickly be corrected, but of course we don't have one. So, either our trade imbalances are not sustainable, or some people want the imbalances. Who do we have imbalances with? Are those imbalances in our favor or not?
Our large trade imbalance and deficits do actually represent an imbalance of goods and services. We produce less than we consume. It is not some trick of numbers, dollar holdings here, or interest rates there. Unless we change this by working more, or by consuming less, or some combination, it cannot be sustained.
Mark-to-market is likely a significant cause of this problem, but in a downturn abandoning it would be pointless. Mark-to-market, during the bubble times, allowed balance sheets to grow and then allowed more leverage than would be possible if the balance sheets were mark-to-cost.
To a certain extent, our problems start in the PRC. The PRC leadership figured out around the time of Deng that communism was bunk and they'd impoverished the chinese people without even getting a good durable dynasty out of the madness. The PRC leadership would like to not get dragged out into the street and hung from the lampposts when the population similarly caught on to this fact of life.
They have hit on the fact that if they reduce the rise of their economy and reduce expectations while cranking up employment (workshop for the world) they might just avoid the whole lamppost thing. So why do we go along with it? We've done the military-historical analysis and figured out that we'll end up with half-a-dozen warring Chinas, several of which will have nukes and be willing to use on each other. This is such a horrible future that we're willing to take a lot of abuse to avoid it.
The current troubles are just a bump on the road to unwinding the previous multi-decade arrangement which left us short a manufacturing base we're starting to rebuild and a couple of nuclear wars we didn't have. So who really is unhappy at the trade?
TMLutas:
What manufacturing base are we rebuilding? It seems to me we are still shedding manufacturing jobs. And China is not exactly satsified with manufacturing lower-end goods.
Lets just say this: in 2020, I have a feeling Boeing will be manufacturing most of its planes in China.
Also - guess where the money is going to be for future R&D jobs? Yup ~ China and the Middle-East.
Why is inflation such a bad thing?
Salaries will adjust to reflect it, surely its only a problem for folks sitting on a pile of cash?
Anyway, this ia all part of globalization - there are two classes now, (1)The Global Elite and (2)Everybody else.
The winners are the folks at the commanding heights running the global ocmpanies - which are trans-national. Wherever the most profitably labour and tax regime is thats where the jobs will go.
Expect "US" companies to take less of an interest inn americans - unless it is an election year. The emerging consumer class in Asia is where they want to be. We're already well enough fleeced.
A few of the commenters have mentioned it, but I need to emphasize that the weak dollar problem is more than just a Fed policy discussion. The weak dollar is primarily a result of deficit spending by our government, and that does not seem to be included in most mainstream discussions. For the last thirty years the Fed has been selling bonds to counteract the government deficits and maintain a strong dollar. They have done a pretty good job of it until now, but we have finally reached the point where it cannot continue. As Brian Macker puts it, "You've got a bum for a husband. He's run up the credit cards, the house is a wreck, your car is in disrepair, and you've just been fired." It is not a good situation, but it is not the end of the world either. The question is whether we have enough wisdom to recognize our situation and the solution.
It is your currency, and it is your problem.
These problems with currency fluctuations, especially the U.S. Dollar, will disappear when the world moves to a Single Global Currency, managed by a Global Central Bank within a Global Monetary Union. The SGC will come through the creation, expansion and merger of monetary unions, the largest of which is now the European Monetary Union.
See the website of the Single Global Currency Assn. at www.singleglobalcurrency.org. The goal of the Association is a Single Global Currency by 2024.
Among other benefits will be the elimination of $400 billion annually in foreign exchange transaction costs and the elimination of global currency imbalances and elimination of the need to maintain foreign exchange reserves (now totaling more than $6.1 trillion).
The IMF and Bank for International Settlements and all the world's central banks and universities should begin now to research and plan for the Single Global Currency.
Well, we still have 8000 tons of gold. Worth nearly 250 billion.
M. Simon: you say "Americans do that sort of thing a lot. It is called an entrepreneurial culture."
I was trying to tell you that may not really be true anymore, particularly in the international market and particularly in the easiest international market any damn fool could ever trade into, namely Canada.
