Dear Free Trade activists - thank you putting America at risk of foreign manipulation

[Le Jacquelope]

First up to take us by the short hairs: China.

China is now doing exactly as I've predicted for years - they're using their holdings of US currency to manipulate the United States.

Economic Tensions Continue Between China And US Over Alleged Currency Devaluation

(RTTNews) - Recently, economic tensions between the U.S. and China have risen over the alleged devaluation of the Chinese yuan. Events culminated earlier in the week when China threatened to sell off some of its foreign currency if forced to appreciate the yuan. The warning came in response to a bill proposed by members of the Senate recommending tariffs against China in retaliation over currency fixing.

China currently has $1.33 trillion in foreign-exchange reserves, with about $900 billion of it in U.S. Treasuries. According to some economists, a large sell-off of China's reserves could spark a recession in the U.S. economy. While a sell off of this magnitude would hurt the dollar, the likelihood of such an event is low.

The rising political and economic tensions started when US Senators drafted a bill calling for trade tariffs against Chinese goods in reaction to alleged currency manipulation. Senators proposed the bill due to worry about the large trade deficit between the two countries. China's trade surplus is estimated to have jumped almost 60% in July, according to a survey of 18 economists by Bloomberg News.

In July of 2005, China revalued the yuan by 2.1% against the dollar, and allowed it to rise 7.2% since then. While the rate has sped up in recent months, analysts still expect Beijing to restrain the yuan's advance to about 5% annually. This rate is far less than critics have called for. Some critics of China in the U.S. stated the yuan is undervalued by as much as 40%, helping to make imports cheaper. China's leaders stated they plan to eventually let the yuan trade freely, but that acting too quickly would hurt China's banks and cause financial turmoil.

U.S. Treasury Secretary Henry Paulson has argued with Congress for more time, giving dialogue between the two countries a fair shot. However, China's economic expansion of 11.9% last quarter is sparking arguments that it can afford to let the yuan move along faster.

The Telegraph reported that two Chinese government officials to make statements insinuating China would sell off its U.S. dollar reserves in order to cope with the appreciated yuan. Xia Bin, finance chief at the Development Research Centre, was quoted last week as saying that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the U.S.. He added, "Of course, China doesn't want any undesirable phenomenon in the global financial order."

The other official, He Fan, from the Chinese Academy of Social Sciences, remarked that Beijing had the power to set off a dollar collapse. He told China Daily that, "China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have already reduced their dollar holdings.

"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar," Fan said. "The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar."

While the threat from China has theoretical merit, China's uploading of assets would be hurt the Chinese and the rest of the global arena more than the US. Many in the market are betting on more of US asset boycott, stalling further purchases of U.S. Treasures. However, the comments by the Chinese officials shows the strong resolve the country has at moving the currency at their pace.

President Bush responded on Wednesday in an interview with Fox News by stating any attempt by China to push down the dollar would be "foolhardy." Meanwhile, US Treasury Secretary Paulson stated on CNBC that China considering selling off dollar denominated assets would be, "frankly absurd." Bush stated that the U.S. and China could cordially resolve their differences, and cited the "strategic economic dialogue" between Paulson and Chinese Vice-Premier Wu Yi as a way to discuss the differences between the countries. The American President also questioned the report that the sources were from the office of Chinese President Hu Jintao.

Simon Derrick, the chief currency strategist in London at the Bank of New York, was cited in the Washington Post as saying, "I don't think that this is a real threat that China is about to unload its dollar holdings, but merely the mention of it should be enough to make Congress sit up and take notice." The Post also quoted Menzie D. Chinn, professor at the University of Washington. "There would be turmoil in the financial markets," Chinn said. "It's not really a credible threat."

While China is unlikely to sell off its currency reserves, their threat against the U.S. has added to the recent political and economic debate over the yuan. U.S. Treasury Secretary Paulson has repeatedly attempted to calm down rhetoric sparked by the tension. The sale of the U.S. dollar by China would be detrimental to both countries and the larger global market.

