The U.S. Economy: Stand by for more worse news

[Billy T]

"... Refined petroleum products were the top U.S. export in 2011, even more than cars and airplanes. Gasoline is a fungible commodity; it can be traded around the world. And now you're competing with drivers in Canada, Mexico, Europe, Brazil and China for every gallon of gasoline. ..." {BT comment: main reason why gasoline will soon be above $4/ gallon and in few years more than $8/ gallon as Chinese are rich, not in debt. I.e. to continue the quote:}
"... It's going to get worse! China alone will be adding 125 million cars to its roads over the next five years, with auto production targets of 30 million annually by 2016. That's a lot more demand down the road. ..." {BT comment: That is one can the US will not be able to kick down the road as it is now with the growing and unpayable debt.}

US is driving less. Refineries are making more gasoline. US cars are more efficient. YET you pay more at the pump.

And as if that were not bad enough for US drivers, US tax payers are making alcohol from corn artificially cheap. Thus US is now exporting a lot of tax payer subsidized alcohol, even to Brazil!

I guess we should say "thank you" for the cheaper alcohol, but I can´nt stop wondering how Dumb the US Voters can be for so many years. See old thread on that I started in failed effort trying to keep GWB from being elected the second time at: http://www.sciforums.com/showpost.php?p=1076237&postcount=15 Originally posted as the OP on 6/24/2006

PS when the Keystone pipeline extension is bringing Canadian (or US?) shale oil crude to the Gulf State refineries, don´t expect that to lower what you pay at the pump - they are on the gulf and China will pay more for the gasoline they make. Same is already true about cost of food - Much of the corn, etc. not being made into gasoline or converted into chickens is being exported even while many less well off American children go hungry to bed. Ain´t the "free market" wonderful?

If you are still part of the shrinking "middle class", your day to go to bed hungry too will come when China no longer lends the US money with which to finance the US´s deficits. I.e. when only the FED´s printing presses make up about 45% governmental expenses which taxes collections don´t - and dollar decline begins to accelerate into full collapse. Long ago, I guessed that collapse happens on or before Halloween 2014 and with this news from China today, (See: http://www.sciforums.com/showpost.php?p=2914385&postcount=546) I see no need to change that prediction.

 

[adoucette]

And that graph is TOTALY misleading.

The US also imports a lot of fuel and refined products (depends on where you are as to which is cheaper, domestic or imported)

To start off, the chart's is based on PERCENT change, not actual VOLUME change, so while the amount of oil we import has dropped a bit, the amount of oil we import is FAR more then we export in refined fuel, but more to the point, we also import a lot of refined fuel.

Everyone makes a big deal about the last time the U.S. was a net exporter of fuels was back in 1949. But it was really just a tiny bit over what we imported. In 1949, we exported 86 million barrels, but we also imported 82 million barrels.

So the NET fuel exports in 1949 was just a piddly 4 million barrels.

Similarly, in the first ten months of 2011, we exported 848 million barrels (worth $73.4 billion) but we also imported 750 million barrels (worth $64.9 Billion) of fuel, or a net of not quite a 100 million barrels exported and a net worth of about $8.5 Billion.

To put that in perspective, over the first 10 months we imported about 35 times as much oil as we exported in fuel and to put that piddly 10 month NET fuel export figure of less than $1 billion per month in perspective, we exported $180 Billion in products just last January.

So, no Net Fuel was not bigger than Aircraft exports, in 2010 American aircraft makers shipped $29.6 billion worth of aircraft and $18.9 Billion in Aircraft parts.

Or maybe compare that piddly NET fuel export figure to our 2010 export totals to just China (total $92 Billion).

Our top five exports to China in 2010 were:
Computers and electronics $15.3 billion
Farm products $13.8 billion)
Chemicals $11.8 billion
Transportation equipment $10.6 billion
Machinery $9.3 billion

Finally, we have ended the Ethanol subsidies, so except what is in the pipeline, we will not be not exporting a lot of tax payer subsidized alcohol.

