Tough Times

Discussion in 'Business & Economics' started by Mickmeister, Jun 27, 2008.

  1. nirakar ( i ^ i ) Registered Senior Member

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    3,383
    If the EU and USA were in a depression and slowed down consumption China would get a better price for raw materials but how would they pay for them?

    The Chinese pay for their raw materials with dollars and Euros that the get from selling merchandise to the West.

    There are not so many Arabian Gulf people. The can't use enough merchandise from China for China to pay them for their oil with merchandise.

    Europe needs a stronger dollar to slow the European slide down the same path of trade deficits and indebtedness that the USA has gone down. Eurpope's trade deficit with China is growing.

    The present trade pattern requires the raw material exporters to but things and financial assets from the West with the money they get from selling to China.

    Even though direct trade between China and the developing world is increasing it will take a while before Japan and the West can be cut out of the loop.
     
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  3. Carcano Valued Senior Member

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    Chinese exports to the US will only increase with an prolonged depression in the west.

    Why? Because Chinese goods are cheaper than from Japan and Europe.
     
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  5. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    Yes, but really No dollars are needed for the main and growing Chinese trade.

    Yes, in most cases, the contracts are still requiring payments in dollars, often with some indexing now as the dollar´s value has fallen so much (against almost any currency you wish to name, if your time scale of interest is a year, not two weeks) However, these are not real green dollars and in practice not even electronic entries in some bank´s computer. They are Off-set dollars," so the real answer is No.

    For example, Brazil´s Vale is the largest exporter of iron ore in the world and most of it goes to China. China is paying in "off-set dollars" that means that Brazil cna not use them to buy TVs, beer or drugs made in USA. Those dollars conceptually return to China, but in fact they never really came to Brazil. Effectively they are a credit Brazil has with the Chinese government or some national steeel industry. How they will be spent is also already determined. China will supply railroad cars, locamotives, port cranes, heavy mining equipment, etc. - all sort of things that will make Vale more productive and with greater export capacity. (Both China and Brazil benefit - get what they need to advance their economies.)

    When you take an over view, the dollars disapear. They just facilitate what is really a barter system. China gets raw materials it need and Brazil get higher value added goods and technical assistance. All over Africa, China has similar obligations, extending 30 years into the future. Ports, railroads, schools, hospitals, airports, and especially hydroelectric facilities. More than half of the Dams now in costruction in the whole world outside of China, itself, are in Africa and being built by Chinese.

    China has considerable "social problems" in Africa. The skilled Chinese workers do not eat the local food, live with the natives, etc. First thing the Chinese do is build the worker's housing, the communial kitchen, etc. The workers do not usually learn the local language or mix with the people. They are there for their three or four years and will go home when their job is done with three or more times more Yuan than if they had remained in China. China trys to make it seem more like home to them and less like a "hardship duty" for the builders of a dam, the new airfield, the port. etc - All the things Africa needs that can not be shipped from China, (cars, computers for the new schools or hospital equipment, etc.) but this policy is making a lot of resentment amoung the natives who work harder and have next to nothing to show for it three years later when the job is done. The Chinese are treating the natives the way the Americans treated the Chinese ~approxiately 200 years ago when they build the US´s railroads in the US west.

    Many people here in Brazil, me included, have been suggesting, that the 30 year contracts be signed in Yuan, not dollars. - not only is that more direct an logical but the Yuan is becoming more valuabe wrt to the dollar and surely will much more when China lets it truely float. Why should Brazil get stuck with dollars (even as credits) when they collapse? That is Japan's role, as they need the US sevent fleet to protect them from China - The Japanese will be the ones holding the biggest bag of green paper when it losses most of it purchasing power in a month or so during the run to get out of dollars. The do not dare do what everyone else with dollar surpluses is doing - create a "sovern fund" to buy real assets, not paper promisses.
     
    Last edited by a moderator: Aug 24, 2008
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  7. kmguru Staff Member

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    11,757
  8. kmguru Staff Member

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    11,757
    Some one is not telling the truth....



    Sears Stumbles on Slowing Economy
    Wall Street Journal - 34 minutes ago
    By DONNA KARDOS Sears Holdings Corp. reported a 62% drop in fiscal second-quarter net income on weakness at the retailer's US stores.


    Economy Grew 3.3% in 2nd Quarter, Much Higher Than Initial Reading
    Wall Street Journal - 34 minutes ago
    By JEFF BATER and BRIAN BLACKSTONE WASHINGTON -- The US economy was much stronger in the spring than first thought because of better exports and less inventory liquidation by businesses, according to a government report that surprised economists.
     
  9. CheskiChips Banned Banned

    Messages:
    3,538
    If you made ANY profit the previous year you would have to have at least 100% drop in gains to see loss. Keep in mind it was net income, not gross income. People panic when the growth goes below 5%, which is unwarranted. Believe it or not the companies are taking intelligent steps to prevent future closings, certain industries are doomed no matter what they do. But for the most part the market has handled this quite well.
     
