interesting link, but little new to me. In fact, the song I started to sing several years ago, is now backed up by a whole corus singing with me.
The U.S. Economy: Stand by for more worse news
- Thread starter Brian Foley
- Start date
Yes, they are angry, but still buying US bonds as they are currently the “least ugly” currency. I.e. every person and government buying bonds are the “short sighted” investors in the dollar. In addition to them there are some “Long time horizon” buyers such as life insurance companies who know quite well about what they will need to pay out more a decade or two from now, so they buy the long end of the treasury’s paper. (They don’t care that those bonds will have little purchasing power when they mature as their obligations are also in fixed dollar amounts.)
I am not sure of your point here, as I did not suggest that currently the US government is trying to”boost demand” for the dollar. By suppressing interest rates to historic lows it is making the dollar less attractive than if interest rates were higher. It is the “least ugly” effect that is making demand for the dollar (and the FED’s buying) DESPITE these low interest rates.
I agree completely that is true NOW*. The US debt will be paid, but not in purchasing power – that is impossible now.
*In a few years, for China at least, the net effect of a dollar collapse will be a net financial gain. Yes they will, like everyone else holding dollars in their reserves, take a ONE-TIME loss on them, but as I predicted long ago, China is reducing that eventual loss by spending their dollars faster than they are accumulating them now. I.e. buying under long term delivery contracts raw materials, energy and food stocks (even large farms when they can). E.g. the 10 billion dollars they gave PetroBras will deliver them 200,000 barrels of oil /day for 20 years and there are dozens of such deals with others so for last year China’s dollars in reserves have been dropping despite the trade surplus influx of dollars.
When China decides that the EVERY YEAR cost savings by removal of US & EU as competitor for the imports it needs, they will dump their remaining dollars to destroy the dollar with net long term gain. I.e. you are correct FOR NOW, that China’s hurt by dollar collapse would be large and is making them continue to accept green paper for real goods. Their exports to US & EU are still essential, but they are working hard to make those exports to US & EU decrease to an unimportant level. - Growing their exports to their Asian suppliers of the components they build into high value exports they make and accepting some inflation pain to rapidly grow the purchasing power of their population.(See my reply to Joepistole, post 20.)
NONSENSE. A day of reckoning is coming for anyone who tries to chronically live beyond their means on borrowed or freshly printed funds. After that date, the US will be in deep long lasting depression and Asia will be a prosperous growing trading zone. (To remove any doubts, note I am including Russia & India as "Asian" here and even oil and gas rich Iran plus the "Xistans" from which China already gets natural gas via a new large pipeline.)
Read here: http://noir.bloomberg.com/apps/news?pid=20601087&sid=acnoL3iodIOw&pos=4 where Paul Volcker sets forth my POV. Volcker's speech is entitled: "Waning U.S. Influence Endangers Dollar". In it he states: "the U.S. dollar is in danger of losing its role as a global benchmark currency."
Yes that is true. – I failed to add the same parentical note: “(in purchasing power)” after “repaid” as I did correctly in post 13, but that should have been understood as I often do.
No, not a contradiction, but I did unintentionally omit this one time that parentical note “(in purchasing power)”. I have also noted that insurance companies purchasing 30 bonds have off-setting nominal fixed obligations. (There should be no confusion between nominal and PP dollars, even if occasionally I do not specify which I am speaking of.) Many of the current foreign buyers of short term treasury paper are hoping to get out with a profit, even with dollar’s slow PP decline as in their local currency, now growing more ugly faster, even their purchasing power, when interest collected is included, will increase. Those redeeming dollars a year from now for Euros at near parity probably will do quite well. – Why I told Joepistole that not all current buyers of US paper were “stupid” as he asserted.
Also not a contradiction to say that the dollar will collapse and also say that currently it will rise for a year or so as it is the “least ugly” now. If you have any doubts about my position, which has been unchanged for about 5 years, just ask and I will clarify it for you.
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That is what happens when you have drugs going off patent protection. In other countries these sales people are not needed.
Now this is obviously preposterous - all those fund managers and central bankers and financial analysts all over the world are "short-sighted" fools, unable to see what BillyT sees. I'm not buying it.
Yes, you did:
Right, that's what I just said, and why the above-quoted supposition - the entire premise being debated, here - is preposterous.