 

[Billy T]

... So, no Net Fuel was not bigger than Aircraft exports, in 2010 American aircraft makers shipped $29.6 billion worth of aircraft and $18.9 Billion in Aircraft parts.

Thanks for your comments, but not correct to compare total value of airplanes exported to only the net fuel exports. You should be comparing the totals to totals as that is what my source said had fuel exports greater than airplane exports in value. (I don´t know if it is true or not, but at least I know it is not shown to be false by your comparison of a total to a net export.)

... Finally, we have ended the Ethanol subsidies, so except what is in the pipeline, we will not be not exporting a lot of tax payer subsidized alcohol.

Can you support that with a link? I know and agree that the duty once imposed on import of Brazilian alcohol into the USA was killed at least a year ago - was of no import as Brazil´s alcohol was more expensive than the subsidized US from corn alcohol. That economic fact, not the duty, was what was keeping Brazil´s naturally cheaper to produce alcohol out of the US.

I have not heard that the "blender´s subsidy" has been eliminated (5 cents per gallon of ETOH mixed into gasoline, as I recall) Nor do I think the subsidy for corn used to make alcohol has been reduced. There were as I recall a few others too, but making the corn artificially cheap was the big cost reduction / subsidy given those making alcohol from corn.

I am almost sure it still does make corn based alcohol artificially cheap, compared to conditions that no subsidies would make because if US alcohol were really WITHOUT subsides then that made in Brazil, with cheaper land, cheaper labor, and most importantly compared to Iowa where a lot of fertilizer is needed to accelerate growth during the short summers and in Brazil the cane can grow all year long with little fertilizer used, etc. Brazil´s alcohol would be cheaper. I.e. Brazil´s cane based alcohol would be cheaper than corn based alcohol IF IT HAD NO SUBSIDIES, but it is not, so Brazil imports US´s corn based alcohol because it is cheaper with subsidies more than offseting Brazil´s natural production advantages.

SUMMARY: You are being silly if claiming the corn subsidy is not a subsidy that lowers cost of corn based alcohol.

 

[adoucette]

Thanks for your comments, but not correct to compare total value of airplanes exported to only the net fuel exports. You should be comparing the totals to totals as that is what my source said had fuel exports greater than airplane exports in value. (I don´t know if it is true or not, but at least I know it is not shown to be false by your comparison of a total to a net export.)

You're right, I should have included the offset of Aircraft imports to make it a fair comparison, but I presumed you would know that that is one of our very positive trade balances:

In 2010 the US exported $72 Billion of Aircraft, Aircraft engines and Aircraft parts and imported $31 billion, for a net difference of ~$41 billion, worth far more than our net fuel exports, particularly when you consider that well over half the oil stock used to make those fuel exports was imported to start with.

http://www.census.gov/foreign-trade/Press-Release/2010pr/final_revisions/

 

[adoucette]

I have not heard that the "blender´s subsidy" has been eliminated (5 cents per gallon of ETOH mixed into gasoline, as I recall)

Yes Billy, the "Blender's credit" or VEETC as well as the import tarriff on Ethanol both ended last December.

http://switchboard.nrdc.org/blogs/slyutse/out_with_the_old_in_with_the_n.html

Nor do I think the subsidy for corn used to make alcohol has been reduced. There were as I recall a few others too, but making the corn artificially cheap was the big cost reduction / subsidy given those making alcohol from corn.

No Billy, the big Ethanol subsidy was the VEETC.

The Corn Subsidy, of $3.5 Billion is spread over our entire corn harvest, so only ~$1.4 Billion goes towards corn for Ethanol, or about 10c per gallon subsidy. (which amounts to about a 1c per gallon of typical E-10 gasoline subsidy)

http://farm.ewg.org/progdetail.php?fips=00000&progcode=corn

 

[Billy T]

... The Corn Subsidy, of $3.5 Billion is spread over our entire corn harvest, so only ~$1.4 Billion goes towards corn for Ethanol, or about 10c per gallon subsidy. (which amounts to about a 1c per gallon of typical E-10 gasoline subsidy)

http://farm.ewg.org/progdetail.php?fips=00000&progcode=corn

Your link shows 80.6 billion dollars of corn subsidy spent during last 15 years. That is an average of 5.37 billion per year, not your 3.5 billion. Perhaps you reversed the main two digits?