  10. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    23,198
    No, probably not. The 3.3% gain is in GDP and the Sears drop is in domestic sales etc.

    US corporations, as reflected in those that make up the DOW index are doing well. More than half their profits are foreign earnings. This does not directly show in the domestic GDP, but they import components from (or do book-keeping etc. off-shore) so that they can sell more in the US (without the price increases need to pay Joe American his higher than foreign salary) For example, When Wal-Mart sells you some shoes, made in Vietnam, that sale does show up in US GDP, but not in the pocket book of Joe American so he can not buy as much at Sears. Times are tough for Joe - He has been losing ground economically all of GWB's term. - Part of why US is headed for depression.

    The banking crises and tight money is also related. Many corporations need to raise cash and that is not so easy now in US. So they, for example, pull some profits they have in BRIC stocks out by selling and bringing the cash back to US. They have done this so much that the local stockmarkets of the BRICs are double digit down now from start of the year. To take dollars out of the local economy they must buy them paying with the local economy. This demand for dollar is part of the reason why the dollar has recovered some for a few weeks. (And the local currencies have at least briefly stopped their long term appreciation against the dollar, if not actualy weakened in all of the BRICs.)

    The 3.3% may not reflect the 5.6% inflation rate. (GDP is susposed to be inflation corrected number, but the 3.3% was using a lower than current value for the correction, I am almost sure.)

    SUMMARY: No one lying - probably just some pre-election "fudging" of books to help McCain. Russia is saying that US encouraged Georgia to invade its atomous regions for the same reason - and that might be true also. -It is interesting timing. -Why now after 22 years of tolerating their local atomomy?
     
    Last edited by a moderator: Aug 28, 2008
  11. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    23,198
    Just noticed Bloomberg telling same thing as I did in prior post: To quote:

    "The meager gains in earnings over the last year signal the U.S. economy is in much deeper trouble than the growth estimates indicate, economists said.

    Gross domestic income, or the money earned by the people, businesses and government agencies whose purchases go into calculating gross domestic product, rose 0.3 percent in the 12 months ended in June after adjusting for inflation, according to Bloomberg calculations based on today's Commerce Department growth report. GDP expanded 2.2 percent.

    The income side of the economy, with profits down for four straight quarters and employment falling, looks like a recession, ...''
    From:
    http://www.bloomberg.com/apps/news?pid=20601087&sid=aIWiIsk9fzl8&refer=home

    I.e. INCOME increased 3% less thant GDP, even though it makes up large part of GDP! The corporation are doing well, with cheap imported parts, etc. as I said in post 87, not Joe American.
     
  12. CheskiChips Banned Banned

    Messages:
    3,538

    Which economists say this? America's in trouble unless they go more internal there's no doubt. But it will become economically viable before any great tragedy will occur. Which means speculating is ridiculous. We can deflate our bulk, that's what we're doing. We're deflating...but you HAVE to do this, because of Clinton we've postponed it much too long.
     
  13. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Messages:
    23,198
    Are you stating/ implying Clinton's surpluses were bad and GWB doubling the national debt was good? -I do not see your point, if there is one.

    What did Clinton post pone? (Doubling the debt in only 8 years? or was it destroying US influence abroad? Perhaps over extending the military? Causing reduction in real wages? Making only 5 milion new jobs instead of Clintons 20 million? An out sourcing explosion? "Historic" Forclosure rates? All time high of unsold homes on the market? Needless Invasions? Fall in the value of the dollar? What was it?)
     
  14. CheskiChips Banned Banned

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    3,538
    I am implying that neither were the right president for the time. And the deficit Bush created is NEVER good.
     
  15. kmguru Staff Member

    Messages:
    11,757
    related items:

    America’s Federal Deposit Insurance Corporation reported that 117 banks were on its “problem list” in the second quarter, 30% more than in the first quarter and the most for five years. The total assets of the problem banks increased from $26 billion to $78 billion ($32 billion of which was accounted for by IndyMac, a Californian bank that failed in July). Sheila Bair, the head of the FDIC, forecast that the banking crisis would worsen and more banks would join the list. See article
     
  16. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Messages:
    23,198
    From your link:

    "...the possible cost at $143 billion. That would force the FDIC to go cap-in-hand to the Treasury. The need to do so could become even more pressing if nervous savers began to move even insured deposits (those under $100,000) away from banks they perceived to be at risk—which no longer looks fanciful given the squeeze on the fund. Ms Bair’s admission, in an interview with the Wall Street Journal, that the FDIC might have to tap the public purse, albeit only for “short-term liquidity purposes”, will have done little to calm nerves.
    ...
    Contagion also spreads through the market for credit-default swaps. Banks have busily written such insurance contracts on Fannie’s and Freddie’s $20 billion of subordinated debt, which sits below senior debt in their capital structures. If the debt’s holders suffer losses in a bail-out, triggering a “credit event”, banks that had sold the swaps would face huge payouts. ..." - see footnote *