Again, it would behoove you to pick a story and stick with it.
This ONE-TIME loss will amount to a large percentage of China's GDP. As in, enough to wipe out half a decade of growth, destabilize the currency, and so throw the whole country into a tailspin. They unequivocably regard a dollar collapse as a nightmare scenario. There is no sign that they buy into your economic warfare theories.
No, they aren't. China's dollar reserves are still growing, and everyone expects that to continue into the medium term (at least). If they were spending dollars faster than they were hoarding them, the exchange rate would be diverging noticeable - it's barely moved at all since 2008.
China is more concerned with the US and EU as export markets than import competitors, and will remain so well into the medium term.
Not fast enough that such will occur in the foreseeable future. In many ways, it's one step forward and two steps back, owing to the entrenched political connections of the coastal export sector, and the fact that a huge portion of investment-led growth has been in export companies whose competitiveness depends on a depressed exchange rate. A sag in demand for their output would stack that much more bad debt onto the state banks' already-lethargic balance sheets. In a country where growth has been strongly dependent on investment in recent years, this would again amout to wiping out years of GDP growth.
They might like to transition to a consumption-led economy, but they're nowhere close to doing so, mostly moving in the opposite direction (investment and export led growth), and only making occasional, fitful moves in favor of consumption when forced to do so.
If you're referring to debts bought and sold in nominal terms, and not adding some qualifier about purchasing power, then there is no reasonable expectation that anyone will understand what you're talking about.
Moreover, you're contradicting yourself again. You are saying that a stronger dollar makes investors less confident that their nominal dollar contracts will be worth it in purchasing power terms. That's upside-down.
When you refer to contracts that are written in nominal dollars, and do not specify otherwise, then the reasonable presumption is that we are talking about nominal dollars. If you mean something else but don't say it, that is going to cause confusion. It is your fault if you don't say what you mean.
Quite frankly, I don't think you even keep them straight in your head, but rather introduce these distinctions post hoc, to avoid admitting that you muddled your point. Even if we go back and read every instance as "real dollars," the statements still don't add up.
I did not call them (or any one) "fools" - My post concluded by saying just the opposite. - I.e. refuting Joepistole claim that people buying treasure paper were "stupid"
You have also mis understood my use of "short sighted" - what I meant by that was clear from the contrast I gave (in answer to your question as to who were these "short sighted" investors in dollars) here:
"I.e. every person and government buying bonds are the “short sighted” investors in the dollar. In addition to them there are some “Long time horizon” buyers such as life insurance companies ..."
My "short sighted" is used as an adverb (telling time period of an action). You transformed my "short sighted" into an adjective (and you needed to supply "fools" as a noun for that adjective to modify). You need to read what I wrote, not transform it, although I admit "short sighted" when not in context can, and often is, an adjective. I.e. it would have been better if I avoided your conversion by saying short term investors but from context my meaning is clear as "short sighted" is contrasted to the long term investors, insurance companies, buying 30 year bonds etc.
My "short sighted" means with a short time horizon vs a long time horizon. A short view vs a long view. I had even defined "short" as for two or less years as the dollar could rise and people with this short view could be ok by investing, but only insurance companies etc. with long term fixed obligations could buy at the long end of the treasury curve and not be stupid.
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“ Originally Posted by Billy T
I am not sure of your point here, as I did not suggest that currently the US government is trying to”boost demand” for the dollar.
Yes, you did:
“ Originally Posted by Billy T
Driving its value down a little, without losing control in a run, is the best way to delay the inevitable run to get out as for the next year or so, that lower value dollar will boost US exports, reduce imports and the trade imbalances to give "short sighted" foreign investors confidence that holding dollars is secure. ”
“ Originally Posted by Billy T
By suppressing interest rates to historic lows it is making the dollar less attractive than if interest rates were higher.”
No way a rational person can consider either of my posts you quote as “boosting the dollar” How is “driving the dollar down in value “boosting the dollar demand” ??? The second specifically states the opposite – makes the dollar LESS attractive. Have you lost all your marbles?
