NationStates Jolt Archive

I have an extra credit assignment due this afternoon, and I am typing out a short paper on this article.

It is actually interesting and would fit in well here.

Could Trade Imbalances Topple the Greenback? (http://web.lexis-nexis.com/universe/document?_m=6b998a9e48cc07ba94a420dada323ba4&_docnum=1&wchp=dGLbVzz-zSkVb&_md5=2cdd56848ccd3bcd55b6fab4069badca)

It is a pretty informative look at the trouble we could be facing right now.

I'm looking at a slightly different scenario:

Oil-rich nations have taken out massive international loans based on predicted oil reserves. It has already panned out that Shell's oil reserve predictions were wildly inflated, and that's just a company.

I think we're at the peak of oil production. Everywhere. It's only going to go downhill from here. So when the oil doesn't come out as fast as predicted, and they have to make good on the loans, we and they have a few choices (this all happens way before the cars stop running, so don't worry about that part).

1. The fact that the oil reserves were wildly inflated becomes a scandal.
2. International banks scurry to secure their loans - which means they want cash now and a lot of it.
3. Oil prices skyrocket, but not fast enough.
4. Governments intervene in the resulting banking crisis - but the avalanche has already begun. And governments traditionally suck at intervening.
5. The effect ripples like a tsunami through other markets. For instance, the real estate bubble, which was fostered in the US on loans nearly as unbalanced as the margin-based stock buying pre-1929, bursts in a titanic explosion.

Debt is a house of cards. If the oil reserve predictions on which trillions of dollars in loans are based prove to be wrong, even by as little as 10%...

It's not just a US problem... The people in the EU will lose their shirts as well.

Broken Link.

Do you have anything to cite your data with. I'm not disagreeing you I would just like to see some information on this.

I can definitely see a major debt crisis occurring. We are already overstretched both publicly and privately as it is. There is also a large amount of interest rate pressure in the US due to the declining dollar. Anymore pressure would be very bad.

Broken Link.

Business Week

November 29, 2004

SECTION: Business Outlook: U.S. ECONOMY; Pg. 31 Vol. 3910

LENGTH: 1197 words

HEADLINE: Could Trade Imbalances Topple The Greenback?;
Pressure from currency markets makes fixing the trade gap a delicate task

BYLINE: By James C. Cooper & Kathleen Madigan

BODY:


The ever-growing deficit in America's international trade is a bomb waiting to explode, but one with a very long fuse. That's why for years economists and policymakers put the deficit low on their list of worries. The lack of urgency stemmed from the glacial pace of the gap -- it has been widening for 13 years with no problems -- and from the fact that the U.S. remains the most attractive destination for foreign funds.

Recently, however, the fuse seems to be burning a lot more quickly. Currency markets, increasingly edgy about the deficit, are pushing down the dollar. Overseas officials and international trade organizations have called on the U.S. to deal with the problem before it inflicts global pain. And policymakers at the Federal Reserve took time at their Sept. 21 policy meeting to discuss the ``worrisome further widening of the U.S. trade and current-account balances.'' At the same time, growing economic tensions, especially in Europe, and contradictory statements from the White House about the dollar suggest that correcting the current-account deficit will be risky.

Indeed, no easy solutions lie on the horizon. Stronger global demand could help U.S. exports, but prospects abroad are not encouraging. Third-quarter growth in both the euro zone and Japan undershot expectations, and China's efforts to cool off its economy are hurting much of Asia. Boosting U.S. savings would lessen America's dependency on foreign funds, but Washington seems uninterested for now in reducing the main drain on savings, the federal deficit. Rising federal red ink only intensifies the U.S. need for foreign capital and worsens the trade gap as it stimulates U.S. demand.

Even a slow decline in the dollar may not be much of an elixir, because the drop is concentrated against a limited number of currencies, and thus a limited volume of U.S. trade. Worse still, given that currency markets often lurch instead of stroll, a strategy that relies largely on a weaker dollar could backfire. A sharply lower dollar would feed inflation pressures, boost long-term interest rates, and severely complicate the Fed's efforts to foster maximum sustainable growth. The October producer and consumer price indexes suggest at least a small dollar-related pickup in inflation outside of energy and food.

HOW DID THE DEFICIT GET SO BAD? For more than a decade, the global economy has become increasingly dependent on U.S. growth, while the U.S. has become more dependent on foreign capital to finance its demand. This cycle snowballed the deficit in the U.S. current account -- the broadest measure of international trade and financial flows -- to a record 5.7% of gross domestic product, a level exceeded only by the emerging nations Hungary, Bulgaria, and the Czech Republic. Foreign money now finances three-fourths of U.S. net investment (chart).

Restoring some balance in global trade is potentially explosive because a successful adjustment requires so many pieces to fall into place at the right time. The U.S. trade deficit has to shrink without the dollar crashing. And trade flows have to shift, but without doing serious harm to global growth and financial markets.

Plus, accomplishing all this will require coordinated monetary and fiscal policies. The U.S. will have to tighten either monetary or fiscal policy -- preferably both. The European Central Bank must cut interest rates, and Japan must solve its long-running banking problems. China and many Asian governments have to loosen their grip on their currencies. And all countries must restrain themselves from protectionist urges.

IT'S A TALL ORDER, especially given the Bush Administration's penchant for acting unilaterally rather than in conjunction with other governments. Choosing to go it alone on this effort risks unleashing the wrath of the currency markets. Given the dollar's slide, they may already be losing their patience with current efforts.