I don´t know the volume of gasoline which had alcohol added to it during that period, but surely it was less than 20% of the total alcohol produced and most of that only got 10% alcohol added. (E10 is much more common than E85, I think as many cars can not use E85.) Thus IF only the volume of “gasohol” is considered, (not pure gas or diesel, etc) and that volume is divided into the more than 80.6/3 = 27 billion dollars the tax payers paid to support “gasohol” I think the cost per gallon of the subsidy is far greater than your 1 cent per gallon, but I am too lazy and too bad at searching to find correct number.

Also as these subsidies have ended (never should have started) it is not too important to know the exact number now. The stupidity of the past cannot be undone and I hope my threads attacking it for 6+ years may have had a small part in ending that stupidity. I also suspect it is still continuing in some other forms for the following reasons:

Some of the tax credits given the corn to alcohol industry must still exist – just be a better hidden abuse of Joe American to make the very rich even richer with export of corn based alcohol to Brazil (and others.) as there is no way alcohol production cost is higher in Brazil. I.e. Joe´s food is still costing more than it should with > 1/3 of US corn becoming alcohol (not to mention the corn-feed chickens and pigs that are exported also with hidden cost reductions for the foreigners to buy cheaper at Joe´s expense). Here is why that without some hidden cost to Joe, the US corn based alcohol must be more expensive than Brazil´s locally produced, cane-based, alcohol:

(1) Cost of large amounts of fertilizer* used in Iowa to accelerate growth during the short growing season (vs. 12 months in Brazil) where little fertilizer if any, is used,
AND
(2) The higher US labor costs (than in Brazil) but both are nearly fully machine planted and harvested now but the opperators of those million dollar plus machines are better paid in the USA.,
AND
(3) The higher land costs per acre in US´s Mid West (than in Brazil).

With these greater cost, how could it be profitable to ship tons of US alcohol to Brazil and sell it cheaper than the cane based alcohol Brazil makes, UNLESS THERE ARE SPECAIL TAX BREAKS OR STILL HIDDEN SUBSIDIES?

I was not born yesterday. – I know that some how the rich connected with the corn to alcohol industry are still sticking it to poor Joe, I just don´t know how.
-------
* BTW, microbes in the Iowa soil convert much of that fertalizer into NOx which is much worse pollution than the CO2 from buring gasoline that corn based alcohol displaces. - This was conclusion of careful university study lead by Nobel Prize winning bio-chemist, which I posted a few years ago. There is nothing good that can be said about the US´s corn to alcohol program, except if you were a supporter of GWB, it did get him a new and grateful set of campaign contributors.

 

[adoucette]

Your link shows 80.6 billion dollars of corn subsidy spent during last 15 years. That is an average of 5.37 billion per year, not your 3.5 billion. Perhaps you reversed the main two digits?

I don´t know the volume of gasoline which had alcohol added to it during that period, but surely it was less than 20% of the total alcohol produced and most of that only got 10% alcohol added. (E10 is much more common than E85, I think as many cars can not use E85.) Thus IF only the volume of “gasohol” is considered, (not pure gas or diesel, etc) and that volume is divided into the more than 80.6/3 = 27 billion dollars the tax payers paid to support “gasohol” I think the cost per gallon of the subsidy is far greater than your 1 cent per gallon, but I am too lazy and too bad at searching to find correct number.

I was only referring to the last year figures. But the BIG Ethanol subsidy has always been the VEETC and it's been a constant per gallon blened figure, so no, it hasn't changed much over the time.

