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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: el_gaviero who wrote (87099)	9/30/2007 11:20:39 AM
From: arun gera	Respond to of 110194

El Gaviero, >It is unhelpful to say that our various problems are caused by bad money policy (too much credit creation, too little M1, too much M3, or whatever). This is like saying that a cold is caused by fever.> Yes. Credit is being extended as true demand and affordability is not there in the US economy. Credit is being used to fuel demand. The important question in my opinion is - what has happened to the demand? Why can't american industry find the right products and services that are affordable to the average american as well as profitable to the business? (maybe they have - it is called the "debt") The american industries seem to be more willing to build and sell financial products rather than physical products (extended warranties, home and car loans, sub-prime loans, syndication deals) >My analysis is roughly that by the decade of the 1970s, and certainly by the 1980s, American workers were vulnerable to competition from third world countries. (If a decent, disciplined worker is more than willing to work for a dollar an hour, sooner or later this worker is going to displace an American worker who costs his employer 50 dollars an hour.)> It is not the competition of the per capita wages that matters. What matters is the existence of companies that can harness the per capita wages. The western european companies were always there, but they demanded equivalent material goods/hour of wages as the american companies. Then came the japanese companies in the 1970s and 1980s, they demanded less till their workers wanted more. Then came the South Korean companies that are now running out of cheaper labor. This small pool of competition has already devastated the car industry in the US. And in the next 20 years, Indian, Chinese, and Brazilians are coming with planes, trains, and automobiles, with their vast populations still willing to work for less. This is already showing up in the competitiveness of all rust belt industries, starting with steel. The industries where US companies are protected or clearly superior (military, finance, high end software, doctors, lawyers, government jobs), the average worker is still not badly off. >Since the 1980s, the vulnerability of American workers has only increased, and is now being caused by two deeply rooted tendencies -- ever more expensive oil, and the discrediting of socialism.> Oil is stil cheap in the US compared to the rest of the world and is so far a non-issue in competitiveness of US industry. >What this means is that economic power has shifted away from the American worker. He can’t make a decent living, and support with his taxes the vast superstructure of government erected upon his shoulders> The bargaining power has definitely shifted. The bargaining power in the 1950s and 1960s of the American male was primarily due to low immigration rates in the 1930s and 1940s. en.wikipedia.org Then the American male's bargaining power was lowered by the entry of women in the work force (whose bargaining power was increased), followed by greater immigration followed by outsourcing. There seems to be a deliberate effort to substitute the high bargaining power of the american male (and now the american female too) with other options. Isn't that how capitalism works? >The trouble is that our American system does not know how to deal with large classes of people becoming worse off.> The British learnt to deal with it after the collapse of the British empire. Russia seems to be managing too. >Rather than dealing with it, we take the path open to any wealthy family in decline -- we go into hock and we sell off assets.> There are still plenty of assets to sell. Roads, highways, bridges, schools, civil infrastructure, plants, parks. >The real problem is not policy but power.> The real problem is that the supply side of the world is enough to take care of the normal materialistic demands of the US consumer. Food, oil, cars, and computers are all cheap. The services that are made in the USA - healthcare and education are relatively expensive. Coffee is cheap - starbucks is expensive. What Mish eats at home is cheap, gourmet organic food is expnesive. The problem is that everyone in USA thinks that they are entitled to the best things in life and nothing less (5000 sq ft houses, most expensive healthcare). And they are being given credit to exercise that wish, even if they cannot afford it. The US worker is not taxed as high as other countries. The US debt as percentage of GDP is still not that bad. -Arun

To: el_gaviero who wrote (87099)	9/30/2007 2:06:26 PM
From: RJA_	Respond to of 110194

>>My basic assumption is that we are going to do nothing until our collective ship plows into a granite reef somewhere, and then in the chaos that follows, we will make new arrangements. This certainly fits the pattern so far. What will the new arrangements be? How will we get from here to there? This is the argument for precious metals, if they are not declared illegal. Also the argument for foreign assets, and for those who can do it, perhaps a move to a stable foreign local. Canada or Norway come to mind. RJA

To: el_gaviero who wrote (87099)	9/30/2007 2:19:13 PM
From: lifeisgood	Respond to of 110194

What this means is that economic power has shifted away from the American worker. He can’t make a decent living, and support with his taxes the vast superstructure of government erected upon his shoulders. The trouble is that our American system does not know how to deal with large classes of people becoming worse off. Either the worker is going to have to get less or government is going to have to shrink (or both). But how? How? By outsourcing our government work to Chindia. best... LIG

To: el_gaviero who wrote (87099)	9/30/2007 3:12:45 PM
From: Nikole Wollerstein	Read Replies (1) \| Respond to of 110194

"a return to the gold standard" Then gold should be reavaluated to something like 30-50 thousand $ /oz Do not think it is possible since very few people in USA have gold

To: el_gaviero who wrote (87099)	9/30/2007 6:07:39 PM
From: Elroy Jetson	Respond to of 110194

Your comments highlight why Monetarist economics is simply not true. too much emphasis is put upon money policy as a driver of events, and too little emphasis is put upon money policy as a symptom of events Charles Rist's views are typical of pre-Monetarist economics. These economists understood the 1920s quite differently to Monetarists. Indeed, their definition of money is quite different to that of a Monetarist. WW-I created a massive amount of new investments in the farm and manufacturing sector - which were economically successful only while the needs of WW-I were present. Once the war was over, the capital invested in these projects was effectively destroyed. The central banks attempted to prop things up with the creation of tremendous amounts of debt creation - creating financial bubbles rather than prosperity. It was inevitable that this failed. As Schumpeter described it, this turned what should have been a bad economic recession after WW-I into the "hollow prosperity" of the 1920s. The money supply for Charles Rist, is the representation of the economy's capital. For an economy where a large percentage of its capital/money was destroyed in bad investments, the Great Depression was inevitable. Expanding debt levels cannot replace the destruction of capital/money, anymore than mailing everyone a million in cash can make everyone rich. Greatly expanding debt levels merely postponed the Depression and made it worse. As Schumpeter said, economic policy doesn't permit a choice between Depression or no Depression - only a choice between Depression now, or worse Depression later. ** In contrast, Milton Friedman observed that Fed greatly expanded the debt/money supply during the 1920s and early part of the Great Depression. But Friedman also noted this large increase in debt/money was insufficient to offset the reduction in money turnover (monetary velocity) as people quite logically panicked and stopped spending when the Great Depression began to grip. While Friedman correctly observed that the effective debt/money supply declined as the Great Depression began. He then made a logical error and assumed the converse must be true. Friedman developed the logically insupportable hypothesis that greatly increasing the debt/money supply, to offset the decline in monetary velocity, would have prevented the economic depression. I'm sure you can see how absurd this hypothesis is. Dropping large amounts of currency from dirigibles, or issuing millions of new loans, would not have solved the underlying problems in the economy of the 1920s. Charles Rist would have been glad to set Friedman straight. Unfortunately this nonsense provides the basis for the actions of the Fed and most other central banks, and the writing of Monetarist based economists. .