mdsh00
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Greenspan: U.S. Trade Gap Could Hurt Economy

Sat Nov 20, 2004 2:35 am

http://www.msnbc.msn.com/id/6529487/

So now that we are poised to increase our trade deficit once again and congress approving the limit up to $8 TRILLION, the continued fall of the dollar against the Euro, how does everyone feel? As a young person, I'm f**king pissed that this is all being left for me and my peers to pay off. But that's okay since we can't let those gays get married!  Yeah sure

[Edited 2004-11-19 18:38:48]
"Look Lois, the two symbols of the Republican Party: an elephant, and a big fat white guy who is threatened by change."
 
ly7e7
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sat Nov 20, 2004 2:40 am

Doesn't the trade gap supposed to shrink with the Euro climbing high?
2 things are endless: ignorance and space
 
gigneil
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sat Nov 20, 2004 3:07 am

The higher the Euro goes, the bigger the trade gap.

N
 
cfalk
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sat Nov 20, 2004 4:00 am

So now that we are poised to increase our trade deficit once again and congress approving the limit up to $8 TRILLION

Don't confuse the trade deficit with the budget deficit. The trade deficit is caused by Americans who like to buy foreign made goods like BMWs, Sony, and toys made in China, not to mention oil for those SUVs. That is what is mostly responsible for the pressure on the dollar, not the budget deficit.

Charles
The only thing you should feel when shooting a terrorist: Recoil.
 
airplay
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sat Nov 20, 2004 4:19 am

President Bush says the best ways to handle the yawning trade deficits is to get other countries to remove trading barriers and open their markets to U.S. companies.

HAHAHAHA….that’s a good one! Canada, the US’s most significant trade partner by volume is under constant threat from trade barriers imposed by the US even though we have a free trade agreement.

The US consistently tries to bypass provisions of the NAFTA in their favour. By the time the WTO exposes the illegal trade barriers, the damage is done to Canadian companies.

This unfair and illegal practice results in Canadian companies being forced to find alternate sources and markets for goods. Why rely on our lying cheating friends across the border when we have other stable significant potential markets to tap like Europe and Asia?

Like the article alludes to, the saving grace in the past is the huge foreign investment in the US dollar by countries who have adopted the US dollar as the standard for trade. The strong Euro along with the increase of Euro based trade is sounding the alarm for the US dollar. It is also significant that Cuba has outlawed the US dollar. How many other countries in the world will liquidate their US dollar investments in favour of the Euro or local currency?

If the US was serious about revitalizing their economy, they would lose their arrogant stature, swallow a little pride, admit their mistakes, start to rebuild diplomatic ties, and start to HONOUR THEIR INTERNATIONAL AGREEMENTS.
 
MaverickM11
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sat Nov 20, 2004 4:47 am

"The higher the Euro goes, the bigger the trade gap
"

Theoretically, the cheaper the dollar becomes, the more attractive US exports will be over EU exports. Some believe that will help compensate for the trade gap, but I think just about everyone agrees that it won't make much more than a dent.
E pur si muove -Galileo
 
Falcon84
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sat Nov 20, 2004 5:04 am

Not one of the most penetrating observations Greenspan has ever made. That's been known for a long time.

But it seems the "tax cut and spend" GOP majority doesn't feel the same way, nor with the deficit. They go on as if nothing is wrong....
Work Right, Fly Hard
 
MD-90
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sat Nov 20, 2004 5:59 am

It's only going to hurt when the Central Banks of China and Japan decide to stop funding our overspending by by T-bills.
 
Falcon84
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sat Nov 20, 2004 6:03 am

So, in other words, MD-90, our economic health is at the mercy of Japan, China and other nations? And you don't have a problem with that, eh?
Work Right, Fly Hard
 
Klaus
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sun Nov 21, 2004 4:24 am

Greenspan basically gave the green light for a further decline of the Dollar with is passionless pro-forma statements. He all but explicitly declared an official weak Dollar policy.