In particular, forex markets seem dismayed by the prospect of large U.S. budget deficits. And traders are paying less attention to the Bush Administration's dollar mantra, most recently chanted by Treasury Secretary John W. Snow, that ``a strong dollar is in America's interest.'' Instead, traders are focusing on the White House's other -- and opposite -- message that ``currency values are best set in open and competitive exchange markets.'' Since current fundamentals strongly argue for a weaker dollar, forex markets seem willing to give the Administration what it is not so subtly asking for.

In the past, that would not be a bad thing. A weaker dollar was a major weapon for bringing down the trade deficit. For example, the 1985 Plaza Accord among major nations brought down the dollar, and the U.S. current account shrank from 3.5% of GDP to near balance by 1990. But relying on a dollar remedy will be a lot trickier this time because trading patterns have changed so dramatically and many key trading partners closely manage their currencies.

According to Fed data, the dollar is down 13% against a broad range of currencies since its peak in February, 2002. But that number doesn't tell the whole story. To gauge the U.S.'s global competitiveness, the Fed also calculates two subindexes of the trade-weighted dollar. The first compares the dollar to seven major currencies: the euro, pound sterling, Japanese yen, Swedish krona, Swiss franc, and Australian and Canadian dollars. The second index measures the dollar vs. the currencies of 19 other countries, which the Fed labels ``Other Important Trading Partners'' (chart). Together, these 26 regions account for about 85% of U.S. trade flows.

THE DATA REVEAL that the dollar's decline has been concentrated in a 25% drop against the major currencies of countries that account for 46% of the volume of U.S. trade. However, against the OITP currencies, the dollar is actually up 5%, and these countries make up 40% of U.S. trade volume. Not surprisingly, the U.S. merchandise trade deficit has deteriorated more against the OITP group. On a 12-month moving average, that gap has widened 56% since February, 2002. The U.S. goods deficit with the major nations is 34.6% bigger.

The problem isn't just China. Excluding China, the U.S. deficit with the OITPs is still 41% bigger than it was in February, 2002. And in the past year, the U.S. gap with the seven major trading regions has worsened just as much as the gap with China has, even though the dollar is down 5% vs. the major currencies and not at all vs. the yuan.

Why hasn't the dollar narrowed the trade deficit, even in areas with strengthening currencies? Strong U.S. demand, compared to that in other regions, has overwhelmed the constraints of the dollar's weakening. In effect, hefty stimulus from U.S. tax cuts and low interest rates has skewed global growth and helped out foreign producers.

In the coming year, economic tensions are bound to rise, as the global trade imbalance gets worse before it gets better. The onus will fall on the Bush Administration to take the lead in achieving a benign resolution. But if government policy fails, the currency markets will step in. And their remedy could be much more painful.

Do you have anything to cite your data with. I'm not disagreeing you I would just like to see some information on this.

I can definitely see a major debt crisis occurring. We are already overstretched both publicly and privately as it is. There is also a large amount of interest rate pressure in the US due to the declining dollar. Anymore pressure would be very bad.

Vittos, go here. http://dieoff.org/page140.htm

After reading that, you'll know why Bush is the least of my concerns.

No one, and I mean, no one, will be able to deal with what's happenning.

The most recent oil price spike, and the inability to raise production to any significant degree tells me that we're already at the ceiling. The foot is to the floor, and the car won't go any faster. From now on, it's only going to slow down.

It will be hard to discuss Left vs. Right when we're considering eating each other.

Good article. Thanks.

The problem is that there is not much that US can do on its own to correct this. It needs some type of international accord regarding currency and trade flows.

Even if the US balanced its fed. budget, the trade gap would continue to worsen.

http://www.lifeaftertheoilcrash.net/Introduction.html


Start praying for fusion power, or lobbying for massive investment in alternative energies.

Vittos, go here. http://dieoff.org/page140.htm

After reading that, you'll know why Bush is the least of my concerns.

No one, and I mean, no one, will be able to deal with what's happenning.

The most recent oil price spike, and the inability to raise production to any significant degree tells me that we're already at the ceiling. The foot is to the floor, and the car won't go any faster. From now on, it's only going to slow down.

It will be hard to discuss Left vs. Right when we're considering eating each other.

I'll read it when I get done with my paper.

I do know since we have gone through years of economic hubris dating back to Reagan (including Clinton, this isn't a repub/democrat thing), we are full throttle and ready for a big crash. Sure the economy has been booming but that doesn't mean it is strong.

The funny thing is, if you go back and look at Carter's malaise speech, he hit on some points that would have helped us avoid the position we are in right now. He was ridiculed for it, and that led to the Reaganomics that put our economy into hyperdrive.

Vittos, go here. http://dieoff.org/page140.htm

After reading that, you'll know why Bush is the least of my concerns.

No one, and I mean, no one, will be able to deal with what's happenning.

The most recent oil price spike, and the inability to raise production to any significant degree tells me that we're already at the ceiling. The foot is to the floor, and the car won't go any faster. From now on, it's only going to slow down.

It will be hard to discuss Left vs. Right when we're considering eating each other.


Dude, you rock!!

I've been talking about this for years, and you've probably been here, or at least heard of it:
Hubbert's Peak (http://www.hubbertpeak.com)

The end of cheap oil means the end of a lot of what our economy is based on. Take the trucking industry. Without the very cheap diesel fuel, much of the shipping in this country is going to become VERY expensive, and I don't know if we can make biodeisel in enough quantity to supplant petroleum fuel.