For comments and feedback: contact editorial@rttnews.com

China threatens 'nuclear option' of dollar sales

By Ambrose Evans-Pritchard
Last Updated: 8:39pm BST 10/08/2007

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.

Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.

He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.

"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.

The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".

She said foreign control over 44pc of the US national debt had left America acutely vulnerable.

Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.

"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.

A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.

The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.

Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".

Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.

 

[rgraham666]

What was it Akio Morita said?

Oh yes.

"If you don't want people to buy America do not sell it."

 

[gauchecritic]

This is quite interesting and something I wasn't actively aware of but now realise was implicit in reports I quoted in a thread a while ago. (That some current thinking puts the Yuan as the next global currency)

Has this anything to do with the untenable position of middle income home buyers that was reported nearly every hour on the radio yesterday thus causing a significant fall in the stock markets?

Trading with non-existent money has always been a poor idea.

 

[rgraham666]

Money is always non-existent.

 

[gauchecritic]

Money is always non-existent.

That's what I'd expect an existentialist to say.

 

[rgraham666]

That's what I'd expect an existentialist to say.

I'm soooo predictable, aren't I?

 

[Le Jacquelope]

This is quite interesting and something I wasn't actively aware of but now realise was implicit in reports I quoted in a thread a while ago. (That some current thinking puts the Yuan as the next global currency)

And what a terrible day that'll be when Nazi China's currency becomes the next global currency.

It'll be nothing short of the total bankruptcy of Western values. Which, you will find, are (even for all its hypocrisy) a lot better than Eastern values.

Has this anything to do with the untenable position of middle income home buyers that was reported nearly every hour on the radio yesterday thus causing a significant fall in the stock markets?

Not really - but the Yuan situation will affect them. It will inevitably affect everything.

Trading with non-existent money has always been a poor idea.

We keep forgetting the Weimar Republic...

 

[Roxanne Appleby]

Oh get a grip. These are ripples on the surface of the ocean we swim in. It's a wonderful moment of human history when hundreds of millions of people in formerly starving lands are ascending to middle class levels of comfort and security. America is doing fine, and will thrive in the new world because of our energy, imagination, creativeness, dynamism and more. No, we won't bestride the economic world like a collosus as we did in the 20th C, but that's because the world's economy is getting so much bigger, not because we're getting smaller.

Are there and will there be problems, challenges, dislocations etc? Of course there will - when were there ever not? Should we face those full of angst, hand-wringing, and wanting close ourselves off or return to the past, or with excitement, hope, and roll-up-our sleeves determination? What do you think? (Hint: We couldn't hide or go back if we wanted to - but why would you want to?)

For a more constructive way to view the world we live in, see the article in my next post.

 

[Roxanne Appleby]

Chimerical? Think Again

By NIALL FERGUSON and MORITZ SCHULARICK

Global markets boomed last year -- and nowhere was the euphoria more pronounced than in the initial public offering of Industrial and Commercial Bank of China, the biggest IPO in history. But Chinese banking stocks were only the extreme example of a general surge in asset prices that also manifested itself on global bond markets, real-estate markets and even art markets.

A popular explanation for this unusually correlated upward trend in nearly all asset valuations is "excess liquidity," usually blamed on the lax monetary policy before and after the dotcom bubble. But is that view correct? Probably the best measure of excess liquidity is the so-called "Marshallian k," i.e., the ratio of a narrow or broad monetary aggregate to nominal GDP. If the world is really experiencing excess liquidity, the supply of money in major economies (e.g., M3) should be outstripping the demand for money (as measured by nominal GDP) by a significant amount. In the U.S., however, the ratio of M3 to GDP has been stable at around 80% since 2002.

Another voguish theory is that there is not an oversupply of liquidity but a shortage of assets. Certainly, many corporations have been buying back their own stock, while private equity partnerships have been taking companies out of the public markets. But equity valuations do not suggest that this alleged shortage is very acute. The price/earnings ratio of the S&P 500 is one standard deviation below the long-term average. In our view, the rapid increase of stock buy-backs and leveraged buyouts is a symptom, not a cause, of something more fundamental.