The question is on what grounds other countries should still keep their devaluating Dollar reserves... It´s getting more and more expensive...
 
cfalk
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sun Nov 21, 2004 5:09 am

So, in other words, MD-90, our economic health is at the mercy of Japan, China and other nations? And you don't have a problem with that, eh?

It goes both ways. Japan, China, and much of the rest of the world have become structurally dependant on having large trade surpluses with the U.S. If the U.S. were to stop buying from them (or simply only buy as much as they sell back - i.e. trade deficit = zero), then many economies would collapse. The U.S. is basically providing nearly $500 Billion of foreign aid each year through the trade deficit.

Therefore, those countries will do everything they can to prevent the dollar from sliding further, which would reduce the value of their exports - or to be more precise, the value of the dollars they get for those exports. If they stop buying or sell off U.S. treasury bills, their economies will collapse like the French Army.

It's a catch 22 situation, and the funny thing is that the U.S. has the least to lose compared to other nations.

Charles
The only thing you should feel when shooting a terrorist: Recoil.
 
FDXmech
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sun Nov 21, 2004 5:49 am

>>>Theoretically, the cheaper the dollar becomes, the more attractive US exports will be over EU exports.<<<

That used to be conventional wisdom with a large manufacturing base. But my gut feeling is our manufacturing base has shrunk so much that what will we export?
You're only as good as your last departure.
 
airplay
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sun Nov 21, 2004 12:52 pm

The U.S. is basically providing nearly $500 Billion of foreign aid each year through the trade deficit.

Cfalk, this seesm to be a recurring theme of yours. It appears that in your opinion, the US supplies foreign aid to the world just by existing.

The truth is that the US has a long history of exploiting other countries for their own gain. I don't know of any trade deal the US has made purely for the benefit of other countries. Far from it. They typically tilt the financial gain in their favour.

It appears however that the trend is reversing. I'm not surprised. You can only screw people over for so long.
 
Arrow
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sun Nov 21, 2004 2:58 pm

The U.S. is basically providing nearly $500 Billion of foreign aid each year through the trade deficit.

That's bizarre reasoning. Has it occurred to you that the ability of your trading partners to buy the stuff you want to sell is tied to the economic benefits they derive from the stuff they sell you? Stop buying from them, and the whole merry go-round stops. Erect those tariff walls, and the dirty thirties are just around the corner.

The U.S. trade deficit is a huge, overblown bogeyman. The budget deficit and growing debt, on the other hand, will sink the economy faster than the Titanic. That's the main reason for the fall of the dollar, and it will continue to do real damage. If that dollar gets much lower, Asian debt/bond holders will bail out and America's descent to a second-rate economic power will be about a decade away.
Never let the facts get in the way of a good story.
 
BarfBag
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sun Nov 21, 2004 3:49 pm

But no matter how you want to spin it, the U.S. buys nearly $500 billion worth of goods without a corresponding export. That means a NET $500 billion leaves the U.S. each year to go into the pockets of other countries, including China, Japan, Germany, and many others.

It doesn't simply go 'into their pocket'. China for one, has no full convertibility. They (for most part, Japan and China's central banks) cannot just look at their monetary policy and let exchange rate policy be guided by market forces. Both of them hold down their currencies relative to the dollar in order to maintain their export competitiveness.

If they were to let the exchange rate be guided by market forces, their currencies would rise significantly with respect to the dollar. In order to prevent this the CBOC/JCB buys dollars off the market and releases renminbi/yen, and then try to curb inflation from the increased domestic money supply by selling government/treasury bonds. The Indian central bank, the Reserve Bank of India, does the same thing with its $125 billion foreign exchange pile.

On the other hand, the dollars that the respective central banks accumulate themselves need to be invested someplace. In both their cases, they are *significantly* invested in US t-bills. You want numbers ? Here you go, latest as of Sept 2004 and continuously updated:
http://www.ustreas.gov/tic/mfh.txt
Japan: 720.4 billlion
China: 174.4 billion

Two countries together finance $900 billion of US debt. Why do thy do it ? Because its an easily avenue to put the export earnings they suck out of their own market, which would otherwise cause their own currencies to rise - a strictly verboten idea for them. They can also invest the dollars by other means, like real estate investments - the Japanese and Saudis have a lot of that. It is wrong to see it as money leaving the U.S.; a *lot* of it comes back, and as long as it comes back, Greenspan can continue to to keep down interest rates unless domestic inflation warrants otherwise. Then it goes out again as export earnings, and the cycle continues.

