Smoot-Hawley II has started (or not?)

Remember that the price of gasoline is also heavily subsidized...if you include the military cost of safe guarding supply from the middle east it gets even worse.

There is also a reduction in federal farm program costs as the price of corn goes up, as explained here:

http://www.ethanolrfa.org/pages/ethanol-facts-agriculture

 

Log in or Sign up to hide all adverts.

Yes and if Brazil will agree to buy an equal value of USA vehicles as they sell in ethanol we will move closer to our stated goal of trade equilibrium.

Deal?

 

Log in or Sign up to hide all adverts.

Up dating post 39:

“ Frictions may fester this week as Geithner and Bernanke meet with counterparts from the Group of 20 developed and emerging nations Oct. 22-23 in South Korea to craft an agenda for a Seoul summit of leaders next month.
“Each of these central banks and Treasury departments recognizes there is a competitive beggar-thy-neighbor devaluation game going on and that’s something you don’t want to be left behind in,” said Stephen King, chief economist at HSBC Holdings Plc in London. “

Quotes from: http://noir.bloomberg.com/apps/news?pid=20601010&sid=aUNYvPtP5EZ0


Billy T comment: Round and round and down we go.
For the funny side of all this, see: http://www.sciforums.com/showpost.php?p=2635007&postcount=1372

 

Log in or Sign up to hide all adverts.

Brazil is now one of the few nations (the only one?) that buys more from the US than it sells to the US.

We can consider making a deal when US is buying enough Brazilian alcohol to bring the bilateral trade into balance, but few would want a US car. Instead US could sell some coal as Brazil licks that; However, coal is a very undesirable fuel for a country that makes 80% of its electricity by hydro power (and ~5% by burning crushed sugar cane in small steam power generators at the alcohol distillation plants - more heat in it than needed for distillation)

I think Brazil now buys mainly high tech products from the US, but the volume is decreasing as Trade with China grows (China is now Brazil's main trading partner.)

 

http://hello.news352.lu/edito-19884-us-trade-deficit-widens-to-402-billion-dollars.html

"Among key emerging markets, the US trade deficit with Brazil jumped 40.5 percent to 659 million dollars."

And thats just for ONE month.

 

To Carcano: thank for correcting my older POV. Sorry it took a month to get back here and say that. (I found this thread while looking where to post following)

"As expected G-20 ended in total failure. They could agree that global economies were in a mess and likely to get worse, but not on one thing they could do about it (unless agreeing to study the problem more during the next year is something):

Here is how the final communiqué worded that:

“Uneven growth and widening imbalances are fueling the temptation to diverge from global solutions into uncoordinated actions,” the leaders said in the statement. “Uncoordinated policy actions will only lead to worse outcomes for all.”

Quote copied from: http://noir.bloomberg.com/apps/news?pid=20601087&sid=a6Rwveya_hU8&pos=1

Billy T comment: US lead and initiated "currency war" will no doubt intensify now as QE2 failed and the FED drops the value of dollar in effort to boost exports. Many nations are beginning to try to defend their manufactures from increased value of their currencies as cheap dollar flood into their countries. (That makes their exports less profitable and even forces some to close up their factories. - A process called "de-industrialization" in Brazil.)

For example with world's largest cattle herd and relative cheap manual labor, a few years ago Brazil exported a lot of leather shoes. Now almost all of those factories have closed. The flood of dollars into Brazil trying to take advantage of the high interest rates on even simple bank accounts has made a surplus of dollars. Brazil's central bank has soaked up about 250 billion of them and mainly bought US bonds, but now those US bonds pay very low interest.

To get the funds to buy up those dollars, the central bank pays the owners of dollar with local currency but if that local currency were used instead to buy back the much higher interest paying Brazilian bonds, the central bank would have much less to pay out on it bonds. This getting low interest on US bonds and paying high interest on Brazilian bonds is costing Brazil a lot but done as closed factories mean unhappy voters. US is making economic war on many nations, which recently got the name of “currency war” but has been going on for more than a decade as US policy drops the value of the dollar.

Recently Brazil has put a 6% tax on entering dollars - that also slows the flood of dollars into Brazil and makes a little income for the government. IMHO it need stop be about a 10% tax to stop the flow of dollars into Brazil. US is making economic war on responsible governments which via high interest rates keep inflation under control. It is printing a flood of new dollars that don't do much to help the workers of the US but does hurt the workers in other countries by closing their factories.

 

I'm not sure how I feel about this whole thing.

Firstly, it's our fault in a sense because we make the free choice to buy "made in China". They put the stamp of where things are made, but I wonder why as no one seems to give a crap.

Secondly, OK we created the system. While some people will say we have greatly benefited from this economic system I'm not so sure, America has to me felt hopeless and shallow for my whole generation.

Third, then there's the fact that we did to England what China is doing (and going to do) to us. It seems like something we will not be able to fight against. As if there's forces working here they we can not stop and must adapt to. Some sort of fundamental economic realities that I can't really get my head around.