The defining feature of the current world economy is not an excess of liquidity or a shortage of assets, but the gap between company profits and the level of real interest rates. This wedge between the return on capital and the cost of capital is in large measure attributable to the spectacular rise of what we call "Chimerica": the sum of China, the world's most rapidly growing emerging market, and America, the world's most financially advanced developed economy.

As is well known, the rapid integration of the biggest economies of East and South Asia into the global economy has had profound effects on the relative returns on the two main inputs of global production -- capital and labor. With two billion people entering the global work force, the pool of available labor has almost doubled. By comparison, the global capital stock has increased only by a small amount. This has resulted in a massive shift in the relative rewards to capital and labor. Company profits to GDP have risen across the globe and are at record highs in almost all markets.

The novelty is that higher returns on capital have not gone hand in hand with a higher cost of capital. On the contrary, the cost of capital, as measured by global real interest rates, has actually gone down. According to our calculations, the global long-term real interest rate has averaged around 4% since 1991. Current real rates are about 130 basis points lower. Given the recent increase in the return on capital, we estimate that real rates are between two and four percentage points lower than economic theory says they ought to be.

That the price (not the supply) of money is the real conundrum of our times is perfectly illustrated by the relationship between nominal GDP growth and the yield of 10-year U.S. bonds. Defying all that theory would lead us to expect, long-term nominal interest rates in the U.S. have been considerably below nominal GDP growth for an extended period.

Under these circumstances, it is hardly surprising that growth- and risk-sensitive assets have become extremely attractive for investors. The combination of depressed real rates and buoyant corporate profitability makes it smart to borrow money and to buy earnings streams. Small wonder we have seen record low spreads in the corporate bond market. Small wonder there has been a boom in private equity investment and leveraged buy-outs.

Of course, low real interest rates and high company profits are difficult to reconcile over the long term. This is the idea behind the "Fed model" -- the basic macroeconomic model the Federal Reserve uses to judge the information conveyed by stock-market valuation. It compares the earnings yield of the S&P 500 (the inverse of the P/E ratio) with the 10-year bond yield. Over longer time horizons, extreme divergences are corrected. The Fed model correctly indicated stock-market overvaluation ahead of the crashes of 1987 and 2001.

What the Fed model has been telling investors for some time is to prefer stocks to bonds because earnings yields are much higher than bond yields. And to some extent that advice is finally being heeded. Yet there is reason to think that the bond market may not correct by much this time around. For something is working to prevent real rates and corporate profitability reverting to their traditionally close relationship. And that something is Chimerica.

To understand the current and persistent disconnect between returns on and the cost of capital, think of a single Sino-American economy. Chimerica accounts for only 13% of the world's land surface, but a quarter of its population and fully a third its GDP. What's more, it's accounted for over 60% of the cumulative growth in world GDP over the past five years.

West Chimericans are wealthy and hedonistic; East Chimericans are much poorer (even adjusting on the basis of purchasing power parity, their per capita income is around 16% of that in West Chimerica). But the two halves of Chimerica are complementary. West Chimericans are experts in business administration, marketing and finance. East Chimericans specialize in engineering and manufacturing. Profligate West Chimericans cannot get enough of the gadgets mass produced in the East; they save not a penny of their income and are happy to borrow against their fancy houses. Parsimonious East Chimericans live more humbly and cautiously. They would rather save a third of their own income and lend it to the West Chimericans to fund their gadget habit -- and keep East Chimericans in jobs.

Under this arrangement, East Chimericans generate massive trade surpluses which they immediately lend back to West Chimerica. By channeling all these surpluses through government hands into government paper, East Chimerica depresses the key long-term interest rate in West Chimerica. And thanks to artificially low interest rates, financial and real assets in West Chimerica and its satellites are booming.

To be sure, Chimerica is an economic but not a monetary unit: East Chimericans have the renminbi, West Chimericans the dollar. Nevertheless, the scale of the financial transactions between the two halves is comparable with the flows that traditionally have occurred within nation states rather than between them.