Mature economies in general let the exchange rate take care of iteself and just concentrate on the domestic monetary policy. Developing countries that follow the export-led growth model (most prominently China) must attempt to balance both, which brings in imbalances that must be matched elsewhere, in this case, by the US' trade deficit.

I still agree that the US is still in a better position, for several reasons, most importantly the sheer weight of its economic muscle, its more rational and market driven economic system that can handle shocks better, and the ironic psychological position that being so greatly in the deficit itself puts the US in a strong bargaining position.

None of this removes the fact that the current economic bearhug & dance between US and Japan/China is inherently imbalanced and dangerous, with potentially catastrophic consequences for both sides, and particularly China, since they are just growing and running their entire manufacturing engine on wafer thin margins by compensating using volume, while papering over ridiculously screwy fiat-driven economic policies by riding on top of their economic exuberance, and a misstep and Japan-like extended economic burp will cause all 1.5 billion of them to go bonkers. Having them next door makes me all the more uncomfortable about the possibility.
 
cfalk
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sun Nov 21, 2004 4:01 pm

Has it occurred to you that the ability of your trading partners to buy the stuff you want to sell is tied to the economic benefits they derive from the stuff they sell you?

Let's say you are in a closed universe where you are a farmer which produces beef and chicken. Your neighbor is a farmer that produces grains and vegetables. You sell meat to him and he sells produce to you, and you both live quite happily on this equal trade.

Then your neighbor turns vegetarian and stops buying from you, but you still need his goods. Since he no longer will accept meat in trade, you have to give him cash from your savings. He grows richer and you grow poorer. You also reduce your production capacity and have to lay off some farm hands because you no longer sell as much as you used to. Once your cash is spent, you have to buy your produce with IOUs (T-Bills). You also pay your employees with IOUs (budget deficit).

Meanwhile, your neighbor has been doing quite nicely. Since he is no longer buying from you, he can keep that extra value for himself. But he is still getting money from you. He builds a bigger house and hires servants, and driver and a butler. Field hands do the work and he sits on the porch drinking Mai-Tais. Life is good. Then you run out of cash and he accepts your IOUs. That's OK for a while. But soon, he has a closet full of IOUs. Their perceived value to him drops. He grows reluctant to accept more, but if he does not accept them, he can no longer sell to you, and he will have to lay off his servants and start doing the work himself again. That would suck, especially when his employees live nearby and would lynch him if he fired them. He continues to accept the increasingly worthless IOUs, digging himself deeper and deeper into the hole.

You see where this ends up, right? Eventually, the beef farmer goes bankrupt, unable to pay his IOUs. The produce farmer, who made his fortune off the beef farmer and lived "high on the hog", is besieged by angry, out-of-work laborers and no longer has any income from his cash cow (the beef farmer). His closetful of IOUs are worthless, as you have a ton of them and so does a lot of other people the beef farmer owed money to. Everyone ends up either broke, unemployed, or lynched.

Now the big question is: How could the problem have been avoided in the first place? As long as there was close to equal trade between the two, things went fine. If, in response to the produce farmer's going vegetarian, the beef farmer stopped selling to him as well, both sides end up poorer. The solution is that both farmers must accept that they need each other and continue to buy from each other in more-or-less equal, and hopefully increasing value.

Countries like China and Japan must adapt their economies so that they are not so dependent on trade surpluses. I don't see either happening any time soon - China is too greedy for growth, and the Japanese economy is just barely struggling along on an even keel as it is.

Prognosis: A world of hurt on all sides.

Prescription: Free trade in both directions, and a little wisdom on the part of citizens to think before they buy an imported product. Do they really need it? Is there nothing made locally that will do the job, even if it might cost a little bit more?