That's very cool! I'm glad to know others are watching this too! Maybe there is hope for us!

Good article. Thanks.

The problem is that there is not much that US can do on its own to correct this. It needs some type of international accord regarding currency and trade flows.

Even if the US balanced its fed. budget, the trade gap would continue to worsen.

The problem is we are worsening our troubles with the corporate tax breaks and lowering our savings with the deficit.

We are also screwed on securing help in the way of a international accord. I don't think that the European Union is in too much of a mood to help us out right now, and I know China will be extremely reluctant to open up their monetary policies with their history of protectionism.

The problem is we are worsening our troubles with the corporate tax breaks and lowering our savings with the deficit.


Even if there was no federal defecit, and we had a far higher savings rate, the imbalance in consumer demand in the US v. ther rest of the world would lead to a massive trade deficit.

Over time, that would have the same effect. Like the article said, all that is happening now is that the fuse is burning faster.

It's not just that fault of the US, but also of other countries that have geared their economies solely to exporting.

Edit: And we have to have the balls to remove the earnings link to social security. If we don't do that we are fucked anyway,

Even if there was no federal defecit, and we had a far higher savings rate, the imbalance in consumer demand in the US v. ther rest of the world would lead to a massive trade deficit.

Over time, that would have the same effect. Like the article said, all that is happening now is that the fuse is burning faster.

It's not just that fault of the US, but also of other countries that have geared their economies solely to exporting.

The fact that the Euro and the British pound have stayed high just shows that they are not determined on exporting.

If we had a higher amount of savings that would lower consumer demand for one. If we had a smaller deficit, we would have less government spending.

But I know those aren't fix alls, they would just help.

The fact that the Euro and the British pound have stayed high just shows that they are not determined on exporting.


If you look at nations like germany and japan, even with currency qustions put aside, you'll see that the avowed government policy is to develop the economy through exports rather than stimulating domestic demand.

Ideally, the trade imbalance for every nation should be around zero. Germany and Japan are both commited to the very opposite of this. The upshot is that there will be deficits elsewhere.

Now I agree we need to do something about our own fiscal policy, but at the same time other nations need to adress theirs too.

Of course we could just start enforcing our own laws, which would keep a shit load of foreign goods out. Including those from japan and germany.

If you look at nations like germany and japan, even with currency qustions put aside, you'll see that the avowed government policy is to develop the economy through exports rather than stimulating domestic demand.

Ideally, the trade imbalance for every nation should be around zero. Germany and Japan are both commited to the very opposite of this. The upshot is that there will be deficits elsewhere.

Now I agree we need to do something about our own fiscal policy, but at the same time other nations need to adress theirs too.

Of course we could just start enforcing our own laws, which would keep a shit load of foreign goods out. Including those from japan and germany.

I can see that, but you cannot blame other countries for the massive trade deficit we have. It has more to do with our monetary and fiscal policies and our mass consumerism.

Take our massive amounts of debt for example. It only proves that we have are consuming a great deal more than we should.

This thread pretty much re-affirms my belief that Vittos and My Guns are the most worthy posters on this board.

( It also furthers my belief that a certain someone else is not the brighest wick of the menorah around here ).

Meanwhile, I have a few modest suggestions about what is to be done.
( written before the elections )
Zeroth Law: REDUCE PRIVATE CONSUMPTION when in trouble

Current mood: catastrophic
Current music: Apres nous la deluge

USD 400,000,000,000
This is the conservatively estimated amount of money the US will require to pay the interest on foreign debt next year. ( US foreign debt * yield on 10 year Gov't obligations, the real rate to be paid will be probably a tad higher )


You can add to that the federal deficit for next year. USD 491.000.000.000


And don't forget the trade deficit, predicted by the IMF at USD 600.000.000.000


Total: call it an even 1.500.000.000.000 dollars. Per year.

What is to be done about this? Neither Bush nor Kerry seems to have a clue at this stage...

A few modest suggestions of mine:
1] Undo all taxcuts
2] Institute a General Sale Tax
3] Witholding Tax on interest - deductable from Income Tax for US Residents - but not for aliens or corporate entities.
4] Ditto on dividends.
5] Constitutional Amandment banning deficit-spending.
6] Ban on the sale, importation and manufacture of gas-guzzling cars ( defined as any private vehicle that does not meet a 10KM/Liter fuel efficiency ( I think thats about 25 miles per gallon )
7] Ban on the importation of goods made by child-labour
8] A general shift from taxation on production ( capital, labour ) to taxation on consumption, thus shielding the US from economic competition of countries that cut corners on social security etc ( read: China )

I can see that, but you cannot blame other countries for the massive trade deficit we have. It has more to do with our monetary and fiscal policies and our mass consumerism.

Take our massive amounts of debt for example. It only proves that we have are consuming a great deal more than we should.

Well, from a larger perspective our national debt is about in line with other industrial nations. Far lower than Sweeden's Japan's or Italy's. About the same as france/germany. And slightly higher than UK. (I am speaking as %GDP here.)

We have a slightly higher non-mortgage personal debt rate, but on the other hand, property is relatively much cheaper in the US than in other industrialized nations so personal indebtedness is about the same, if not lower. Look at England for example where the % of household icome typically spent on housing payments is far higher.