Over the past years, China's currency reserves increased by an annual rate of almost $200 billion and now equal more than 40% of its GDP. That is almost identical to the amount of net new issuance of U.S. Treasury securities and agency debt: $220 billion in 2005 and $195 billion in 2006. Given that total outstanding U.S. Treasury and agency debt at the end of 2006 was about $6 trillion, and assuming that Beijing holds 90% of its currency reserves in American assets, China may already own as much as 15% of the total stock of U.S. official paper.

Conventional wisdom holds that Chinese households are the arch-savers of Asia. Measures to increase Chinese household consumption have become the latest patent remedy for resolving global imbalances. However, the personal savings rate has already fallen quite significantly over the past decade. In fact, most of the rapid increase in surplus savings has come from the Chinese corporate sector in the form of undistributed profits. Between 2000 and 2005 these increased to 21% from 16% of Chinese GDP and are now much higher than household savings, which remained roughly constant at 16%. In 2006 corporate savings may have approached 25% of GDP.

The proximate cause of this surge in corporate saving is that Chinese companies have made enormous gains in market share both at home and abroad, leading to record company earnings. But the real explanation is that, despite some upward pressure on the Chinese currency, Chinese manufacturers have continued to make massive gains in price competitiveness. Although it is inherently difficult to construct, a productivity-adjusted measure of the real exchange rate between the dollar and the renminbi suggests that the renminbi is cheaper today than ever before.

This is the key to the future of Chimerica. East Chimerica is providing West Chimerica with lower real interest rates than returns on capital would lead us to expect. But the other side of the deal is that East Chimerican manufacturers are enjoying an unbeatable advantage on world markets.

We see two potential threats to the future stability of Chimerica. First, for the sake of short-term political advantage, American legislators may continue to press for protectionist measures against China. The danger is that the Democrats' new dominance of Congress may finally turn rhetoric into reality.

There are risks on the other side of Chimerica, too, as China progressively liberalizes its financial system. So far, the People's Bank of China (PBoC) has been highly successful in controlling the domestic money supply and inflation through a mix of administrative and market-based measures in a tightly regulated banking system. If the PBoC loses its grip on the system, however, the inflationary pressures already visible on the Chinese stock market could finally spill over into consumer prices.

If either U.S. trade policy or Chinese monetary policy goes awry, then the Fed model could return to the bond market with a vengeance. Then, and only then, will it be possible to dismiss Chimerica as -- a chimera.

Mr. Ferguson is the Ziegler professor of business administration at Harvard Business School. Mr. Schularick is an economist at Amiya Capital, London.

 

[Le Jacquelope]

Oh get a grip. These are ripples on the surface of the ocean we swim in.

This is about China manipulating the US with threats to sell off our currency. Get your head out of the sand, for crying out loud.

It's a wonderful moment of human history when hundreds of millions of people in formerly starving lands are ascending to middle class levels of comfort and security. America is doing fine, and will thrive in the new world because of our energy, imagination, creativeness, dynamism and more. No, we won't bestride the economic world like a collosus as we did in the 20th C, but that's because the world's economy is getting so much bigger, not because we're getting smaller.

Are there and will there be problems, challenges, dislocations etc? Of course there will - when were there ever not? Should we face those full of angst, hand-wringing, and wanting close ourselves off or return to the past, or with excitement, hope, and roll-up-our sleeves determination? What do you think? (Hint: We couldn't hide or go back if we wanted to - but why would you want to?)

For a more constructive way to view the world we live in, see the article in my next post.

I'd just as soon go back to the days when America's middle class was growing, not shrinking.

If you consider going off a cliff into economic vulnerability and compromised sovereignty - two things that are now a solid and irrefutable fact - as progress, well, that's on you.

 

[Roxanne Appleby]

For many retirees, China may hold key to success

By Kevin G. Hall
McClatchy Newspapers

SHANGHAI, China — It may come as a surprise to many Americans, but their retirement security may depend in large measure on China's development of capital markets and the willingness of Chinese savers to buy the stocks and bonds that baby boomers will unload in coming years.

Next year the first U.S. boomers, born from 1946 to 1964, begin qualifying for early retirement under Social Security. They'll enjoy full retirement benefits beginning in 2011.