Charles

[Edited 2004-11-21 08:06:24]
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cfalk
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sun Nov 21, 2004 4:18 pm

BarfBag,

Good post, and I agree with what you say. Forgive the simplistic terminology, but I'm trying to keep things simple to understand. Clearly, to someone with a bit more economic eductation, such explainations will seem overly simplistic. What you say about the debt reinvestment is correct - it's a debt cycle of IOUs which extends my Farmer scenario above. It serves to delay the inevitable, but is in the long term unsustainable.

You raise one interesting point - fixed exchange rates. Such policies are in the long term unsustainable. A nation can peg its currecy for a long time, but if it gets too far awy from economic reality (supply and demand setting market rates), all they are doing is bottling up excess pressure. Eventually, sometimes after many years - see the USSR - dawn awakens and the bottle bursts. Letting the currency float freely is like having a safety valve, which constantly ensures that the currency is where it should be - more or less, depending on the mood and caffeine (and cocaine) intake of Forex traders that week. The dollar today is low because it should be low. Any attempt to bring it back up without adressing the underlying fundementals (trade and budget deficits), is bound to fail, and will hurt a lot of innocent people in the process.

Charles
The only thing you should feel when shooting a terrorist: Recoil.
 
L-188
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sun Nov 21, 2004 4:23 pm

So I take it you wheren't a fan of the gold Standard Cfalk?

Still everybody else here would do well to listen to his analysis.
OBAMA-WORST PRESIDENT EVER....Even SKOORB would be better.
 
cfalk
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sun Nov 21, 2004 4:40 pm

So I take it you wheren't a fan of the gold Standard Cfalk?

No, mainly for logistical and integrety reasons. The gold standard would only work properly if there is a firm, unbreakable commitment to emit only the amount of money that can be backed in reserves, and with so much money now floating in the ether around the world, it would simply be impossible to control or police. At least the free-floating system is honest - the value of a currency is whatever someone is willing to pay for it. Period.

Charles
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BarfBag
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sun Nov 21, 2004 5:15 pm

Another thing that hurts Japan/China is that maintaining such large dollar reserves is *costly*. Their domestic interest rates are higher than in the US. By buying dollars off the market to keep their currency down, and then using said dollars to buy US debt, they earn the low interest rate on US t-bills, while they must at the same time pay out a higher rate on the domestic bonds they issued in order to pull out of their local markets the money they paid for those dollars in the first place, since the excess money causes inflation.

They might therefore well be losing money to maintain those reserves, just because they must do so in order to keep down their currencies. When the dollar in turn depreciates, all their reserves (the IOUs in CFalk's example) loses value, but they must still keep down their currency. China essentially does so by fiat, which makes it all the more harder for them in the long run. The Japanese just keep buying dollars like there's no tomorrow, as their colossal dollar reserves show.

What will hurt the US on the other hand, is loss of confidence in the US debt and the dollar. Just this September a single biweekly T-bill sale saw muted interest, which in turn sent alarm bells ringing all through the US financial establishment. If OPEC mandated tomorrow that its oil sales should be paid for in Euros, it would be catastrophic for the US. Of course, also means the OPECs vast dollar hoard too goes down the drain.

The gold standard put a redemption value on the IOUs. If things were still tied to that standard, Ft Knox would probably take up all of the town by now, and it would have very well absorbed all of the world's gold. Instead the US dropped it in favour of its own word and its economic strength.
 
MD-90
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sun Nov 21, 2004 6:00 pm

the U.S. has the least to lose compared to other nations.

I dunno. I wouldn't want to see it happening, that's for sure.


The U.S. trade deficit is a huge, overblown bogeyman. The budget deficit and growing debt, on the other hand, will sink the economy faster than the Titanic. That's the main reason for the fall of the dollar, and it will continue to do real damage.

I agree.
 
airplay
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Sun Nov 21, 2004 10:39 pm

Spoken like a true Marxist who doesn't have a clue of how the markets really work. And I don't have the time to give you the whole Trade Mechanics course.