In any event, yes we do consume a lot. That is the model for economy, it is consumer based and is growing rapidly. In contrast to many other nations we do not create economic growth by dumping goods on foreign markets - which is inimical to long term global financial health - but rather by a more balanced approach towards our domestic markets.

I agree that at this very moment the spending in Washington DC is completely out of hand, but we are far from a crises (that is about 4-5 years away at least). As to consumer debt; well we have bankruptcy courts, and in fact they have a positive economic impact on the economy as they encourage the flow of money.

However, even if we did adopt your approach and lower consumer demand, you do realize that would plunge Japan and Europe into recession, (and one that would probably take them a decade to recover from as they are not geared to consume their own products). Really, the way things are set up is that the world has no choice but to accept american consumer demand. What the rest of the world needs to do is stimulate it's own markets , which would, in turn, redress the trade deficit problems.

I really think that a lot could be done for the trade deficit just by enforcing our own anti dumping laws. Of course we don't do that because we don't want to screw up Europe or Japan.

Of course we could just start enforcing our own laws, which would keep a shit load of foreign goods out. Including those from japan and germany.

ex-President Hoover already tried that. Throwing on tariffs and banning foreign imports is what helped bring the Great Depression. Countries who depend highly on exports would shrivel up and die. Central and South America and Africa, where most countries exist almost solely on coffee and sugar exports, would all collapse. Japan, Europe, Asia in general, they're screwed. It's happened a few times already. That link tells about many commodities.

http://www.rrojasdatabank.org/wbdcmkt.htm

Defaulting on trillions of dollars of bonds will devastate any company, let alone country. Defaulting on loans is what brought our banking system crashing down just before "Black Tuesday." But since oil is the blood of our country, and the largest industry in the world hangs on the prices of oil, it will be interesting to see what happens in the next few decades. Especially since Bush has blatantly lied about giving funding back to alternate sources of fuel. Reagan initially supported this, but as the price of oil dropped, he killed his alternate energy bill.

This thread pretty much re-affirms my belief that Vittos and My Guns are the most worthy posters on this board.

( It also furthers my belief that a certain someone else is not the brighest wick of the menorah around here ).

Meanwhile, I have a few modest suggestions about what is to be done.
( written before the elections )
Zeroth Law: REDUCE PRIVATE CONSUMPTION when in trouble

Current mood: catastrophic
Current music: Apres nous la deluge

USD 400,000,000,000
This is the conservatively estimated amount of money the US will require to pay the interest on foreign debt next year. ( US foreign debt * yield on 10 year Gov't obligations, the real rate to be paid will be probably a tad higher )


You can add to that the federal deficit for next year. USD 491.000.000.000


And don't forget the trade deficit, predicted by the IMF at USD 600.000.000.000


Total: call it an even 1.500.000.000.000 dollars. Per year.

What is to be done about this? Neither Bush nor Kerry seems to have a clue at this stage...

A few modest suggestions of mine:
1] Undo all taxcuts
2] Institute a General Sale Tax
3] Witholding Tax on interest - deductable from Income Tax for US Residents - but not for aliens or corporate entities.
4] Ditto on dividends.
5] Constitutional Amandment banning deficit-spending.
6] Ban on the sale, importation and manufacture of gas-guzzling cars ( defined as any private vehicle that does not meet a 10KM/Liter fuel efficiency ( I think thats about 25 miles per gallon )
7] Ban on the importation of goods made by child-labour
8] A general shift from taxation on production ( capital, labour ) to taxation on consumption, thus shielding the US from economic competition of countries that cut corners on social security etc ( read: China )


You don't actually know anything about economics or international law, do you?

The problem is we are worsening our troubles with the corporate tax breaks and lowering our savings with the deficit.

We are also screwed on securing help in the way of a international accord. I don't think that the European Union is in too much of a mood to help us out right now, and I know China will be extremely reluctant to open up their monetary policies with their history of protectionism.

All politics are local, and no politician is looking beyond their next election. That's the problem with democracy in general.

It's going to be like that vignette in the beginning of the movie, The Road Warrior. Just like that. And it won't matter who's in charge.

ex-President Hoover already tried that. Throwing on tariffs and banning foreign imports is what helped bring the Great Depression. Countries who depend highly on exports would shrivel up and die. Central and South America and Africa, where most countries exist solely on coffee and sugar exports, would all collapse. It's happened a few times already. That link tells about many commodities.

http://www.rrojasdatabank.org/wbdcmkt.htm

Defaulting on trillions of dollars of bonds will devastate any company, let alone country. Defaulting on loans is what brought our banking system crashing down just before "Black Tuesday." But since oil is the blood of our country, and the largest industry in the world hangs on the prices of oil, it will be interesting to see what happens in the next few decades. Especially since Bush has blatantly lied about giving funding back to alternate sources of fuel. Reagan initially supported this, but as the price of oil dropped, he killed his alternate energy bill.


We can't put tarrifs up, we are part of the WTO, so I am not talking about another smoot-hawley. I am talking about enforcing anti dumping laws, which we don't at present.

The problem is we are worsening our troubles with the corporate tax breaks and lowering our savings with the deficit.

We are also screwed on securing help in the way of a international accord. I don't think that the European Union is in too much of a mood to help us out right now, and I know China will be extremely reluctant to open up their monetary policies with their history of protectionism.


Don't count on the EU to help you out. This here Union works on a strict "What have you done for me lately" basis.