From that point forward, for about 15 years, there'll be fewer and fewer active workers to support the boomers' retirement, and fewer working Americans putting money into the stock market through their 401(k) retirement plans and Individual Retirement Accounts.

Experts such as Jeremy Siegel, a business professor who wrote the seminal book "Stocks for the Long Run," think that the value of U.S. retiree holdings in stocks and bonds — valued by the Federal Reserve at more than $6.5 trillion — could drop by as much as 40 percent if boomers must rely solely on domestic buyers when they sell their assets.

Enter China.

The world's fastest-growing large economy has virtually no retirement safety net for hundreds of millions of Chinese workers. It's in the early stages of trying to create a pension system, one patterned after the defined-contribution model in the United States, in which a tax-deferred portion of a worker's salary is diverted into the stock market for withdrawal after reaching retirement age.

"The savings and buying power of the developing countries is absolutely critical to our own welfare in the future. When all the baby boomers try to sell their assets ... there are not going to be enough workers in the developed world alone to absorb them," Siegel said in an interview. "The demand that would be coming from Asia and other developing countries will be critical to support the prices of these financial assets."

Rich nations in Europe and Japan have populations graying even more quickly than the United States.

Therefore China, with a population exceeding 1.3 billion, holds the greatest potential for U.S. boomers who are looking to transfer their assets. It's why the U.S. Labor Department recently announced that it would help China create an American-style 401(k)-type retirement program.

That could result in a win for both economies.

"I think it is a complement, in the sense that they're going to be acquiring assets for pension funds and all these things, planning for a time when their boomers start retiring," said Robert Hormats, the vice chairman of Goldman Sachs International, a division of the giant investment bank.

China, he suggests, has a big incentive to create an effective retirement system. Almost 30 percent of its population will be older than 60 in 2040, according to a report by the Center for Strategic and International Studies, a center-right U.S. research center.

Today, however, China's capital markets are in their infancy. China now allows only some foreign mutual funds and investment companies to buy Chinese stocks and bonds. More than two dozen foreign companies are designated as Qualified Foreign Institutional Investors. To qualify they must manage more than $10 billion in securities abroad and must invest in China through Chinese banks.

But for U.S. boomers, preserving the value of their financial assets may depend on the speed with which China builds up its Qualified Domestic Institutional Investor program. The QDII program works like U.S. mutual funds, in which a fund manager makes investment decisions for pools of income.

Currently, the QDII program relaxes foreign-exchange restrictions by allowing some Chinese banks and insurance companies to convert the yuan into foreign currencies, then buy either fixed-income assets such as bonds, or foreign stocks. But the program remains limited.

China has expanded its QDII program at a glacial pace, in part because this opening is linked to how fast it allows its currency to be valued by the open market.

China's reluctance to move from a fixed exchange rate to one set by markets remains among its thorniest disputes with the United States.

"Ten years from now, I can see a scenario where Chinese investors get to put some of their nest eggs overseas," said Fu Teh-Hsiu, the chief executive officer of Everbright Pramerica Fund Management Co., a joint venture between China's Everbright Securities and the U.S. retirement-fund giant Prudential Financial.

It seems likely that Chinese citizens will be allowed over time to invest abroad in the United States. There's clearly investor interest now.

"If there was a way, [Chinese] people would invest in blue chips in the U.S. market," said Larry Zhang, the chief financial officer for a large Chinese company. He asked that his company name not be used for fear that it could be seen as contradicting Chinese policy.

Although the Chinese stock market has seen share prices rise almost 200 percent over the past two years, most Chinese economists think this isn't sustainable. Chinese view the U.S. stock market as a safe haven.

"The U.S. market is the most trusted," Zhang said.

Will that be the case 20 years from now, with the labor force shrinking?

The question of what effect demographic changes might have on U.S. finances has the Congressional Budget Office worried.

It'll soon study the question of what the transfer of boomers' assets might mean for retirement incomes.

 

[Roxanne Appleby]

This is about China manipulating the US with threats to sell off our currency. Get your head out of the sand, for crying out loud.