Marxist? How were you able to take the Trade Mechanic's course while your head was so far up your ass?

Your rhetoric about world trade consists of the US's ideal theoretical model of world trade. Well....surprise. The world doesn't fall neatly into the US's requirements. And yes...although I am not one as you imply, there are even some marxists out there that the US trades with.

The trade deficit that the US has been ignoring in the past has been supported by a huge imbalance of currency investment. With the pace that the Euro is gaining popularity, the US has alot of catching up to do to prevent economic collapse.

So...start treating the rest of the world nicely, and maybe we'll consider evening up that trade ratio.....

Oh yah....and maybe stop going around calling people Marxists in derogatory terms. It takes all kinds to develop a market and if you were selling me something right now, I'd tell you to go pound sand....



[Edited 2004-11-21 14:47:33]
 
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yyz717
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Mon Nov 22, 2004 1:13 am

With the pace that the Euro is gaining popularity, the US has alot of catching up to do to prevent economic collapse.


No trade deficit has ever caused an economic collapse. The US economy remains strong.

Wuold you like an economic collapse in the US Airplay?
I dumped at the gybe mark in strong winds when I looked up at a Porter Q400 on finals. Can't stop spotting.
 
MD-90
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Mon Nov 22, 2004 5:14 am

If OPEC mandated tomorrow that its oil sales should be paid for in Euros, it would be catastrophic for the US.

That's also true.



As Congressman Ron Paul relates, the federal debt has been growing by an average of $1.6 BILLION per day since September 30, 2003.

http://www.lewrockwell.com/paul/paul217.html
 
Arrow
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Mon Nov 22, 2004 10:01 am

"Countries like China and Japan must adapt their economies so that they are not so dependent on trade surpluses. I don't see either happening any time soon - China is too greedy for growth, and the Japanese economy is just barely struggling along on an even keel as it is.

Prognosis: A world of hurt on all sides.

Prescription: Free trade in both directions, and a little wisdom on the part of citizens to think before they buy an imported product. Do they really need it? Is there nothing made locally that will do the job, even if it might cost a little bit more?"


Not a bad parable, Charles -- but far too simplistic to explain trade balances between China and the U.S. You have to factor in the somewhat gross differences in material standards between the two countries, relative standards of living, average earnings in the manufacturing sector, and a whole range of other things that compare with each other like night and day.

China is now doing what the US did in the 19th and 20th centuries -- growing the economy by ratcheting up exports to the maximum extent possible and relying on that big US market to suck it all up (with the US it was Britain and Europe). India is embarking on the same path -- give it another 10-20 years and they'll both eclipse the American economy by a large margin.

You're right about free trade being the answer -- but I don't see much adherence to that concept in the US right now, nor in Europe. What I see are bunch of fat cat American/European farmers, in cahoots with a terribly bloated and inefficient manufacturing sector, doing everything they can to make sure that cheap foreign imports don't get more than a foothold in their market. The goal is to keep those upstarts in other countries from getting too uppity. Watch Lou Dobbs for a few nights.

My worry is a return to the Smoot-Hawley approach in the 1930s -- which is now broadly accpted as one of the principle reasons that depression became so well entrenched and lasted so long.
Never let the facts get in the way of a good story.
 
airplay
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Mon Nov 22, 2004 10:30 am

No trade deficit has ever caused an economic collapse.

The statement you are replying to, YYZ717, says "With the pace that the Euro is gaining popularity, the US has alot of catching up to do to prevent economic collapse."

Let's review it again NOT taken out of conext shall we...

The trade deficit that the US has been ignoring in the past has been supported by a huge imbalance of currency investment. With the pace that the Euro is gaining popularity, the US has alot of catching up to do to prevent economic collapse.

Note that I didn't say that the trade deficit will cause economic collapse. I am saying that the US has been ignoring the effect of trade deficits because of imbalance of currency investment.

Countries all over the world have been maintaining substantial US dollar investments to use in trade. The Euro is slowly changing that.