China runs on the same principles as the current US administration, so I would not expect any largesse from that quarter. Not unless they occupy you first.


http://www.friesian.com/rent.htm

One may ask, "What if we prefer to pursue our self-interest through political rent-seeking, with its self-serving moralistic rhetoric, rather than renouncing that for a Liberal economic order that can only benefit us much less directly?" Then we will have to face the consequences of the sequel to the Prisoner's Dilemma; for it turns out that there really are TWO Prisoner's Dilemmas, one for the short term and one for the long run. This circumstance emerged in 1980 when Robert Axelrod, a professor of political science at the University of Michigan, invited computer program entries for a computer "tournament" of a Prisoner's Dilemma game like the numerical one above. The tournament goes on for many turns, and one particular entry won easily, both the first time and later when Axelrod had published the results and asked for new entries to challenge the first winner. The champion entry was called "TIT FOR TAT" and was one of the simplest possible. It only contained two rules: (1) start with Keep Faith, and (2) do the next the turn what the opponent did on the last turn. Any entry willing to Keep Faith with TIT FOR TAT will consistently do well. Any entry trying to Betray TIT FOR TAT will not be able to betray it more once in a row, and a particularly treacherous entry will consistently be Betrayed itself, accumulating little. A consistently Faithful entry will do fine with TIT FOR TAT, but it will of course get wiped out by the treacherous entries, so its overall score will be lower.

These results contain a stunning moral and political lesson. The two rules clearly can be translated into three traditional moral injunctions: (1) be honest (rule one), (2) an eye for an eye (rule two), and (3) forgive (rule two). We can say that the results demonstrate that the honest will prosper while thieves will not. Furthermore, we can say, with F.A. Hayek, that the Liberal capitalist economic order will surpass in prosperity and overwhelm any system based on theft or political rent-seeking. This can even explain why evolution by natural selection results in altruism and social cooperation, since the cooperative can ultimately do better than the uncooperative and be naturally selected. However, this still leaves the difference between the Prisoner's Dilemma as a matter one of turn and as a matter of many. Someone might think that the virtues that emerge over the long run are not relevant when making decisions about a unique case. Of course, when faced with betraying someone for the greatest gain, one does not know for sure that it is a unique case. Furthermore, someone who thinks that it is simply wrong to betray an agreement will not have to worry and plan about doing that, and will also be properly prepared for the long run. Part of the simplicity of TIT FOR TAT is that is relieves one of the necessity of constantly looking for the best way to betray the good faith of an associate. Instead, the problem is simplified, and a person can focus all their energy on the most productive forms of cooperation. Those who waste their time looking for a dishonest angle devote themselves to an enterprise that is essentially sterile. Without trust and cooperation no truly great enterprise can be undertaken, while the fruit of such enterprises is wealth beyond the dreams of narrow chiselers.

Everybody keeps talking about oil prices spiking and no ability to increase output. There absolutly is that ability. The nations surrounding the caspian sea are only moving ahead slowly, pipeline constraction has not been a huge priority etc.... if you spead up pipeline construction and the drilling of new wells Khazakstan would soon outpace Iran in the export of oil. There are other oil reserves that have only been minimally tapped or not tapped at all. Whether ot not the economy will have gigantic shocks is one thing, but all the doomsaying about no more oil isn't accurate....and by the way....God this rash itches.

An eye for an eye, only makes the whole world blind."- Gandhi

Adding tarifs only discourages people from buying that product. Outright banning the importation of that good would be disasterous to the country that supplies that commodity. To this day, we have all sorts of tarifs and subsidies on lumber, steel and coal, and even more. Why? If we didn't, our industries would collapse due to capitalism. If it costs less to buy foreign steel, even with tarifs, then why bother with domestic reserves? It keeps consumer goods down, and that's the economic way.

This thread pretty much re-affirms my belief that Vittos and My Guns are the most worthy posters on this board.

Thank you. A lot of the ideas I argue were formed when we discussed the devaluation of the dollar and the limitation of credit.

A few modest suggestions of mine:
1] Undo all taxcuts
2] Institute a General Sale Tax
3] Witholding Tax on interest - deductable from Income Tax for US Residents - but not for aliens or corporate entities.
4] Ditto on dividends.
5] Constitutional Amandment banning deficit-spending.
6] Ban on the sale, importation and manufacture of gas-guzzling cars ( defined as any private vehicle that does not meet a 10KM/Liter fuel efficiency ( I think thats about 25 miles per gallon )
7] Ban on the importation of goods made by child-labour
8] A general shift from taxation on production ( capital, labour ) to taxation on consumption, thus shielding the US from economic competition of countries that cut corners on social security etc ( read: China )

1] No way I can argue with you there. Not only do they kill our savings, but it is an inflationary policy that increases demand only aggrevating our problems.
2,3, & 4] I know Bush won't allow those as it would be both unpopular with the conservative voter and corporations.
5] Can't see that happening anytime soon, probably right after the next depression (which may be very soon after all). I will rejoice when they do it.
6] Yes our fascination with huge vehicles is both driving up our dependency on oil and killing our exports. I personally think that a large tax increase on gasoline would be as effective and would generate revenue for the government. (See 2,3, & 4)
7] That would kill four birds with one stone. It would benefit our trade deficit, it would create more higher paying jobs in the US, it would be a major step in halting human rights violations, and it would put pressure on China to open up fiscally.
8] I will never argue against an income tax, as it is the best way so far to account for the marginal value of the dollar, but there are many good reasons to tax consumption. Maybe a repeal on double taxation laws will make it easier for me to part with the income tax.