I'd just as soon go back to the days when America's middle class was growing, not shrinking.

If you consider going off a cliff into economic vulnerability and compromised sovereignty - two things that are now a solid and irrefutable fact - as progress, well, that's on you.

Read that Niall Ferguson article, LT. All polemical excess aside, you really need to take a step back and try to get a broader perspective on where we are in history. You also need to reevaluate that over-the-top rhetoric about the "middle class collapsing," because it diminishes your ability to appreciate and communicate the real stresses and challenges facing the middle class here. It's self-evidently false that it's "collapsing," but there are pressures, and addressing them requires a realistic appreciation of their nature and source, not "we're all gonna die" rhetoricizing.

 

[Le Jacquelope]

Read that Niall Ferguson article, LT. All polemical excess aside, you really need to take a step back and try to get a broader perspective on where we are in history. You also need to reevaluate that over-the-top rhetoric about the "middle class collapsing," because it diminishes your ability to appreciate and communicate the real stresses and challenges facing the middle class here. It's self-evidently false that it's "collapsing," but there are pressures, and addressing them requires a realistic appreciation of their nature and source, not "we're all gonna die" rhetoricizing.

I deal in facts. I deal in what is happening, not speculation.

The shrinking middle class is a fact. It is happening now. You saying it is false, flies in the face of facts.
http://www.factcheck.org/article249.html

You are trying to counter the facts with hopeful, wishful thinking regarding the future.

 

[Roxanne Appleby]

I deal in facts. I deal in what is happening, not speculation.

The shrinking middle class is a fact. It is happening now. You saying it is false, flies in the face of facts.
http://www.factcheck.org/article249.html

You are trying to counter the facts with hopeful, wishful thinking regarding the future.

The figures in the article you cite are from 2003, when the U.S. was just coming out of the recession caused by the Internet bubble burst and 9/11. Since then more than 8 million jobs have been created here. For the first three years of this recovery income and wage growth were not strong, in spite of the employment gains. In the last two years they have accellerated and are growing strongly.

I am not trying to be pollyannish, but to be realistic about larger context of the events that trouble you. I recognize that there are pressures and stresses on the middle class, and am just as desirous as addressing these in positive ways as you are. I do not believe that wailing as if some some of the nettlesome byproducts of 21st C economic sea we swim in is productive of that end. That wailing in unbalanced, because it ignores the much larger reality of a world where wealth and opportunity is expanding at a breathtaking pace. You really should acknowledge that, and consider the positive implications, not just these surface ripples that get you all excited. Those ripples are daily newpaper stories of the type that will seem extremely important at the moment but unimaginably trivial if you pick up the same paper five years from now. The positive big picture that I am describing is the thing that will enter the history books.

I recognize that we differ in our politics and details of our likely policy prescriptions, but you are not a 'nut,' and are capable of having a broader and more balanced view of the world than the one you are expressing here.

 

[Le Jacquelope]

The figures in the article you cite are from 2003, when the U.S. was just coming out of the recession caused by the Internet bubble burst and 9/11. Since then more than 8 million jobs have been created here. For the first three years of this recovery income and wage growth were not strong, in spite of the employment gains. In the last two years they have accellerated and are growing strongly.

Then show me some documentation of a growing middle class as of now.

I have some documentation more recent than 2003 that shows it's not growing.

http://retailtrafficmag.com/mag/retail_twilight_middle_class/

I am not trying to be pollyannish, but to be realistic about larger context of the events that trouble you. I recognize that there are pressures and stresses on the middle class, and am just as desirous as addressing these in positive ways as you are. I do not believe that wailing as if some some of the nettlesome byproducts of 21st C economic sea we swim in is productive of that end. That wailing in unbalanced, because it ignores the much larger reality of a world where wealth and opportunity is expanding at a breathtaking pace.

And so far the wealth is going out of America, or into the handful of millionaires/billionaires.

How else is it that so many CEOs get golden parachutes while workers get laid off?