That said, it seems like bullshit that other nations can bitch that their factories are closing because of exchange rates. Well tough titty. We have lost shit loads of manufacturing jobs - not because we can't competitively make things, but because of monetary exchange rate. I as a Citizen don't think we have to put up with that. Brazil is de-industrializing? Try going to Michigan. Then you can see real de-industrializing. Go from 250,000 industrial jobs to 3000. Bye Bye economy.


So, again, I don't really know what to say. I do think I'd like to start seeing some Bankers going to prison. I'll vote for the next POTUS elect who actually states he'll set up a real independent commission and do just this. Bankers are the new Aristocracy they must be killed and/or made to fear the people they serve.

 

There is no free choice by "us" involved in the longstanding, systematic manipulation of China's currency exchange rate relative to ours, for the exact purpose of underpricing goods produced elsewhere on the American market. Nor in the rest of their mercantilist policies to subsidize export-oriented manufacturing on the backs of their consumers.

 

By any sensible definition of "currency war," this was started by China nearly 20 years ago.

Simple macroeconomics dictates that a country can't have both interest rates substantially higher than another country and a currency that does not appreciate with respect to the second country's currency (at least, not without cutting off trade between the two countries via protectionist measures). It is not the fault of the United States that Brazil wants things that can't be had (high interest rates and a weak currency, at the same time). The bitching at the US is just a diversion from the fact that they're trying to have it both ways to please everyone at home, despite the fact that this simply cannot work for any sustained time frame. Why admit that you're trying to pull a fast one in defiance of basic economics, when you can blame big, bad Uncle Sam instead?

Well, then, Brazil needs to decide what it wants: high interest rates, or a weak currency. You can't have both. It's not the job of the US (or anyone else) to subsidize their refusal to decide.

Although it appears that Brazil has chosen low inflation (and so, a strong currency), and is simply pushing this "it's all America's fault" rhetoric to mollify the out-of-work voters that their policy decisions create.

That's only "responsible" if you also want a strong currency. If you want a weak currency, then inflation (literally, the devaluing of your currency) is exactly what you want. An inability for Brazil to decide is not a cause to criticize the USA.

It seems that what Brazil really wants is for the USA to subsidize Brazil. That's hardly "responsibility." That's whining that one can't have one's cake and eat it too.

That doesn't add up. If the policy is causing foreign factories to close because they're losing competitive advantage, then they must, by definition, be getting replaced by production elsewhere that is more competitive. This may not be in the United States, but it has to be somewhere (presumably China, since they've still got the yuan more-or-less pegged to the dollar).

Moreover, to the extent that one's exports rely on currency manipulation, they do not reflect actual comparative advantage. Export sectors that reflect genuine comparative advantage don't tend to be hurt much by such currency moves - in fact they can be helped by them, since they get that much more purchasing power in exchange for their products. To the extent that some export enterprize depends on exchange rates to function, it is inherently a fragile, artificial business that lives and dies by shifts in the winds of monetary policy. Such a business is a concrete version of a carry trade, basically. We don't mourn it when carry trades collapse under changes in monetary policy, so why should we care that exporters who depend on artificial exchange rate differences likewise collapse?

Southeast Asia (or wherever) can make leather shoes cheaper than Brazil can. If keeping inflation under control is a bigger priority for Brazil than propping up Brazilian leather shoe exports, then Brazil has no cause to complain when said exports dry up. If they want the leather shoe exports, then they can bite the bullet and accept the inflation. Either way, it's their decision, and their responsibility, and crying about the USA is just so much passing of their buck.

And, yes, I'll have no pity for any weak-currency-induced export business that the USA may lose down the line when the currency strengthens. Not that I expect there to be much - China seems determined to keep its soft-peg, so the export production will mostly just be expressed there anyway.

 

China does not manipulate it's currency to compete with the USA.

Other than in goods that have very small labor components and a high cost of shipping to sale price ratio, China does not compete with the USA. That will change as China starts producing cutting edge technology.

The reason that China is so desperate to not let there currency rise is that If Chinese workers start being paid considerably more than Indian, Vietnamese, Filipino, and Indonesian workers then all those factories making stuff for Wal-Mart will move out of China to the lower cost labor nations.

Underemployed Indian, Vietnamese, Filipino, and Indonesian workers have the most reason to complain about China's currency manipulation.

 

Yes that is correct. It is the RELATIVE interest rates that drive hot money currency flows. It is the US with negative real interest rates and nominal interest rate of essentially zero that is causing the flood of money out of the US into many other countries. I.e. the US is the cause of the hot money problems, not all these other countries.

Your POV reminds me of the proud mother watching son Johny marching in a parade and noting that everybody was out of step but Johny.

Yes, I blame the US for these hot-money flows ("currency wars") as it is the US, and US alone, which has created very abnormal RELATIVE interest levels in what appears to be a failing effort to boost it low level of economic activity and increase employment.

I don't blame all the victims of these hot-money flows when they try various measures to protect themselves from the US's exporting of inflation to the rest of the world. Unfortunately all these currency controls do lower global trade so in the end, all will suffer due to the US low interest and money printing policy.