Yes, the subsidy for growing Corn was higher in the past, but the amount of Ethanol made was also lower, so the per gallon subsidy wasn't much higher.

 

[Billy T]

... Yes, the subsidy for growing Corn was higher in the past, but the amount of Ethanol made was also lower, so the per gallon subsidy wasn't much higher.

You speak of changes in two factors: Dollars paid, D, & volume V produced. The "per gallon subsidy" is the ratio D / V.

Both D & V, you say, changed in the direction that makes this ratio increase, so you logic seems confused. One is not offsetting the effect of the other, but adding to it.

 

[adoucette]

My bad.

What I should have said was:

Because the amount of Ethanol was also lower the total corn based ethanol subsidy was lower and the per gallon corn based ethanol subsidy wasn't much higher.

To put the numbers in perspective.

Over the last decade, the per gallon subsidy based on subsidizing Corn growers has averaged ~16c per gallon.

In 2010 it was 10c per gallon.

 

[Billy T]

Advanced photo from late 2015 of the toilet paper shelf at the grocery store:

If I am correct that the dollar collapses on or before Halloween 2014.

 

[scheherazade]

Fiat currency.

Paper promises.

Valued or devalued by numerous and varied events.

I seldom see currency anymore.

Everything revolves around digits posted to my account in exchange for my sweat equity which then get redistributed when I purchase the goods and services of the sweat equity of others.

More money keeps getting printed, I read, but what does it really represent? :bugeye:

 

[Billy T]

... I seldom see currency anymore. ...

Yep - You can´t even wipe your ass with a digital dollar - When it is worthless, it is really wothless!

 

[scheherazade]

Yep - You can´t even wipe your ass with a digital dollar - When it is worthless, it is really wothless!

Ahem.......

That's posterior, privates or personals to you, kind sir, or at least my hindmost is.

An ass is an animal.

 

[Billy T]

The dollar has lost 1.6% against the Aussie dollar, and 5.5% against the New Zealand dollar. In the non-euro countries of Europe, the dollar has lost 1.3% against the Swedish krona ... 3.2% against Norway’s krone ... 1.9% against the Swiss franc ... 6.4% against Hungary’s forint ... and a whopping 7.2% against Poland’s zloty.
Against the Russian ruble, the greenback has shed a whopping 7.9%! I n Asia, the dollar has lost 3.3% against India’s rupee ... 3.8% against Malaysia’s ringgit ... 3.7% against the Singapore dollar ... 2.9% against the Philippine peso ... and 2.5% against Taiwan’s dollar.And in South America, the dollar is not faring well, either. It’s lost 5.5% against Mexico’s peso and an amazing 8.6% against Columbia’s peso. …

{Billy T insert: against the Brazilian Real, the dollar is slightly up, not because of its strength but due the rapid decline of interest rates in Brazil (From ~13% to current 9% in little more than a year.) so dollars that came to Brazil as hot money “carry trade” are in demand in Brazil now to take them out and apply them as “carry trade” with very low US interest in another country.

Why is dollar declining:}
“… FIRST, savvy investors are anticipating another round of MASSIVE FED MONEY-PRINTING.{by both FED & ECB} ….

SECOND, the very disturbing trend: … Beijing has taken one step after another to boost the value of its yuan and to internationalize it — all at the expense of the dollar Beijing has ...
Allowed JPMorgan to promote and make a market in yuan-based money-market funds in Hong Kong. To the best of my knowledge, the first foreign investment bank allowed to do so.
DOUBLED the amount of regulated foreign investment bank money allowed in mainland China.
While the Bank of China is now working with authorities in London to make that city a major Western trading hub for the yuan. And most important of all ...
Just this past week, for the first time ever, China’s bank regulators gave the country’s commercial banks its blessings in allowing them to sell short U.S. dollars.
That’s huge. And yet, hardly anyone in the West is talking about it. …
Conclusion: … the end days for the dollar (and the euro) are not far off. …”*

Quotes from: http://www.uncommonwisdomdaily.com/why-i’m-deeply-worried-about-the-u-s-dollar-14112?FIELD9=2

* On or before Halloween 2014, I predicted about 8 years ago and still seen no need to change that.