An eye for an eye, only makes the whole world blind."- Gandhi

Adding tarifs only discourages people from buying that product. Outright banning the importation of that good would be disasterous to the country that supplies that commodity. To this day, we have all sorts of tarifs and subsidies on lumber, steel and coal, and even more. Why? If we didn't, our industries would collapse due to capitalism. If it costs less to buy foreign steel, even with tarifs, then why bother with domestic reserves? It keeps consumer goods down, and that's the economic way.

The US cannot unilaterily raise tarrifs on any given product, absent specific circumstances. It's all part of the WTO mechanism. Right now we are in trouble for Bush's last efforts, just like the EU ran into problems over Banana's in the 90s.

We can however enforce anti-dumping laws, because dumping is bad for everyone.

Everybody keeps talking about oil prices spiking and no ability to increase output. There absolutly is that ability. The nations surrounding the caspian sea are only moving ahead slowly, pipeline constraction has not been a huge priority etc.... if you spead up pipeline construction and the drilling of new wells Khazakstan would soon outpace Iran in the export of oil. There are other oil reserves that have only been minimally tapped or not tapped at all. Whether ot not the economy will have gigantic shocks is one thing, but all the doomsaying about no more oil isn't accurate....and by the way....God this rash itches.

The spike over this summer, analysts agreed, proved that we are at the limit of oil production.

The locations you mention are fairly small in terms of proven reserves.

If you know of any more oil reserves that have been minimally tapped, please inform us. There hasn't been a major oil discovery in the past 40 years.

ok, fair enough. I'm a year out of date.

http://www.kcaurora.com/index.html?http://www.kcaurora.com/mnt/articles/mt20031117a.html

The question I have is what happens to the rest of the world if the US goes first, by any method - too much debt, oil shocks, etc.

If the US economy went into the toilet, at the very least I would predict worldwide depression for some time. At the worst, I would predict the outbreak of world war and total chaos.

What is funny though is how many people are supply siders and don't realize it. Yet I, who leans to the right, am a demand sider.

If you know of any more oil reserves that have been minimally tapped, please inform us. There hasn't been a major oil discovery in the past 40 years.

Actually, due to political problems keeping them from truly grasping their reserves, Mexico is believed to have reserves that rival Saudi Arabia. Chicontepec, Mexico and the major bays in Mexico have billions upon billions of barrels.

What is funny though is how many people are supply siders and don't realize it. Yet I, who leans to the right, am a demand sider.

You are the one saying that our economy is weak because of our imports, correct? That is supply side if I have ever heard it.

I believe that demand always powers the economy. That is our problem right now. Our economy is in overdrive because demand is extremely high due to the low cost of debt and low reward of savings.

The thing is, overdrive is not a good speed. It causes a very fundamentally weak economy. It means that any destabilization could cause a collapse, and there are a million possible problems that could arise at this point in time.

One part of the low cost of debt that bothers me in the us is mortgages.
I thought that a major part of the collapse in 1929 was due to buying stock on margin - 90% margin. You could put up 10 dollars and buy 100 dollars of stock. If it went up 10%, you effectively doubled your money. That was fine as long as things went up. But if it went down... margin calls destroyed you.

So many mortgages are placed on overvalued homes and property here using low interest, no money down loans.

I hope I'm not the only one who finds this frightening.

One part of the low cost of debt that bothers me in the us is mortgages.
I thought that a major part of the collapse in 1929 was due to buying stock on margin - 90% margin. You could put up 10 dollars and buy 100 dollars of stock. If it went up 10%, you effectively doubled your money. That was fine as long as things went up. But if it went down... margin calls destroyed you.

So many mortgages are placed on overvalued homes and property here using low interest, no money down loans.

I hope I'm not the only one who finds this frightening.

There are a great deal of similarities between the 90's and 20's that would lead me to believe that a depression is upcoming.

The major one being that the 20's saw major production increases due to production advancements, and the 90's saw major production increases due to technological advancements. Both of these major booms were funded with large amounts of debt. I have a feeling that debt will cease to show the same returns as it did in the 90's which will cause another financial crisis.

I also believe that a collapse of our economy would effectively bankrupt the entire world due to the amount of foreign investment in the US.

One part of the low cost of debt that bothers me in the us is mortgages.
I thought that a major part of the collapse in 1929 was due to buying stock on margin - 90% margin. You could put up 10 dollars and buy 100 dollars of stock. If it went up 10%, you effectively doubled your money. That was fine as long as things went up. But if it went down... margin calls destroyed you.

So many mortgages are placed on overvalued homes and property here using low interest, no money down loans.

I hope I'm not the only one who finds this frightening.

It was 'a' cause, but hardly the only one.
Of course, you are correct, and it is quite frightening.

You are the one saying that our economy is weak because of our imports, correct? That is supply side if I have ever heard it.

I believe that demand always powers the economy. That is our problem right now. Our economy is in overdrive because demand is extremely high due to the low cost of debt and low reward of savings.

The thing is, overdrive is not a good speed. It causes a very fundamentally weak economy. It means that any destabilization could cause a collapse, and there are a million possible problems that could arise at this point in time.


AGGHHHH no.

You have it backwards. We have imports because our demand curve slope is to high in respect of the rest of the world. In other words, we consume more than we can produce.

You and dunbarrow want to tax demand (the consumer side) yet remove taxation costs to production. All the while keeping the money supply tight (zero deficit). That is fundamentally supply side economics; no question.