The US economy remains strong.

Sort of a subjective statement. The US economy is better than the economies of many African countries for example, but compared to a few years ago, its hurting. Even Greenspan feels its time to act.

In my opinion, the US economy is in the toilet and hopefully someone will help out before it gets flushed...

Wuold you like an economic collapse in the US Airplay?

Um...no. Would you? Strange question.
 
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yyz717
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Mon Nov 22, 2004 11:42 am

Wuold you like an economic collapse in the US Airplay?

Um...no. Would you? Strange question.


You are predicting a US economic collapse with almost glee in reply 21. Combined with your other anti-US tirades, it's a logical question.

In my opinion, the US economy is in the toilet and hopefully someone will help out before it gets flushed...

Define "in the toilet". US economic growth remains strong. Unemployment is low. Inflation is low. Sounds like a strong economy to me.  Insane

Oh yah....and maybe stop going around calling people Marxists in derogatory terms.

LOL. It's impossible to call someone a Marxist in "nice" terms. Marxism and all other forms of socialism are failed economic experiments.


I dumped at the gybe mark in strong winds when I looked up at a Porter Q400 on finals. Can't stop spotting.
 
airplay
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Mon Nov 22, 2004 1:14 pm

You are predicting a US economic collapse with almost glee in reply 21. Combined with your other anti-US tirades, it's a logical question.

Glee? You can detect "glee" from that post? OK...here's a question for you YYZ717. Do you think burning crosses in the front yards of peoples homes is an appropriate method of getting your particular political feelings across? Try to guess to guess what I detected from your posts....

Define "in the toilet". US economic growth remains strong. Unemployment is low. Inflation is low. Sounds like a strong economy to me

Again, you really need to get a subscription to a newspaper.
 
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yyz717
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Mon Nov 22, 2004 1:31 pm

Define "in the toilet". US economic growth remains strong. Unemployment is low. Inflation is low. Sounds like a strong economy to me

Again, you really need to get a subscription to a newspaper.


I subscribe to the Globe and Mail, National Post and the Economist. All report a strong US economy on average. Only you report a US economy that is "in the toilet".

So i repeat my question, in what way is the US economy "in the toilet" Airplay? Answer the question, or withdraw the comment.
I dumped at the gybe mark in strong winds when I looked up at a Porter Q400 on finals. Can't stop spotting.
 
Arrow
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Mon Nov 22, 2004 2:50 pm

"I subscribe to the Globe and Mail, National Post and the Economist. All report a strong US economy on average. Only you report a US economy that is "in the toilet".

You're not reading them very thoroughly. The economy is strong right now, but how long will it last? It may not be "in the toilet" yet, but if they don't come to grips with the deficit/debt escalation, it soon will be. GWB has big spending plans, and he'll need billions to keep troops in Iraq. They can't grow their way out of his one, as Greenspan has said more than once.

And if they aggravate the problem by throwing up tariff walls against every trading partner they have, continue to flout both WTO and NAFTA agreements they signed onto, they'll be in a pickle. The US has been the number one economy for so long that no one thinks that could ever change. But it can, and it will.
Never let the facts get in the way of a good story.
 
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yyz717
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Mon Nov 22, 2004 3:12 pm

You're not reading them very thoroughly. The economy is strong right now, but how long will it last?

You're contradicting yourself. All major newspapers report a strong US economy. Yes the deficit is a problem, but its manageable, and once again the US economy remains strong. Interest rates are low, inflation is low, PCI is growing, unemployment is low, the stock market is stable, corporate earnings are stable. Those are the KEY ingredients of a STRONG economy.

In light of these facts, I would like Airplay to elaborate on the following comment: In my opinion, the US economy is in the toilet

They can't grow their way out of his one, as Greenspan has said more than once.

Economic growth has solved all prior US deficits. This one is no different. Bush also has plans for spending cuts which will also help reduce the deficit.

And if they aggravate the problem by throwing up tariff walls against every trading partner they have, continue to flout both WTO and NAFTA agreements they signed onto, they'll be in a pickle.

