"Ed Huntress" wrote in message
...

"Buerste" wrote in message
...

"Ed Huntress" wrote in message
...

"Buerste" wrote in message
...

"Ed Huntress" wrote in message
...

"Mark Rand" wrote in message
...
On Thu, 16 Jul 2009 14:50:52 -0400, "Ed Huntress"

wrote:


"Richard the Dreaded Libertarian" wrote in
message
newsan.2009.07.16.19.38.37.148549@example .net...
On Wed, 15 Jul 2009 18:08:54 -0400, Ed Huntress wrote:
"Richard the Dreaded Libertarian" wrote
in
message
news On Wed, 15 Jul 2009 00:51:47 -0400, Ed Huntress wrote:

further automation, you will have one economic effect: You'll
drive
real
wages, and the real economy, into a race for the bottom.

It would seem that obamanomics already has us sliding down that
particular
razor blade.

And where was it headed before the stimulus, Rich? Have you
studied the
patterns in recessions sufficiently to evaluate this one, in
comparison?

Well, obviously, the Cheney/Bush "bailout" got us started. I
suspect they
just wanted to dump the worst possible mess they could create right
onto
Barry's lap.

I got sickened by Obama's little speech: "Hey, I inherited this
huge
deficit!" (wah, wah). So what's the first thing he does? TRIPLES
IT!

I fear it's reached the point where the best that we Freedom-lovers
are
going to be able to do is to hunker down, protect our jewels, and
hope
we enjoy the ride when the whole card house collapses around us.

Thanks,
Rich

The irony of this downturn is that all those years of deficit
spending (with
no good reason) has left no choice but more deficit spending --
unless you
want to do another Herbert Hoover and have the government sit there
with its
collective thumb up its butt, watching the economy go down in flames.
In
other words, now there *is* a good reason for it. And it's 'way more
painful
than it should have been, because we're digging in a place where
there
already was a big hole.

Seriously, there is no alternative, except in the academic theories
of some
of the free-market extremists. And they don't have a single example
from
history to draw upon, to support their ideas.


It's better than that Ed (for irony, anyway). Without the continuing
support
of China and, to a slightly lesser extent, Japan. The US would
probably be
having to go to the IMF for a bailout, with all of the pain that goes
with
that.

People, mostly in other fora, may get very exercised about the
Chinese, but
they are the ones that are loaning the money for all that deficit
spending.

For the record, as of the first of this year, China held 7.4% of the
public debt of the US. Japan held 6.3%. Those are large amounts, but
let's not get carried away.

--
Ed Huntress


Wouldn't the US be better off concentrating on wealth creation rather
than redistribution? Is it purely a political decision to abandon
wealth creation?

Hmmm. Have you stopped beating your wife yet? g

What do you mean by that question, Tom? And who is the "US" that has to
do this concentrating?

--
Ed Huntress


Purely philosophical, but...real wealth is created by agriculture (grow
it), mining (dig it up or pump it), manufacturing (put it together and
add value) and maybe intellectual property (units of unique valuable
labor).

Debatable and complex; we can discuss it sometime later, maybe. For now,
consider that one way to look at most goods is that they're nothing more
than packaged services. Grow a tomato, then eat it, and it's gone. But the
tomato in the process of being consumed can be thought of as "wealth."
Someone will pay you for it but its value has meaning only as it's being
consumed. The same thing applies to a pair of pants, to a drill bit, or to
having your teeth cleaned or your taxes prepared.

The big difference between goods and services is that, on the average,
most goods deliver a service for a longer time, so they provide a good
return of "wealth" on their investment. Not always (think of the tomato),
but often.

It seems the US is writing IOUs for future wealth creation or existing
land. With a trade deficit, the US is creating less wealth than it's
buying with IOUs.

Ok, we can let that one lie like that for now.

Is this a sustainable situation or should we be growing, mining and
making as much as we can and selling it for the other guy's IOUs?

A good question, but the fact is that we're better off doing a lot of
trade, and it really doesn't matter much where the balance lies. I know
that's a hard pill to swallow, and I'm not good at explaining it, but that
appears to be the way it is.

The countries that *need* a net positive trade balance to advance their
economies are developing countries. They need foreign exchange to invest
in foreign-made capital equipment. For fully developed countries, the
advantages of low-cost imported goods from the developing countries, plus
the total economic activity that results from both buying and selling
foreign goods even in a deficit situation, outweighs any loss to total
national income that results from the trade deficit. Where it *does*
matter is at the micro level: individual companies, and types of workers,
who are squeezed out by low-cost foreign competition.

Eventually, it seems, people outside the US will own every acre of land,
decades of future labor and everything the US can grow and mine.

No, it's self-limiting. But the current situation is that China and other
East Asian countries are doing their best to suspend the day of reckoning,
partly by discouraging domestic consumption; partly by jimmying their
currency to low levels; partly by buying up currency and securities from
their "customer" countries; and partly by a bunch of other things.

But it's like putting their finger in a dike. Eventually, they won't be
able to hold it back. Their currency will evaluate; their citizens will
put unrelenting pressure on to consume more; and the foreign currencies
they hold will become a huge drag on their growth.

As much as we try to devalue the unit s of IOUs so when they have to get
paid back, they will be worth less, there is still a big loss.

They may never be paid back. It is in no one's interest to pay them off.
You may remember that the Japanese tried to spend some of their piles of
cash on expensive US real estate. All they accomplished was to create a
bubble and a collapse in expensive (mostly commercial) real estate, which
resulted in them losing almost all of the money they had invested. This
happened a few decades ago.


I know a thousands books could be and have been written but I think in
simple terms of payables/receivables. We should export (build
receivables) as hard as we can and reduce imports with equal vigor. But
is the rest of the world willing to pay more for the same unit of labor
(value added), all else being equal on manufactured goods?

This is one of those cases where countries are not like businesses or
households. Adam Smith pointed this out over 200 years ago. He used the
example of cooking pots (tongue-in-cheek). If a country stocks up on
foreign currency or securities (cooking pots), all it has is a big pile of
pots. In the case of securities, cashing them in, at the level of large
transfers from central banks, destroys their value. Thus, they aren't
really very liquid at all when you have big piles of them.

The Chinese knew this going in. They were following the pattern used by
Japan a couple of decades earlier. They don't care about owning anything.
They care about enabling their mercantile economies, by greasing the way
for the consuming countries to buy their junk.

Once they've used as much of their earnings as they practically can for
business and infrastructure investment, the rest of it is fairly useless
to them. I know, this is another hard pill to swallow. But that's the way
it is.

As you say, there are many books written about this. There's no point in
trying to summarize them here, because no one will believe it, and it will
just start endless superficial and sophomoric arguments.

--
Ed Huntress


I knew it was overly simplistic and hard to grasp. I remember an interview
on TV with an expert that was explaining some of the points of economics and
the interviewer was concerned about foreigners buying land in the US. The
expert said something along the lines of "Don't worry, they can't take it
with them.". On the other hand I've read spattering about "Fiat Money". Of
course, there are always people that will certainly figure out how to game
ANY system.