Global Economic Crisis

[headhonchoII]

http://www.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.

[Jack Burton]

The West can play all the harder ball.

oh yea, I could play with those all day.

http://www.youtube.com/watch?v=bevJr3Ra84Q

[headhonchoII]

I think it comes down to spreading the wealth and jobs. If there not enough jobs being created or salaries are under pressure then that just kills the economy. Where are the jobs?

(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.

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).

[politbureau]

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.

[Jack Burton]

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?

[politbureau]

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?

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.

[Mother Theresa]

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
http://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
http://news.google.com/news/more?pz=1&c ... 9xI58U5TpM

AIG describes how it plans to repay the vast fortune it borrowed from taxpayers

the taxpayers may want to factor in all the aid they extended to A.I.G. through the Treasury — $70 billion, though the company did not draw down all the credit lines. Or they may want to add the original $85 billion loan that came from the New York Fed in September 2008, in exchange for an 80 percent stake in the company

http://www.nytimes.com/2010/10/01/busin ... ?_r=1&dlbk

Ireland's government to spend over $50B bailing out its top banks
http://news.google.com/news/more?pz=1&c ... 8LfukFxtKM

Moodys downgrades Spain's credit rating
http://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.

If you want a better understanding of how we got into this mess, I highly recommend that book I'm reading.


http://www.amazon.com/End-Wall-Street-R ... 1594202397

[politbureau]

Debt Market Strips U.S. of Triple A Rating

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. . . .

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.

[sulavaca]

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.

[Gao Bohan]

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.

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.