In short:

Me: boost consumer demand for products to stimulate growth through increasing money supply and lending = economic growth.

You & Dunbarrow: Tighten money supply and boost production to create wealth thorugh reduction of inventory value = economic growth.

I am not the supply sider. You two are.

If you know of any more oil reserves that have been minimally tapped, please inform us. There hasn't been a major oil discovery in the past 40 years.

Actually, due to political problems keeping them from truly grasping their reserves, Mexico is believed to have reserves that rival Saudi Arabia. Chicontepec, Mexico and the major bays in Mexico have billions upon billions of barrels.

Caspian Sea, and discoveries are being made in the former Soviet states. They actually pass over smaller reserviors, and mark them for later excavation.

I'm a pretty strict Monetarian in the Friedman tradition ( did miracles for my previously chronically deficited nation ).

You don't have an economic policy or theory to offer, you merely offer a John Snow job.

AGGHHHH no.

You have it backwards. We have imports because our demand curve slope is to high in respect of the rest of the world. In other words, we consume more than we can produce.

Me: boost consumer demand for products to stimulate growth through increasing money supply and lending = economic growth.



Your solution to excessive consumption is.... increasing consumption?

One part of the low cost of debt that bothers me in the us is mortgages.
I thought that a major part of the collapse in 1929 was due to buying stock on margin - 90% margin. You could put up 10 dollars and buy 100 dollars of stock. If it went up 10%, you effectively doubled your money. That was fine as long as things went up. But if it went down... margin calls destroyed you.

So many mortgages are placed on overvalued homes and property here using low interest, no money down loans.

I hope I'm not the only one who finds this frightening.

90% margin? Is that right? Pretty high...and pretty stupid of the brokers.

I wouldn't worry as much about real estate...housing doesn't go out demand as quickly.

Also, mortgages get traded by 'pass-through' agencies. They hold collections of mortgages (from all over the country) and the chances of a country wide real estate collapse are slim to none. And some of these (Ginnie Mae, Fannie Mae) are secured by the govt.

I'm a pretty strict Monetarian in the Friedman tradition ( did miracles for my previously chronically deficited nation ).

You don't have an economic policy or theory to offer, you merely offer a John Snow job.

So you think Margaret Thatcher has the right idea about economic policy then?

Your solution to excessive consumption is.... increasing consumption?


There is no such thing as excessive consumption. There is such a thing as buyer surpluss, but I haven't seen that occuring since the late 90s.

90% margin? Is that right? Pretty high...and pretty stupid of the brokers.

I wouldn't worry as much about real estate...housing doesn't go out demand as quickly.

Also, mortgages get traded by 'pass-through' agencies. They hold collections of mortgages (from all over the country) and the chances of a country wide real estate collapse are slim to none. And some of these (Ginnie Mae, Fannie Mae) are secured by the govt.

50% is the limit now, and you are lucky if you can get that.

The US, in general, does not have a housing bubble. Europe does.

Wouldnt a lower US dollar sqeeze the trade imbalance anways?

Wouldnt a lower US dollar sqeeze the trade imbalance anways?

Yes, it will. And a lot more than people are willing to admit.

Right now, the US could ship cars to europe and undercut just about everyone. Unfortunately they would be undercutting themselves as well (as they manufacture the same models over there).

Nevertheless, if the dollar stays low, then there will be a shift in manufacturing center away from europe and towards the US.

Yes, it will. And a lot more than people are willing to admit.

Right now, the US could ship cars to europe and undercut just about everyone. Unfortunately they would be undercutting themselves as well (as they manufacture the same models over there).

Nevertheless, if the dollar stays low, then there will be a shift in manufacturing center away from europe and towards the US.

i think people forgot how much of the trade imbalance is with canada as well. (OIL)

Take away Canada + China and it wouldnt be very bad at all.

AGGHHHH no.

You have it backwards. We have imports because our demand curve slope is to high in respect of the rest of the world. In other words, we consume more than we can produce.

You and dunbarrow want to tax demand (the consumer side) yet remove taxation costs to production. All the while keeping the money supply tight (zero deficit). That is fundamentally supply side economics; no question.

In short:

Me: boost consumer demand for products to stimulate growth through increasing money supply and lending = economic growth.

You & Dunbarrow: Tighten money supply and boost production to create wealth thorugh reduction of inventory value = economic growth.

I am not the supply sider. You two are.


You misunderstand our position. We want to lessen demand to slow down growth. It's a basic financial principle that rapid growth can leave you with a shaky base. We need some retained earnings, some savings in order to strengthen our economy. To do this we need to lower our dependence on foreign funds and create more savings of American dollars. The way we can do this is to lower spending through raising the cost of debt and lowering demand. We are not pushing for economic expansion, we are wanting to slow it so it can form a base.

We want to remove taxation costs on production as a means of lowering the cost of exports without having to bankrupt the dollar.

Also you cannot tighten the money supply and support a production boost at the same time. A production boost requires an inflationary money policy in order to fund the production and offer an incentive to spend. So your plan cannot work.

i think people forgot how much of the trade imbalance is with canada as well. (OIL)

Take away Canada + China and it wouldnt be very bad at all.

If you would have read the article you would know that the trade deficit with China is growing on par with the countries with major currencies, and much slower than our other principle trading partners.