 

I agree, but want to note that China has appreciated the Yuan wrt the dollar and is in the process (as I predicted it would be long ago) of raising salaries and living standards for the masses so that it is less dependent upon US and EU buying it cheap low-value-added goods. China understood some years ago that the excessive consumption with borrowed money of the US (and to a lesser extent EU) would end. So it needed to look inward and to other Asian nations for its markets.

China buys a great deal of what it builds into its exports from other Asian nations.* Thus, they are getting every more funds they can use to buy China's higher value added exports. China trade with other Asian nations is soaring! And the just concluded APEC meeting in Japan will reduce intra-Asian trade barriers even more.

PS: I don't shop at Wal-Mart, but bet if you go there and look to see where many of their low-value-added goods were made, you will find more come from Asian countries already than from China.

SUMMARY: Asian is not dumb, but expecting and preparing for the not distant future when US and EU will not be able to buy what they produce.

-------------
*As I recall, currently only ~15% of China's GDP is exports once these imports for later re-export are stripped out of Chinese exports. China is well on the way to being able to tell the US to go to Hell as "We don't want your increasingly worthless green paper anymore because we don't need to lend it back to you to buy our exports."

 

You're only looking at the production side. There's also consumption:

And those Chinese workers will start importing more and more luxury American goods (iPods, fancy cars, Intel processors, etc.), thereby boosting demand for American production. The point is not that we are losing out on no-skill assembly-line jobs (we're too rich to bother with those anyway), but that we're losing out on a big market for all the things that we do produce.

 

That would be "source," not "cause." The "cause" is the financial crisis, and the resulting need for stimulus.

And that's a highly reasonably comment to make in the case that Johny is the leader of the parade, and so empowered to set the pace and time the steps. Or didn't you notice that amongst all of the bitching about American leadership, nobody else has stepped up with anything like a plan?

Nor I. They're welcome to do what they think is appropriate to deal with the situation as they find it. And some reactionary protectionism is a cost of American policy that we'll have to accept - point is that America is teetering on the edge of deflation, so printing money is called for.

It's the expectation that the USA should shoot itself in the foot in order to avoid presenting other countries with difficult choices that rankles - Brazil isn't being "responsible" for anyone other than Brazil, so the indictment of the USA as malign for similarly prioritizing its own interests is risible.

 

You are giving the 1980 - present conventional wisdom typified by Robert Reich in the 1990s trying to placate the Perot supporters. The conventional wisdom runs counter to what you would expect based on applying the accepted basic economics found in your first year economics course. Jobs have left slower than I would have expected but they have been leaving.




It seems that all iPods are assembled in China. There parts are from companies headquatered in many countries but most of the parts including the expensive parts are made in China. Those parts that are not made in China are mostly made in other parts of East Asia.

From Wikipedia http://en.wikipedia.org/wiki/IPod

On 11 June 2006, the British tabloid The Mail on Sunday reported that iPods are mainly manufactured by workers who earn no more than US$50 per month and work 15-hour shifts.[94] Apple investigated the case with independent auditors and found that, while some of the plant's labour practices met Apple's Code of Conduct, others did not: Employees worked over 60 hours a week for 35% of the time, and worked more than six consecutive days for 25% of the time.[95]

Foxconn, Apple's manufacturer, initially denied the abuses,[96] but when an auditing team from Apple found that workers had been working longer hours than were allowed under Chinese law, they promised to prevent workers working more hours than the code allowed. Apple hired a workplace standards auditing company, Verité, and joined the Electronic Industry Code of Conduct Implementation Group to oversee the measures. On 31 December 2006, workers at the Foxconn factory in Longhua, Shenzhen formed a union affiliated with the All-China Federation of Trade Unions,[97] the Chinese government-approved union umbrella organization.[98][99]

In 2010, a number of workers committed suicide at a Foxconn operations in China. Apple, HP, and others stated that they were investigating the situation. Foxconn guards have been videotaped beating employees.

Who else makes Ipods: http://www.nytimes.com/2007/06/28/business/worldbusiness/28scene.html


Intel opened it's first chip plant in China. If the dollar does not crash don't expect Intel to be manufacturing many chips in the USA 20 years from now. I mean the dollar must crash. A 50% fall in the dollar versus the Yuan/Renminbi won't change much of anything. The fall of the dollar needs to be much larger than that to keep any type of work that could be done outside the USA from eventually leaving the USA.

I don't know what Caterpillar and Boeing are doing still producing in the USA. Caterpillar is opening their first plant in China. Though Boeing and Airbus have begun producing in China, apparently they have displeased China and China and the Commercial Aircraft Corporation of China may engage in a long term plan to drive Boeing and Airbus out of Business rather than wait for them to relocate to China. Boeing can always keep it's US defense contracts as long as China will loan the USA money to pay Boeing.

The superiority of American skills that is supposed to protect the US economy is grossly exaggerated and diminishing rapidly. Inertia plays a big role in protecting the US economy but Inertia can only delay the inevitable for a few decades.

The conventional wisdom, Robert Reich, Bill Clinton, Newt Gingrich, Bush, Obama and the Wall Street Journal were wrong and Economics 101 and Ross Perot were on the right track though the real economy changes slower than it should theoretically change on paper.