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Perhaps you are tired and just can’t read? I said:
“ Originally Posted by Billy T
but as I predicted long ago, China is reducing that eventual loss by spending their dollars faster than they are accumulating them now. ”
I think your “ facts” are wrong as China has not only been spending dollars in long term contracts for supplies but also diversifying its reserves – Even buying Greek bonds! But more of other country’s bonds like S. Korea’s and Russia etc. I.e. China’s dollar holdings in reserves have dropped from what they were 6 months ago. They have for political reasons (ship collision & dispute of islands) dumped some of their Japanese bonds within the last month, so it is possible that in last month or so their dollars holding have increased a little. (They got dollars for those Japanese bonds, I think. I.e.have recently "undone" some of the diversification into Japanese bonds.)
Also they are controlling the exchange rates – that is why they Yuan is only up about 3% in value while their dollar holding in reserves have dropped.
I must quit now as it is past my bed time and I was up at 5:30 AM today.
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I hear ya man. I was an avid read of Christopher Story's site, and his economic pages. I was seeing it too back in 2006.
Here is some of it:
Billy T’s selected quotes {with comments following} fromForeign Affairs article at: http://1431731ontario.net/Current/A..._TheConsequencesOfFiscalIrresponsibility.pdf:
“If U.S. leaders do not act to curb this debt addiction, then the global capital markets will do so for them, forcing a sharp and punitive adjustment in fiscal policy. …” {I.e. government spending drastically cut because US only has access to "printing press" dollars to cover deficits.}
“…When the George W. Bush administration took office, it initiated, and Congress approved, three steps that turned those budget surpluses into large deficits. The 2001 and 2003 tax cuts, which will reduce federal revenue by more than $2 trillion over ten years, had the biggest impact …”
{Why I have long called the coming depression “GWB’s depression.” But George does not get all the blame:}
“…In Congress, the Democratic center of gravity moved left, and the Republican one moved right. This caused the historically bipartisan support for fiscal restraint to vanish. In particular, both the individuals and groups working to lower taxes and those working to expand entitlements were strengthened. …”
{and Greenspan’s naive idea that banks would only make prudent loans (not “toxic trash”) and thus need not be tightly regulated (with which GWB fully agreed) / added to the coming depression and spread it to Europe too.}
“…debt that the United States effectively guarantees but that is not included in official totals is almost equal to the Treasury Department’s stated $9 trillion total. In particular, the debt of government-sponsored enterprises is another $8 trillion. The biggest of these are the essentially bankrupt housing finance agencies, Fannie Mae and Freddie Mac. …”
{~8 + 9 + 8 = 25 trillion = 25E12 or for 3E6 population that is at least a per capita debt of 8E6 or eight million dollars per US man, woman and child (not including your state and local government debts) Last time I looked, I had less than 0.001% of that under my mattress. Note also these debt projections do NOT include double digit interest rates, which surely will be the case after the “bond vigilantes” ride into DC. Don’t worry, the US will never default so long as it has printing presses. It just that having less than $1,500,000 will put you in the poverty level class.}
“…The post-2020 fiscal outlook is downright apocalyptic, for two reasons. First, the aging of the U.S. population will drive sharp increases in health care costs (and at the same time, more Americans will be retired). Second, federal interest expense will rise exponentially, as the Treasury’s borrowing costs grow with the debt. …”
{No comment needed, except to again note that the interest payments also grow due to the bond vigilantes’ demands.}
“…that a large amount of federal borrowing would eat up the stock of private capital that is available to finance investment. … diverted funds to purchasing government debt and away from productivity-enhancing investments in equipment and technology. This would shrink the base of productive capital and flatten GDP and family incomes. As more and more debt piled up, growth would slow and Americans’ standard of living would fall. …”
{That is from first 1/3 of the paper, but post is already too long – Read the rest for yourself – it is all down hill still.}
Billy T’s selected quotes {with comments following} fromForeign Affairs article at: http://1431731ontario.net/Current/A..._TheConsequencesOfFiscalIrresponsibility.pdf:
“If U.S. leaders do not act to curb this debt addiction, then the global capital markets will do so for them, forcing a sharp and punitive adjustment in fiscal policy. …” {I.e. government spending drastically cut because US only has access to "printing press" dollars to cover deficits.}
“…When the George W. Bush administration took office, it initiated, and Congress approved, three steps that turned those budget surpluses into large deficits. The 2001 and 2003 tax cuts, which will reduce federal revenue by more than $2 trillion over ten years, had the biggest impact …”
