PeakTrader.com

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PeakTrader:

The American people don't mind the government's huge spending spree too much, because they haven't received the bill yet. They're better off spending at Walmart now, because they won't be able to afford as many goods later.

Earnings is profit. U.S. GDP and trade reflect enormous real wealth creation. Consequently, there are too many houses, too many autos, too many home appliances, etc.

I stated before, U.S. multinationals offshored high cost or heavy goods to emerging export-led economies, e.g. China, rather than discontinue operations of those goods, imported them for big profits and at lower prices, and shifted limited resources either into Information or Biotech Revolution firms or high quality "core" goods with market power in older industries.

When prices and interest rates rise, saving will increase.

Obloodyhell:

"Consequently, there are too many houses, too many autos, too many home appliances, etc."

Absolutely ludicrous. Really. Beyond the pale, over the top, utterly and incredibly ridiculous as an assertion.

The quick summary:

The government inflates the money supply with cheap credit.

People gain access to that credit.

People start buying things with that credit, not necessarily wisely, because, hey, "it's cheap money".

The frenzy of buying jacks up real prices as the cheap and easy money goes after good deals. If you get in early, you're rich. If not, you're screwed.

Greed overpowers, almost everyone says "hey, me too!" and jumps on the easy-credit bandwagon.

The jacked up prices create a "bubble". People start to realize this.

The available buyers dry up. Everyone starts to get nervous. The bubble pops.

Now comes the butcher's bill -- all that stuff bought on credit, at inflated prices, now has to be actually paid for, with real money. People who don't have any real money wind up taken to the cleaners, people with a modicum of real money also get taken to the cleaners. The ones who were smart enough to mostly stay out, or to limit their borrowing to sensible levels manage to do ok.

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What is so hard to understand about this? If you're 30-ish, it's visibly happened TWICE in your semi-adult life, in the 90s with the computer "boom" and again in the 00s with the housing "boom".

In both cases, exactly the same sequence of events occurred: too much easy money/credit inflate the value of worthwhile assets as well as create a host of either overpriced or high-priced "valueless" assets.

When credit is cheap, but prices are getting jacked up by lots of loose money floating around, it's going to happen every time as people "rent" money at 1-2% and use it to buy something inflating at 9-10%. DUH. Few of them ask what they will do when the money train jumps the tracks... or even have sense enough to watch the tracks ahead to know when to get the f*** off.

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The heart of the problem lies with the Fed's control over the money supply, and its willingness/ability to push an Administration's agenda.

In actual fact, the total money supply should increase with the value of the goods and services produced each year, less the value of the goods and services "used up" each year. Any other numbers either create cheap credit, "easy money", and have a deleterious effect on the economy, or they tighten the economy and also have a deleterious effect.

The real trick here is to get the people in charge of this process to actually do their job correctly, and not to f*** with the numbers just because the admin wants it to happen.

PeakTrader:

Obloodyhell, you say "The frenzy of buying jacks up real prices as the cheap and easy money goes after good deals."

Housing prices have been rising for decades. When did it suddenly become a "good deal"? Normally, a good deal is when the price falls. Buying a $500,000 house that was worth $100,000 20 years ago may not be a "good deal," unless you know it's going higher.

Anyway, I was talking about the real economy. Perhaps, you didn't notice the homebuilding boom. Obviously, people who couldn't really afford to buy houses (e.g. no income) were able to buy them. "Real money" is a lot easier to create than real houses. If there weren't too many houses, why did homebuilders scale back sharply in building them, why are they being foreclosed, and why are prices falling?

Perhaps, you believe bubbles can expand forever, getting larger and larger, just by printing money, or you believe the Fed printed too much money and therefore created too many houses. Is 6% nominal growth too high? Is closing the output gap a wrong policy?

Houses became a "good deal" when there were too many houses. Lower income Americans were able to buy houses they couldn't afford when there were too many houses, not when there were too few. The "cheap credit" also came from capital creation, including efficiencies in production, and foreign capital inflows.

After Hurricane Katrina, Bush wanted Greenspan to stop the tightening cycle for a while. However, Greenspan continued to raise the Fed Funds Rate 25 basis points at each meeting.

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A weaker dollar is needed to help correct global imbalances. For example, Europeans can raise their living standards substantially by selling their small houses, small autos, etc., exchange the Euros they receive for (more) dollars, move to the U.S., and buy bigger houses, SUVs, etc. It won't take long for them to be drinking Budweiser and watching American football on weekends

Unlike the U.S. Industrial Revolution, from 1871-1914, China gives away its output to foreign consumers almost for free. It's the world's low cost producer, because it pays slave wages and doesn't take social costs into account. Basically, China is in industries with declining prices, unlike the U.S., which has market power. So, China has to make up in volume what it loses in value. The government or communist elites benefit at the expense of the masses. They have a strong work ethic, in part, because their "safety net" is a grave. It's likely India will surpass China's economy in the 21st century, because of barriers to growth. China cannot fight cheap wars for cheap oil. If China's elite wants to buy U.S. assets, that benefits the U.S. The U.S. has been a "Black Hole" attracting foreign goods and capital. Now it's attracting the owners of that capital themselves.