If you would have read the article you would know that the trade deficit with China is growing on par with the countries with major currencies, and much slower than our other principle trading partners.

huh i just saw on CNN that the China ~ USA trade imbalance grew to record levels ....

huh i just saw on CNN that the China ~ USA trade imbalance grew to record levels ....
china has their money pegged on the dollar. so if we go down we can at least say we took china with us

Wouldnt a lower US dollar sqeeze the trade imbalance anways?

However, against the OITP currencies, the dollar is actually up 5%, and these countries make up 40% of U.S. trade volume.

Our dollar isn't declining against many currencies.

And in the past year, the U.S. gap with the seven major trading regions has worsened just as much as the gap with China has, even though the dollar is down 5% vs. the major currencies and not at all vs. the yuan.

The dollar devaluation made no difference between the major currency countries and China.

huh i just saw on CNN that the China ~ USA trade imbalance grew to record levels ....

Does that prove my information untrue?

while all the large reserves have pretty much been found, one must remember that better technology over the years allows for the oil company to extract more oil out of the source rock. It is quite common to find that your only able to get half of the oil in a oil reserve out.

thanks,
Owenarcia

Okay, I've been hearing far too much about oil, so I'll speak.
First off, even if oil is peaking today, it would take at least thirty years for it to run out, and in between, prices will rise. What will that mean? Investments in other energy sources will skyrocket. It probably won't be too bad for the economy, but simply the mother of all corrections. It's all ready happening, as more wind farms are going up in the US and Europe, and coal is coming back in style (with some cool features that make it burn more efficient and makes it ultraclean).

Now, as for the greenback, I find its decline to be no cause for real alarm. It certainly would be if there was an extremely steep decline, like with the Asian currencies in 1998. But there's no reason to believe that that will happen. If it continues on this study decline, it might actually help the greenback recover. I've read in TIME magazine this week that, because of the greenback, US manufacturers are posting huge profits, and overseas ones are loosing marketshare in the American market. That will help narrow the trade deficit, and that will gradually force the dollar to recover.

You misunderstand our position. We want to lessen demand to slow down growth. It's a basic financial principle that rapid growth can leave you with a shaky base. We need some retained earnings, some savings in order to strengthen our economy. To do this we need to lower our dependence on foreign funds and create more savings of American dollars. The way we can do this is to lower spending through raising the cost of debt and lowering demand. We are not pushing for economic expansion, we are wanting to slow it so it can form a base.

We want to remove taxation costs on production as a means of lowering the cost of exports without having to bankrupt the dollar.

Also you cannot tighten the money supply and support a production boost at the same time. A production boost requires an inflationary money policy in order to fund the production and offer an incentive to spend. So your plan cannot work.


Actually it is not a basic finacial principal that rapid growth results in a weak base. As I said before, buyer surplus can be a problem, but there is no evidence of it recently.

I think both you and dunbarrow fail to recognize that every voluntary transaction increases wealth, i.e., it is not a zero sum game. Absent buyer surplus, every individual transaction adds wealth to the global economy. By slowing the rate at which transactions occur you are not only stiffling growth in the US but retarding growth worldwide.

This is, of course, why anti-dumping laws are considered inimical to free trade as they are not mutally beneficial.

The whole idea of retained earinings just sitting there is anti-growth, and smacks of mercantilism. If the capital is not being used to stimulate demand, then it is a positive hinderance on the world economy.

Then again, maybe Keynes was wrong, and you do believe in the supply side.

50% is the limit now, and you are lucky if you can get that.

The US, in general, does not have a housing bubble. Europe does.


Yeah, my Ameritrade is 50%...but you have to have the stocks to back it to keep from getting a margin call (and less liquid stocks don't count). Which makes sense, and why it's hard to believe a 90% margin.

The US has a bubble in some places, like DC. They have one because the government keeps zoning everything commercial, and there is no where to live. If they suddenly stopped, housing prices will plummet (hopefully this will happen before I buy).

The whole idea of retained earinings just sitting there is anti-growth, and smacks of mercantilism. If the capital is not being used to stimulate demand, then it is a positive hinderance on the world economy.


Quite true. No one just keeps their retained earnings stuffed under a mattress somewhere. It just does not make sense. It is all either invested in +NPV projects or redistributed to stakeholders who reinvest it how they choose.

Quite true. No one just keeps their retained earnings stuffed under a mattress somewhere. It just does not make sense. It is all either invested in +NPV projects or redistributed to stakeholders who reinvest it how they choose.

Yes, I know that, but our government isn't filtering it back into the economy in stable ways. It is first using it continue rolling over its present debt, secondly it is pushing it back into the economy in the form of tax cuts, which combined with the devaluation of the dollar is putting a great deal of inflationary pressure on our economy.

Yes, I know that, but our government isn't filtering it back into the economy in stable ways. It is first using it continue rolling over its present debt, secondly it is pushing it back into the economy in the form of tax cuts, which combined with the devaluation of the dollar is putting a great deal of inflationary pressure on our economy.


Oh, right. All the basic rules of finance are null and void when it comes the government. Bunch of bloody idiots. Not you, them. Or perhaps I should be blaming the people who keep voting them into office.

Yes, I know that, but our government isn't filtering it back into the economy in stable ways. It is first using it continue rolling over its present debt, secondly it is pushing it back into the economy in the form of tax cuts, which combined with the devaluation of the dollar is putting a great deal of inflationary pressure on our economy.

Yah, but fortunately our economy is, in general, small business based which mitigates a lot of the asshattery of the government.

Like I said before, I am no fan of the US government's spending policy. That being said, Dunbarrow is talking out of his arse.