{Why I have long called the coming depression “GWB’s depression.” But George does not get all the blame:}
“…In Congress, the Democratic center of gravity moved left, and the Republican one moved right. This caused the historically bipartisan support for fiscal restraint to vanish. In particular, both the individuals and groups working to lower taxes and those working to expand entitlements were strengthened. …”
{and Greenspan’s naive idea that banks would only make prudent loans (not “toxic trash”) and thus need not be tightly regulated (with which GWB fully agreed) / added to the coming depression and spread it to Europe too.}
“…debt that the United States effectively guarantees but that is not included in official totals is almost equal to the Treasury Department’s stated $9 trillion total. In particular, the debt of government-sponsored enterprises is another $8 trillion. The biggest of these are the essentially bankrupt housing finance agencies, Fannie Mae and Freddie Mac. …”
{~8 + 9 + 8 = 25 trillion = 25E12 or for 3E6 population that is at least a per capita debt of 8E6 or eight million dollars per US man, woman and child (not including your state and local government debts) Last time I looked, I had less than 0.001% of that under my mattress. Note also these debt projections do NOT include double digit interest rates, which surely will be the case after the “bond vigilantes” ride into DC. Don’t worry, the US will never default so long as it has printing presses. It just that having less than $1,500,000 will put you in the poverty level class.}
“…The post-2020 fiscal outlook is downright apocalyptic, for two reasons. First, the aging of the U.S. population will drive sharp increases in health care costs (and at the same time, more Americans will be retired). Second, federal interest expense will rise exponentially, as the Treasury’s borrowing costs grow with the debt. …”
{No comment needed, except to again note that the interest payments also grow due to the bond vigilantes’ demands.}
“…that a large amount of federal borrowing would eat up the stock of private capital that is available to finance investment. … diverted funds to purchasing government debt and away from productivity-enhancing investments in equipment and technology. This would shrink the base of productive capital and flatten GDP and family incomes. As more and more debt piled up, growth would slow and Americans’ standard of living would fall. …”
{That is from first 1/3 of the paper, but post is already too long – Read the rest for yourself – it is all down hill still.}
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That's hogwash. The Democratic center of gravity moved right, and the "groups working to lower taxes" were the same people as the "groups working to expand entitlements" - to the relatively small extent that anyone was actually working to expand entitlements.billy's link said:
Medicare Plan D, for example, was a Republican initiative pushed through Congress by Republican leadership.
I am not well enough founded in the political history of congress to defend the general claim of increased polarization, but I don't think the article was making a general claim. Only that as far as fiscal policy was concerned the "spenders" and the "lower the taxes" forces both got stronger with disaster for the budget deficit. - That at least seems to be fact.
My main objection to this part of the text is that the authors seem to be re-enforcing the false, but common idea,* that the Democrats are the "big spenders."
*Thanks to a lot of Republicans repeating that without proof over the years.
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The point is that those were not different and separate forces - one force got stronger, total.billy said:
The "both sides are to blame" repetition is a propaganda effort, a deliberately propagated meme. It is doing great harm, by obscuring the actions and identities of the perps - who are setting up again, in the safety of their carefully defended anonymity.
The "Democrats moved left" repetition is a simple lie, in the service of the same effort.
This situation gets a lot more clear if you break down the "left/right" moves into different categories: the entire polity has been moving steadily leftward on social issues, and steadily rightward on economic issues. What we'll end up with is openly gay illegal immigrant married couples smoking marijuana while serving in a military that's been outsourced to the private sector, and is funded via regressive taxation.
So you'll mostly see the GOP active in areas of economic policy, as this is where conservative politics has traction and looks like a win. And, indeed, a key part of the strategy is leveraging the overall shift of the polity, including its expression in the opposing party. But the same effect works for the Dems on social issues - Don't Ask Don't Tell was a progressive policy 20 years ago when it was introduced, but today is something that one will be tarred as a reactionary relic for supporting. Whether those dialectics are good or bad depend on whether you like the direction the polity is moving, but both involve calculated, dishonest dichotomization for opportunist political gains.