 

[Billy T]

Friday, 11May12: “…China Investment Corp. (CIC), the investment arm of China's sovereign wealth fund, announced it would stop buying European government debt. … With $439.6 billion in its portfolio, the CIC has more than a little clout. But the bigger question is, how does the Chinese government feel about European and American debt?

Chinese holdings of U.S. Treasuries have been falling since July 2011. Indeed, China holdings fell 10% from July 2011 through February 2012. China's not the only one dropping Treasuries. The U.K., Thailand, Turkey and Poland are all holding less of our debt...

And China might just be more interested in picking up gold than Treasuries, if you take the country's first-quarter buying as any indication. In the first three months of 2012, China imported 135.5 metric tons of gold from Hong Kong alone. That's a whopping 587% increase over the amount of gold imported in the first quarter of 2011.

The U.S. Treasury auctioned off $72 billion worth of Treasuries last week... but more and more, that buying is coming from the Fed**, not our go-to foreign buyers. I* don't think the Chinese will stop buying our bonds just yet, though. It could just be that we're China's "too big to fail" investment. But with this European debt announcement by the CIC, I'm not 100% sure of anything. …” From: http://www.insideinvestingdaily.com...&o=702148&s=706967&u=40779324&l=432743&r=Milo
*Article´s author is: Sara Nunnally, Editor, Inside Investing Daily

**Billy T notes: Japan now holds more US Treasury paper than China does, but the largest holder is the FED and their percentage of the total issue is steadily growing on a year to year basis. Occasionally for a month or so, desperate Europeans do buy more than the FED does as they try to get out of very ugly currency in less ugly dollars:
"... The central bank has already bought $2.3 trillion worth of bonds during the first two QE programs that occurred from December 2008 to June 2011. In addition, next month $400 billion of short-term Treasuries will be replaced- with longer-term debt holdings to maintain low borrowing costs. ..." Quote from: http://www.stateofthemarkets.com/re.../1/0/c95d0d16c94739c4c8edaecacf3d99b88028ef9a
$400 billion - Lets twist again, like we did last summer.

If Greece can ever form a government, one of its first acts will be to make taking funds out of Greece illegal but a mere law will have little effect on the drain of funds from Greece and some of the other PIIGS. Dollar will be strong for a few months more then start it collapse, slowly at first until it turns into a run to get into real, not paper, assets.

 

[Buddha12]

Where our current path is taking us has been predictable for quite some time, and I think that continues to be the case. Unfortunately, we have elected officials who are completely incompetent, if not criminal, and the Fed is even worse. None of that is going to change until change is forced upon us (i.e., them) by a crisis. So while events seem to play out at a glacial pace, where we are headed couldn't be clearer.

http://money.msn.com/bill-fleckenstein/post.aspx?post=6f26569b-6654-4f71-8bb6-6095a58da9dc

 

[Billy T]

Note real return is now negative.

Warren Buffett said about it in this year's Berkshire Hathaway shareholder letter (about Treasury bonds):

“… Most of these currency-based investments are thought of as 'safe.' In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge. Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as the holders continued to receive timely payments of interest and principal. This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control. Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 today to buy what $1 did at that time. Consequently, a tax-free institution would have needed 4.3% interest annually from bond investments over that period to simply maintain its purchasing power. Its managers would have been kidding themselves if they thought of any portion of that interest as 'income. …”

Now a Summary from Harvard economics study on Debt GDP relationship interactions:

Our main findings are: First, the relationship between government debt and real GDP growth is weak for
debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth
rates fall by one percent, and average growth falls considerably more. We find that the threshold
for public debt is similar in advanced and emerging economies. Second, emerging markets face
lower thresholds for external debt (public and private)—which is usually denominated in a
foreign currency. When external debt reaches 60 percent of GDP, annual growth declines by
about two percent; for higher levels, growth rates are roughly cut in half. Third, there is no
apparent contemporaneous link between inflation and public debt levels for the advanced
countries as a group (some countries, such as the United States, have experienced higher
inflation when debt/GDP is high.) The story is entirely different for emerging markets, where
inflation rises sharply as debt increases.