Related article:

U.S. has plundered world wealth with dollar: China paper
Fri Oct 24, 2008 6:14am EDT

Plunder: to rob of goods or valuables by open force, as in war; despoil, or fleece; to take wrongfully, as by pillage, robbery, or fraud; loot.

BEIJING (Reuters) - The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said.

"The grim reality has led people, amidst the panic, to realize that the United States has used the U.S. dollar's hegemony to plunder the world's wealth," said the commentator, Shi Jianxun, a professor at Shanghai's Tongji University.

Shi, who has before been strident in his criticism of the U.S., said other countries had lost vast amounts of wealth because of the financial crisis, while Washington's sole concern had been protecting its own interests.

Shi suggested that all trade between Europe and Asia should be settled in euros, pounds, yen and yuan, though he did not explain how the Chinese currency could play such a role since it is not convertible on the capital account.

Why China's Wu-Mart is popular and Wal-Mart is a luxury store. Article:

"Mattel, foreign distributers, shippers, advertisers, etc. received $9.65 for each Barbie Doll produced in China, while China received $0.35 for labor, plant & equipment, and electricity."

"Can you live on the 25-cent-an-hour wages U.S. companies and their factory contractors pay in China, which come to about $65 a month? Not even close: It costs $12.05 a month in China just to provide milk for one six-month old infant. So this expense alone would consume 19 percent of your total wage. How could a factory worker afford a new 15 by 17-inch color TV that costs $343.37, which is nearly half a year’s wages. Just the tax on purchasing a new car is $1,205."

Those who believe inflation is understated imply the money market and bond market are wrong about their rates, unless real GDP is overstated. However, if real GDP is too low, that's normally disinflationary. There are other factors that don't add up to a higher inflation rate. So, anyone who believes inflation is really much higher isn't supported by reality.

If real GDP has been overstated and inflation has been understated, why are living standards higher now than in 1970?

Maybe, more people have money to buy gold, driving up the price, because they're wealthier.

The American people don't mind the government's huge spending spree too much, because they haven't received the bill yet. They're better off spending at Walmart now, because they won't be able to afford as many goods later.

Earnings is profit. U.S. GDP and trade reflect enormous real wealth creation. Consequently, there are too many houses, too many autos, too many home appliances, etc.

I stated before, U.S. multinationals offshored high cost or heavy goods to emerging export-led economies, e.g. China, rather than discontinue operations of those goods, imported them for big profits and at lower prices, and shifted limited resources either into Information or Biotech Revolution firms or high quality "core" goods with market power in older industries.

When prices and interest rates rise, saving will increase.

Houses became a "good deal" when there were too many houses. Lower income Americans were able to buy houses they couldn't afford when there were too many houses, not when there were too few. The "cheap credit" also came from capital creation, including efficiencies in production, and foreign capital inflows.

One reason U.S. health care is expensive (from articles):

"French doctors earn about 60 percent of what their American counterparts make, although they get free medical school tuition and don't face high malpractice insurance premiums."

"General practitioners in France earned about $84,000 in 2004, or $62,000 less than their American counterparts, according to the latest estimates collected by the OECD."

Another reason:

What neither the French nor the British system can overcome is the stark math of cost-benefit analysis. A cancer drug like Avastin, which can extend a patient's life by a few months, costs $48,000 annually per patient. It's far too expensive, by NICE's reckoning, to provide to all patients, so it's available to none.

(Looks like a "death panel")

Sustainable growth is optimal growth, because there's neither strain nor slack utilizing resources. Smoothing-out business cycles maximizes growth over time.

However, government tends to slow growth, e.g. through inefficiencies and capital destruction. The true cost of government:

Per capita GDP 2008

U.S. $45,000
France $32,000

Total taxes; percentage of GDP 2008
U.S. 29%
France 45%

France has universal health care and other big social programs.

From a 2006 article: "GDP, total output, of the U.S.A. is $12.6 trillion, which divided by 300 million, yields a per-capita GDP of $42,000.

The cost of regulations in the U.S. is about $1.2 trillion, or $4,000 per person. The government burden, taxes plus regulation, is thus over $16,000 per person."

http://bighollywood.breitbart.com/jjmnolte/2009/11/04/elementary-epidemic-11-uncovered-videos-show-school-children-performing-praises-to-obama/

http://voices.washingtonpost.com/ezra-klein/2009/11/an_insurance_industry_ceo_expl.html

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