So you'll mostly see the GOP active in areas of economic policy, as this is where conservative politics has traction and looks like a win. And, indeed, a key part of the strategy is leveraging the overall shift of the polity, including its expression in the opposing party. But the same effect works for the Dems on social issues - Don't Ask Don't Tell was a progressive policy 20 years ago when it was introduced, but today is something that one will be tarred as a reactionary relic for supporting. Whether those dialectics are good or bad depend on whether you like the direction the polity is moving, but both involve calculated, dishonest dichotomization for opportunist political gains.
To Quadraphonics & Iceaura:
I completely agree* with quad’s post 32 take on the changes occurring in Congress. Thus, do not agree with Ice’s POV in post 31.
PS considering that normally Quad & I have strong disagreements, it is nice to agree 100% with him for once.
* Hard not to agree as he supports his POV with strong examples.
I completely agree* with quad’s post 32 take on the changes occurring in Congress. Thus, do not agree with Ice’s POV in post 31.
PS considering that normally Quad & I have strong disagreements, it is nice to agree 100% with him for once.
* Hard not to agree as he supports his POV with strong examples.
I tried briefly to find support for my claim in blue which Quad said was false. But I soon gave up.
Today Clayton revived my old 19 August post in another thread just to agree with it. Here is part of my post at: http://www.sciforums.com/showpost.php?p=2605819&postcount=347 showing clearly Quad was wrong (unless he can disprove the US treasury data in the graph below.) Very recently, with China's large trade surplus, they have built back up part of the 100 billion decrease in reserves shown in the graph below. However they are ready to sign contracts for nuclear power stations worth more than half a TRILLION dollars which will really drain dollars out of their reserves. read more detail on this half trillion buy here:http://www.sciforums.com/showpost.php?p=2657306&postcount=334
I have been consistently singing this same "China will spend reserves, dump remaining to kill dollar when has switched to domestic and Asian trade economy" for years. It is still in tune with the unfolding facts....
I said the same in other thread some years ago; explaining that China would use dollars from reserves to buy real assets it will need* and then would reduce its buying of US Treasury paper** to also reduce the cost of dumping US bonds when it has switched to a domestic rather than export economy. Then the one time loss on China's remaining US bonds will be more than compensated EVERY YEAR in lower cost of importing coal, oil, gas, minerals, wood, steel, rubber, etc. and food stocks with no buying from economically broken US and EU. I.e. China can send US & EU into deep depression any time it wishes, but needs a few year more to convert to a domestic market economy and to spend more of its paper dollars before it makes good economic sense for them to "kill the dollar." When it does, China will be happy to kill the dollar and demonstrate that their economic system is superior. (I have several times explained why it is superior.)
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* For where and in what the 162.8 billion in last five years was spent on see: http://www.forbes.com/2010/08/17/ch...na-tracker.html?partner=globalnews_newsletter
Note the pace of these foreign purchases/ investments is rapidly growing: Only 8.4 billion in 2005, but in 2008 & 2009 54 & 50 billion.
**China has started to cut back its US paper holdings, mainly by not rolling maturing longer term bonds.***
*** That increases the US's need to print even more money to pay China off. GWB's depression is coming and Obama can only hope to delay it until his 1st term is over. The economic death of the USA is less than five years away now. In less than five years, no one will lend dollars to cover US deficits so the FED / Treasury printing presses will run 24/7 to pay off maturing bonds as well as the growing budget deficits. All will be dumping / spending their dollars ASAP. - I.e. a run on the dollar, ending in deep long lasting depression in US & EU.
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The left/right axis is an economic one - there is no consistent or coherently assignable left/right axis on purely "social" issues.quadro said:
Much of the right, almost the entire libertarian wing, is perfectly OK with legal marijuana and gay marriage - to pick two examples. The libertarian left favors minimal gun control and opposes drug testing. And so forth.
It was a compromise then, between authoritarian and libertarian factions - not the left and right, which was represented (at least the right was) on both sides of the issue.quadra said:
What of my post do you disagree with? I was posting on the issue of "fiscal policy", in specific response to your post (quoted) on that topic, and quadraphonics post agreed with my post 31 as far as that went.billy said:
My point was that the Democrats did not move left on "fiscal policy" or any other economic matter. There was no mutual divergence between Dem or left "spenders" and Rep or right "lower taxes", involving the taking of increasingly extreme positions by "both sides". Nothing like that happened, and the economic disaster that befell cannot be ascribed to some kind of mutual effort or blamed on "both sides" of an economic conflict.