Maybe it never was true.
Or maybe you have been so rich for so long you've forgotten how to hustle. That's the sense I get from your "Americans are entrepreneurs, all is well" response.
Don't get me wrong, I'm not one of the usual leftoid anti-American Canuckis who too often shoot of their mouths. I like and admire the USA and Americans and am genuinely pained to see trouble in your economy, even though that trouble lets me save 30% on anything I can get from the USA over the prices I paid a few years ago.
Now that's out of the way, let's get on with the next priority, lowering business taxes, which are now the highest in the Western world. If not addressed, much of the good that comes from a cheaper U.S. dollar will be dissipated because these taxes will make U.S. exports relatively less competitive in the world market. If the Lou Dobbs chorus really wants to reduce outsourcing, they would be best advised to also seek to reduce business taxes, thus lessening one incentive to move operations overseas.
I read a hilarious piece in the IHT about how the weak dollar meant rising costs for imports, and hurt European exporters...hey didn't they miss the part about helping American exports?
And just today BMW was on Bloomberg as expanding their American plants to make more cars domestically due to the rising Euro.
Its funny that in America everyone worries about a falling dollar, while in China everyone worries about a rising Yuan.
It's amazing that one can analyze the fall of the dollar for so long, call it inevitable, and not mention the fact that the Fed is expanding the amount of money in circulation by about 10% per year. Anyone know by how much the ECB or the Bank of England are increasing their respective money supplies?
Anyone know by how much the ECB or the Bank of England are increasing their respective money supplies?
See under Global Economics for money supply growth
We don't "desperately need" to do anything. More people can produce more for more people. Also, larger populations create an ability for specialization, which increases prosperity per capita.
Think of it this way... if you were the only person on Earth, would you be materially better or worse off?
Posted by Nelson
Garbage. Say I have a mostly self-reliant large farm. I cannot run it on my own. I need two co-owners, and 10 employees. If those 10 employees all have 6-8 kids apiece and I have to hire the extra spawn or give welfare, I now have a farm that has too many people to run optimally. Everyone but the owners initially get less pay, then even the farm owners suffer as the crops become comsumed internally more and more rather than be sold. Then in 20 years, the 60-80 people on the farm produce another batch of 6-8 kids per family and demands they move on are met by saying all the other farms have too many people and they have expanded already to use all the arable land...
Malthus wins.
We already have way too many people chasing too few resources and the world is supposed to go from 6.8 billion to 12.8 billion by 2100 and the US by Census projections from 300 million to 420 million by 2050.
In 1965 we had under 200 million, had all the high civilization and specialization we needed. Back then, America was a net exporter. WE got and produced more oil, grain, manufactured stuff. All the extra people since then have not increased our export of surplus resources but growingly have used them up domestically, and they have not increased our competiveness, but given us frightening trade deficits, gridlock, lower quality of life, lower job security, less opportunity for our grandkids.
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Unfortunately, this creates a double-whammy. Not only will American's economists allow foreign countries to reduce our wages, but these foreigners will also now compete for the very resources we need to maintain our standard of living.
Who benefits: those with wealth already. Welcome to the new serfdom, and welcome to hell.
Posted by Brad
A hell that will eventually be visited on the oligarchs that sold America out, wrecked our manufacturing and technology base, opened our Borders to mass invasion.
One thing I love about Putin is how he is making some of the worst of the oligarchs that sold Russia out pay dearly. Unfortunately, what I don't like about Putin is that he allowed some of the thieves to buy a pass for their looted wealth, and didn't shoot any of the ones he brought to justice for destroying the standard of living of most Russians in the 90s.
chris ford wrote "We already have way too many people chasing too few resources..."
I say "Do something about it chris ford. Take yourself out of the population."
Obviously he will not because he only cares about telling others what *they* should do.
Why do people think we can have a global economy without a global standard of living? That's all that's happening. Indian programmers are getting more expensive and Americans are getting cheaper. For me, that's a good thing. Inflation makes my mortgage cheaper and that's also good. Everything else, I can live without as long as I have a job.