The US is the world's preeminent trading nation. Their large trade deficit shows how open the US economy is. Anyway, the sheer size of the US economy actually leaves them less affected by trade thanother nations, so any tarriff walls they do throw up will only servve to reduce the trade deficit and improve their balance of accounts. The US simply cannot lose.





I dumped at the gybe mark in strong winds when I looked up at a Porter Q400 on finals. Can't stop spotting.
 
B2707SST
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Mon Nov 22, 2004 3:24 pm

It's easy to paint the US' current account and budget deficits as ticking time bombs for the US. Certainly they are cause for concern, but as Cfalk, BarfBag, and Yyz717 pointed out, the situation isn't that simple.

With the yuan pegged to the dollar, China has effectively abandoned an independent monetary policy -- the peg forces it to "outsource" its monetary policy to the US Federal Reserve. In the past, I often wondered why, with real US interest rates in negative territory, inflation hasn't shot up here as would be expected. The reason is that Asia, especially China and Japan, are sopping up the excess liquidity. The US gets cheap goods manufactured abroad, keeping prices down and domestic real incomes up, and pays for them with Treasury notes. As CFalk said, we're importing billions of dollars in actual products and exporting money in return. For the mean time, it's actually quite a nice situation for the US consumer: the Chinese are paying for our wars and tax cuts in exchange for getting to sell us cheap stuff.

Why are they doing this? The current relationship is symbiotic, in a twisted sort of way, but it is not necessarily symmetrical. The US' current account deficit is a much bigger deal to China than it is to us. China does not yet have the domestic consumption base to absorb the massive increases in output produced by its physical investment boom. If it floats the yuan and exports crash, China's economy will crash along with it. Japan's domestic economy is stagnant; its growth is purely export-driven and depends on a weak yen-strong dollar paradigm.

In contrast, trade makes up a smaller percentage of the US' economy than any other developed nation. GDP is growing at a respectable if not spectacular rate. Despite the best attempts of the media and the Democrats to convince us that we're in another Great Depression, the labor market is in decent shape from a post-bubble perspective -- people need to realize that the late 1990s were a speculative aberration, not a healthy and sustainable climate, and are not coming back. While it wouldn't be pretty, the US could live without China and Japan. China and Japan cannot live without us.

On the other hand, China's current policies are unsustainable. Its trade surplus and pegged currency force it to continue buying Treasury bills to prop up the yuan. This causes rapid expansion of the domestic monetary base, and China cannot tighten up the money supply without breaking the peg. The result is inflation: CPI growth is reaching double-digit levels in spite of deflationary increases in output. Producer prices are likely rising even faster. Making matters worse, the investment boom is at least partially a speculative bubble fueled by loose monetary policy. This is compounded by the government's determination to direct investment into politically expedient but economically inefficient routes.

The risk of a hard landing is real. http://www.atimes.com/atimes/China/FK12Ad05.html sums up the situation nicely. In particular, this chart is the best analysis I've seen:



In many respects, China's situation is much more unstable than America's. Absent a complete abandonment of economic liberalization, it is probably inevitable that China will one day become an economic superpower, but that does not mean the road will be smooth and easy. There is every reason to believe that China's meteoric rise will not continue indefinitely.

The US Federal budget deficit is not especially high as a percentage of GDP. It has historically been at significantly higher levels, especially during the World Wars and in the early 1990s, and other countries' debts are much larger as a percentage of GDP than ours is. The US faces far more serious long-term demographic problems, specifically the massive unfunded liabilities looming in Social Security and Medicare. These must be addressed sooner rather than later: I would rather have the government spend $2 trillion now transitioning Social Security to a viable long-term structure than face a $20 trillion accumulated deficit when the so-called "trust fund" runs out circa 2030. Compared to $50+ trillion in unfunded liabilities coming due in the next half-century or so, an $8 trillion debt accumulated over the past 25 years is not terribly worrisome.