If you want to establish a "left/right" scale of social issues, and claim an increasing and polarizing separation between Dems and Reps on that scale, that would be another post from me - my guess would be that you would find the Dems and Reps "moving", if at all, more or less in tandem there as well.
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Sorry but the following post of yours did not come across to me as limited to fiscal policy, although you were responding to my quote of the articles comments on fiscal policy. It was what I thought was wrong as you seem clearly to exonerate the Dems from any part of the growing budget / deficit problem, but it is hard to be sure what you are saying here:
I.e. I and the article did not think the change, which might best be characterized as increasing polarization of Congress, was caused by one side "getting stronger" but by movement, or at least consolidation, of both sides to make compromise more difficult.
I don't like calling the "side" left vs right or Reps vs Dems. etc. as any one member may be on one side of issue "A" and the other on issue "B" To over generalize, as is often done, to describe what article was stating, one might say "the Dems moved left AND the Reps moved right; but again what is left and right is very vague and switches with the issue.
You seem to have used these facts to conclude there was no decrease in the Congress's ability to work to gether or reach comprmise. For example on the health care bill, the Dems said that the Reps were listen to, consulted etc. and the Reps said the bill was ramed thru with no imput from them as Dems held a majority.
Unfortunately, I expect this polarization to the point of inaction will be very obvious after 5 Jan 11 when the Reps control the House.
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I don't think I said buying treasury paper was stupid. People and organizations buy treasury paper for a variety of legitimate reasons.
However, I did say holding fixed income investments in a time of rising interest rates is not going to be pleasant for fixed income investors. In particular, I was referring to all of those folks who put their retirement money in bonds.
When interest rates rise bond (fixed income) prices fall. So when interest rates start rising, I expect a lot of folks to be unpleasantly suprised.
Yes, it appears the the bond Vigilantes have started to stomp on even the holders of 10 yr treasuries or it may be just people pulling funds out of bonds to invest in soaring stocks? - If that is the cause of yield rise, it will be more limited but if it is fear for the purchasing power of dollar falling, that can feed on its self.
I don't expect a real run to get out of dollars for a few years more - when China stops buying Treasury paper as it does not need to sell to US and EU. (Its factories are selling to the domestic market, meeting contractual obligation to build infrastructure, mainly in Africa as exports but more in China (high speed rail, power plants, rural hospitals, etc), and trading with other Asian nations. They supply components as have cheaper labor and China builds them into higher value added goods it export in growing Asian trade.) For latest (yesterday) on growing Asian trade, see: http://www.sciforums.com/showpost.php?p=2663701&postcount=347 (China& India agree to grow their's to 100 billion/ per year!)
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I can't say I quite buy that, but...
... it seems that the best remedy is nevertheless a rephrase:
The polity has been moving to the right (economically, by putative definition), and becoming more progressive (socially - and by implication not economically).
Whether such movement is preferable to its opposite is an interesting question...
What is $858,000,000,000 + $600,000,000,000?
Well yes, that is 1.458 Trillion dollars largely borrowed from China, but correct answer is:
The ticket to the run-away-inflation train, which depart the station in a year or two (three at the most).
BTW, not only do the very rich get to keep their Bush tax reductions, but also get to pay less into Social Security (further increasing US debt).
Now they pay 6.4% on 106,800 of their earned income. The just signed bill drops it 4% for two years, saving each year the rich 2.4% of 106,800 or $2,563.20 for them. More than $5K total. The less well off get a saving too, but not as much and will pay Social Security tax all year long.
Well yes, that is 1.458 Trillion dollars largely borrowed from China, but correct answer is:
The ticket to the run-away-inflation train, which depart the station in a year or two (three at the most).
BTW, not only do the very rich get to keep their Bush tax reductions, but also get to pay less into Social Security (further increasing US debt).
Now they pay 6.4% on 106,800 of their earned income. The just signed bill drops it 4% for two years, saving each year the rich 2.4% of 106,800 or $2,563.20 for them. More than $5K total. The less well off get a saving too, but not as much and will pay Social Security tax all year long.
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