You really should acknowledge that, and consider the positive implications, not just these surface ripples that get you all excited. Those ripples are daily newpaper stories of the type that will seem extremely important at the moment but unimaginably trivial if you pick up the same paper five years from now. The positive big picture that I am describing is the thing that will enter the history books.

I say you're wrong.

We have $8 trillion in debt. This has to be paid off at some point. This economy cannot expand forever.

I recognize that we differ in our politics and details of our likely policy prescriptions, but you are not a 'nut,' and are capable of having a broader and more balanced view of the world than the one you are expressing here.

As much as you'd like to define this as "either you're an optimist or you're wrong", the world doesn't work like that. This economy sucks, and the reason it is still alive is because the Fed, among other agencies, are keeping it on life support.

The moment China diversifies its portfolio, we're screwed.

If they start trading oil with Euros, we're screwed.

This economy is so eaten alive with debt termites that it's no longer an act of ignorance not to see it - it's denial.

 

[Roxanne Appleby]

As much as you'd like to define this as "either you're an optimist or you're wrong", the world doesn't work like that. This economy sucks, and the reason it is still alive is because the Fed, among other agencies, are keeping it on life support.

The moment China diversifies its portfolio, we're screwed.

If they start trading oil with Euros, we're screwed.

This economy is so eaten alive with debt termites that it's no longer an act of ignorance not to see it - it's denial.

The reason this economy grows is because ever-improving technology and production techniques enable the labor of every individual to produce more than it ever did before, and also because a greater proportion of the world's population than at any time in history is participating in these gains. THAT is the big picture, the economic ocean we swim in, the evolutionary reality. It is undeniable and is happeing all around us, here and around the world. The phenomena you focus on are merely transient waves on the surface of a massively deep and broad ocean.

 

[Le Jacquelope]

The reason this economy grows is because ever-improving technology and production techniques that enable the labor of every individual to produce more than it ever did before, and also because a greater proportion of the world's population than at any time in history is participating in these gains. THAT is the big picture, the economic ocean we swim in, the evolutionary reality. It is undeniable and is happeing all around us, here and around the world. The phenomena you focus on are merely transient waves on the surface of a massively deep and broad ocean.

You know, we had a Great Depression once before while people were saying the same thing you just said.

 

[Roxanne Appleby]

You know, we had a Great Depression once before while people were saying the same thing you just said.

We had a Great Depression rather than a temporary recession because people panicked over the transient phenonema you're focusing on. Also because they tried to roll back history with protectionist measures like the Smoot-Hawley tariffs.

Is that what you're recommending, LT? Tariffs and "non-tariff" trade restrictions? Protectionism? Making all consumers poorer so a few to prop up a few less efficient producers? Making the entire world poorer, and throwing cold water on the dynamism that will allow America to enjoy ever greater prosperity and benefit from the vastly increased well being of vast larger proportions of the world's population? Slam the door and say, "We have enough - the hell with the rest of you, the hell with the future, change is too hard!"

It doesn't work that way, LT. The consequences of such policies are not the ones their backers intended.

 

[Le Jacquelope]

We had a Great Depression rather than a temporary recession because people panicked over the transient phenonema you're focusing on. Also because they tried to roll back history with protectionist measures like the Smoot-Hawley tariffs.

LOL, I knew you'd bring up Smoot-Hawley.

Well, I've news for you. The Depression was launched into motion by laissez-faire economics. For instance, the total lack of trust in unregulated banks. 600 of which were closing per day. Smoot-Hawley was a stick of dynamite in the wake of a deep impact comet splash.

Is that what you're recommending, LT? Tariffs and "non-tariff" trade restrictions? Protectionism? Making all consumers poorer so a few to prop up a few less efficient producers?

Excuse me, but a single worker in the 1950s could own a house. That ain't so now. Tell us again how going back to that would make us poorer?

Making the entire world poorer, and throwing cold water on the dynamism that will allow America to enjoy ever greater prosperity and benefit from the vastly increased well being of vast larger proportions of the world's population? Slam the door and say, "We have enough - the hell with the rest of you, the hell with the future, change is too hard!"

Well let's see, your way is more along the lines of "oh, I don't care what we get from the next box of Chinese made chocolates, as long as it's change, it's good!"