--B2707SST

[Edited 2004-11-22 07:28:18]
Keynes is dead and we are living in his long run.
 
airplay
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Tue Nov 23, 2004 10:42 am

In light of these facts, I would like Airplay to elaborate on the following comment: In my opinion, the US economy is in the toilet

OK..here it is. And remember, its my opinion.

The US dollar is losing ground (value) against many other currencies that it has historically performed well against.

The US has been able to weather trade deficits with many countries because of other revenues, mainly currency investment from countries that use the US dollar as hard currency. The US dollar is slowly losing favour to the Euro in global trade as more countries recognize the relative stability of the EU over the US. The liquidation of even half of the US currency out there would devestate the economy. Or so I've read.

The US government is already embroiled in one disasterous and expensive war and is already rumbling about Iran and other MEA Middle East Airlines (Lebanon)">ME countries.

A great many American people have lost jobs to outsourcing and there is promise for even more of them. Good for investors....bad for the working class.

The US government has failed to develop social security plans for the swarm of baby boomers on the road to retirement. Instead they have tapped in to the existing fund and are poised to introduce measures to reduce social security benefits. I wonder what will happen when millions of broke, starving, homeless old age pensioners are wandering the streets in a few years?

US families are carrying the largest debt load in history. With no universally accessable medicare system, and the continued outsourcing of jobs, you can expect a great deal people defaulting on creditors. Doom and gloom. Maybe. Blame the papers.

Bush has blown the budget surplus left by Clinton and even dug himself into more deficit. Where is the safety net? Is there any money left to weather a short term crisis?

I could go on...but I think that's enough to chew on for awhile....

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yyz717
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Tue Nov 23, 2004 10:55 am

A great many American people have lost jobs to outsourcing and there is promise for even more of them. Good for investors....bad for the working class.

Actually outsourcing has proven to be beneficial to the US economy as corporations have been able to reinvest their higher resulting profits in new US ventures.

The US government has failed to develop social security plans for the swarm of baby boomers on the road to retirement.

So has every Western country.

With no universally accessable medicare system

85% of Americans are covered by private health care that is superior to the Cdn system. The remaining 15% have the public system which again is better than the Cdn system in many states.

Your analysis is clearly biased with ONLY negative facts about the US economy with no balancing positive factors. It only shows your biased anti-US tendencies which negate any reasonableness in your arguments.



I dumped at the gybe mark in strong winds when I looked up at a Porter Q400 on finals. Can't stop spotting.
 
airplay
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RE: Greenspan: U.S. Trade Gap Could Hurt Economy

Tue Nov 23, 2004 11:51 am

Actually outsourcing has proven to be beneficial to the US economy as corporations have been able to reinvest their higher resulting profits in new US ventures.

What's good for investors alone is not necessarily good for the economy overall. What good is it to save investors money when they are just going to re-invest in a venture that will outsource again? They wouldn't play with success.

The US government has failed to develop social security plans for the swarm of baby boomers on the road to retirement.

So has every Western country.


Not true. Canada is doing quite well in that regard as a matter of fact.

85% of Americans are covered by private health care that is superior to the Cdn system. The remaining 15% have the public system which again is better than the Cdn system in many states.

Really? And what are the indicators you are using to support that opinion? It certainly can't be "results" oriented. Canadians live longer, and we have a lower infant mortality rate all for a fraction of what the American taxpayer pays into the system. That doesn't include the user fees or insurance premiums. 15% represents about 45 million people. You don't consider that significant?

Your analysis is clearly biased with ONLY negative facts about the US economy with no balancing positive factors. It only shows your biased anti-US tendencies which negate any reasonableness in your arguments.

You asked me why the US economy was in the toilet, and I told you. Were you expecting "positive" facts? Well...I invite you to truly negate my arguments by telling me why the US economy is doing so well. And please don't exclude any particular sector. I fully expect you to tell me all about how various CEOs are able to afford even more perks than ever, but I don't expect the middle class to be impressed...

P.S.

Try to use a little restraint on the "anti-American" rhetoric. Everyone sees through your little thinly veiled insults.


[Edited 2004-11-23 03:58:31]

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