Our results incorporate data on forty-four countries spanning about two hundred years. Taken together, the data incorporate over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate and monetary arrangements, and historic circumstances.

From: http://www.economics.harvard.edu/faculty/rogoff/files/Growth_in_Time_Debt.pdf

 

[quadraphonics]

Consequently, a tax-free institution would have needed 4.3% interest annually from bond investments over that period to simply maintain its purchasing power.

And since the returns on US treasury securities in question has averaged about that (if not a bit higher) over the time period in question, any such institutions that invested in such saw their purchasing power maintained. Which would imply that the putative group of investors who have been wiped out by such investments were not investing in US treasury securities. Which should be obvious: if it were a massive losing bet historically, nobody would regard them as safe today. Sounds like Buffet is just trying to strike a contrarian pose and complain about inflation.

Not that you can't just buy TIPS if you're that worried about inflation.

Now a Summary from Harvard economics study on Debt GDP relationship interactions:

Note that they make no statements whatsoever about any kind of causality between inflation, growth and debt, there.

 

[Billy T]

... Note that they {the Harvard study} make no statements whatsoever about any kind of causality between inflation, growth and debt, there.

That is correct - in maters as complex as the link between inflation and its "causes" only fools would try to do that (at least short term of several years). Harvard Economic professors may be wrong, but are not fools enough to do what you seem to think they should have.

For example, not only the US but most of the developed world has been running the fiat money presses 24/ 7 for at least three years - yet that has not caused significant inflation - deflation almost in some area. People are scared / worried - hoarding their cash not spending it if they can delay and paying down debts.

The Harvard profs clearly state even in the small section I quoted that they are reporting correlations, not causes:

"... Our results incorporate data on forty-four countries spanning about two hundred years. Taken together, the data incorporate over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate and monetary arrangements, and historic circumstances. ..."

44 countries studies over 200 years is quite a major study. It is silly to fault them because they did not trying to tell what causes inflation and I never suggested they did or should.

 

[quadraphonics]

Harvard Economic professors may be wrong, but are not fools enough to do what you seem to think they should have.

Sorry, but exactly what is it that you imagine I think those guys should have done?

Because, in point of fact, I didn't suggest that they ought to do anything differently, and it sounds an awful lot like you're calling me a fool.

I suggest you get your facts straight, and apologize for your baseless insinuations about my intellect, in a hurry.

44 countries studies over 200 years is quite a major study. It is silly to fault them because they did not trying to tell what causes inflation and I never suggested they did or should.

Again, I have to wonder where you imagine I "faulted" them for anything. I didn't. I simply pointed out that they make no claim about borrowing causing inflation or anything else.

You, however, routinely make assertions about how borrowing and loose monetary policy will result in disasterous inflation. And you obviously cited the article in question as part of that line of argumentation. After all, the first part of that post was a diatribe by Buffet about the dangers of inflation and the putative recklessness of US monetary policy in that regard. So I pointed out that your second link there doesn't actually make the link you were clearly intending: that lots of deficit spending and QE will cause disasterous inflation.

On top of which, it's interesting to see you attempting such a confused defense. If we take your implications here at face value, and assume that I'm demanding that the study in question should have investigated causation, while you were perfectly aware of an absence of such attribution from the outset, then there was no point in your including it in the first place. It's a non-sequitur in your line of policy argumentation, absent an assertion of causation. That's exactly why I pointed out that there is no such assertion to be found: absent an assertion of causation, that study doesn't lend any support to your position.

I contend that you, implicitly, suggested exactly the causation in question. Otherwise, explain the relevance of that study to your post there in particular, and your larger line about monetary policy in general.