Change is great for young people, but stability is needed for families. We could do without another generation of latch key kids and nomadic parents running around the country chasing just-in-time employment.

It doesn't work that way, LT. The consequences of such policies are not the ones their backers intended.

It sure beats going off the edge of the cliff like Conservatism has done to us repeatedly.

Roxanne, can you tell me something?
What has Conservatism achieved for America that did not end in scandal?

 

[ccnyman]

By a quick count, 45.5% of U.S. households in 2005 earned between 25,000 and 74,999 whereas the article you cited from the retailers state that those earning between 25,000 and 80,000 fell from 50% to about a third.

http://factfinder.census.gov/servle...me=ACS_2005_EST_G00_&-_lang=en&-redoLog=false

 

[Le Jacquelope]

By a quick count, 45.5% of U.S. households in 2005 earned between 25,000 and 74,999 whereas the article you cited from the retailers state that those earning between 25,000 and 80,000 fell from 50% to about a third.

http://factfinder.census.gov/servle...me=ACS_2005_EST_G00_&-_lang=en&-redoLog=false

They didn't say about a third. They said:

Now, it's fewer than half, according to Sam Pizzigati, author of Greed and Good and the editor of Too Much, an online newsletter about income and wealth distribution.

 

[ccnyman]

LOL, I knew you'd bring up Smoot-Hawley.

Well, I've news for you. The Depression was launched into motion by laissez-faire economics. For instance, the total lack of trust in unregulated banks. 600 of which were closing per day. Smoot-Hawley was a stick of dynamite in the wake of a deep impact comet splash.

Actually, tariffs and the Federal Reserve played a crucial role in causing the depression. Between the middle of 1922 and Apirl of 1928, the Federal Reserve more than doubled bank credit leading to capital to be put to more risky, speculative ventures. Then the Fed started tightening in the winter of 1927 - 1928 in an attempt to end the speculative boom. Unfortunately, this caused a liquidity crisis, leading to the Great Depression.

So, it wasn't laissez-faire, but government policies.

 

[ccnyman]

They didn't say about a third. They said:

Now, it's fewer than half, according to Sam Pizzigati, author of Greed and Good and the editor of Too Much, an online newsletter about income and wealth distribution.

The point is that the 45.5% goes up to 74,999. I think the extra 5,000 will bring it close to 50% so that his analysis is faulty.

 

[Le Jacquelope]

Actually, tariffs and the Federal Reserve played a crucial role in causing the depression. Between the middle of 1922 and Apirl of 1928, the Federal Reserve more than doubled bank credit leading to capital to be put to more risky, speculative ventures. Then the Fed started tightening in the winter of 1927 - 1928 in an attempt to end the speculative boom. Unfortunately, this caused a liquidity crisis, leading to the Great Depression.

So, it wasn't laissez-faire, but government policies.

Really, that wasn't what did the banks in. It was their general mismanagement.

We haven't had a crisis of that magnitude since, because of banking regulations and the FDIC.

Nothing like knowing your money is safe and guaranteed, to stabilize an economy.

Nothing like not knowing your money is safe, to bring it to its knees.

 

[Roxanne Appleby]

Roxanne, can you tell me something?
What has Conservatism achieved for America that did not end in scandal?

Fuck "conservatism," I'm talking about human nature and evolution. People want comfort and security, they have to work and think to live, and our species has arrived for the first time ever in a place where a majority of the world's population is in reach of enjoying the comforts and security that industrial civilization provides, instead of the poor, nasty, brutish, and short lives they endured under subsistence ways of "living." The things you rail against are challenges and difficulties this new reality presents, but you ignore the opportunities and benefits it also brings, which are orders of magnitude greater. You lack balance.

You know what's really hurting the middle class in this country, LT? Growing health care costs, and the completely uncontained costs of higher education for their kids. Neither of those things have a goddamn thing to do with China or anyplace else. They are purely the product of government totally fucking up those sectors by destroying all semblence of the free market incentives and signals which make the other goods and services we enjoy keep getting cheaper and better.