    This Economist article is not the first I have seen suggestion that the FDIC may too need a federal bail-out. Several financial services had suggested that you get esparate accounts if assets are >$100,000 in bank or >$200,000 on brokers books (which are not FDIC insured, but actually have less chance of causing you loses as even if the broker fails, the your stocks are still your stocks.)
    -----
    * I pointed the swap default problem out eariler in the post 77 of the Fanny and Freddy thread as follows:
    "Speculators may {also} have bought credit default swaps on the companies’ subordinated debt even if they did not own any of the debt....Because of the implied guarantee … and the belief that it meant they would never have to pay out on the swaps - sellers of credit insurance may have been overly eager to write contracts on Fannie’s and Freddie’s debt. ..."

    The analogy I made some time ago remains true: The US financial system is like a shapely woman in knit dress (with nothing under it) walking down the street unaware that it is unraveling as a thread caught a block earlier. - A disaster is coming but it will be interesting to watch, if you saw it coming and are prepared.
     
    Last edited by a moderator: Aug 29, 2008
  17. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Messages:
    23,198
    A little gallows humor:

    Lets start a poll; (We can call it the "Chicken Poll"): Which run will come first?

    The run of Americans to get their money out of banks before the FDIC goes bust (or Treasury prints new dollar to pay off depositors).

    OR

    The run of foreigners to get their dollars converted into real asses, not paper promises (sovern funds, etc.)?

    Is anyone laughing?
     
  18. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Messages:
    23,198
    MorningStar's 5 minute video, called: "Are Credit Card Firms maxed out?" helps you understand the credit card problems as of 25July 2008:

    http://www.morningstar.com/cover/videocenter.html?bctid=1743107570&lineup=stocks

    But you may be dropped into some other of the videos when clicking on the link above. Just scroll down thru their list of videos to find this one and clidk "play" - You will no doubt need to tolerate about a minute of promotion. You may find many others in the list interesting also.
    I usually take a look every few days to see what is new.
     
    Last edited by a moderator: Aug 31, 2008
  19. Mickmeister Registered Senior Member

    Messages:
    812
    Right now, we are off on vacation scuba diving. Just because of the price of gas is jumping 50 cents, the pumps here are being flooded to fill the cars up before prices rise, so much so, that it's being warned that some pumps may run out of fuel. What the fuck is wrong with this country. Is saving $5 to $10 on one tank of gas that important??? Is the average person in this country that poor?
     
  20. kmguru Staff Member

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    11,757
    Here are some interesting items I ran in to....

    We can learn something from the experience of the General Electric Company, in particular from the autobiography of Jack Welch. (6) He hailed the profits brought to GE by locating their largest R&D labs in India. From a careful biography of Jack Welch's stewardship of General Electric we learn that "GE has either closed or sold 98 plants in the United States during the Welch era, 43% of the 228 it operated in 1980." (7) More recently we learn from BusinessWeek (8) that General Electric will have 20,000 workers in India alone by the year's end, and is moving towards a "big China R&D center." The type of work which is being moved by GE to the India and China facilities include finance, information technology support, R&D for medical, lighting and aircraft. BusinessWeek reports, "for companies adept at managing a global workforce, the benefits can be huge. ... Now, American Express, Dell Computer, Eastman Kodak, and other companies can offer round the clock customer care while keeping costs in check..." For an array of major U.S. firms reviewed by BusinessWeek the trend of U.S. jobs being moved offshore is "a trend that's likely to grow."

    http://www.swans.com/library/art9/melman01.html

    also see: http://www.seymourmelman.com/archive/de_re/afterdeindustrialization.pdf
     
  21. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Messages:
    23,198
    No people are irrational and relative values are often more important than absolute values.

    Here are three examples:

    (1) They will drive to other side of town to take advantage of a sale and save $5 on item which costs $50, but not drive there to save $50 on new car as that costs $25,000.

    (2) As one of two participants in "We found $100 game." If the guy holding the money says: "OK, I will give you 30% of it, but don't tell the cops we found it." That participant is likely to say: "No deal. I get half or I will tell cops." and mean it. (despite that means he will lose $30 by telling.)

    (3) The foreign man, say an Indian, who has income three times larger than all those he know considers himself well off, even if he also know it is only 30% of average Joe American's income. (About 40 years ago the average income in Canada was less than the US poverty level, but Canadians did not consider themselves poor.)

    I was looking for something else when I noticed this old thread and will post link to in in the "You know times are tough when _________ " thread.
     

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