PeakTrader.com

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PeakTrader said...

Scott Grannis says: "...cutting back government spending can free up resources that can be put to better use by the private sector, making the economy stronger over time. This is a trend that is now firmly in place, and that's very good news."

Freeing-up resources when there are already massive idle resources is one reason why the recovery is so slow.

The best time to free-up resources is when an economic recovery is underway, i.e. when the country reaches full employment.

At that point, contractionary fiscal policy can be offset by accommodative monetary policy to sustain the expansion.

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Tom said...

Patience and optimism in a time of rampant government dominance of the economy is foolish. Cut government spending and regulations in half.

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PeakTrader said...

Tom, if you want to keep fiscal policy neutral, spending cuts need to be matched with tax cuts.

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http://4.bp.blogspot.com/-0hz9oCtUcJY/TepbQFMv8oI/AAAAAAAAPW8/h5xp634ja-g/s1600/worldgdp.jpg

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Larry G said...

well.. when I look at the chart - it appears that the US and Europe are on a very similar trajectory and Asia/Oceania are going to clean both our clocks in short order.

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PeakTrader said...

Actually, the U.S. share of world living standards has increased, because the U.S. consumes more than it produces (up to $800 billion a year; U.S. GDP would be higher without negative net exports; and the real gains-in-trade are understated).

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Rufus II said...

Yep, we're living on credit. Wonder how that'll work out.

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PeakTrader said...

Rufus, if someone lent you $1, and told you to pay them back $0.95 next year, or $0.90 the year after that, or $0.85 the year after that, etc. of course you'd borrow and pay them back at a late future date.

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Larry G said...

" if someone lent you $1, and told you to pay them back $0.95 next year, "

then again why would the Chinese buy our treasury notes knowing that?

why would ANY investor buy US treasuries ?

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Rufus II said...

Yes, PT; but, I wouldn't borrow the money to give it to Pakistan, or Egypt, or Colombia, or to one of the other fifty or so countries that will never pay us back.

And, I wouldn't borrow it to put in my gas tank so I could go "cruisin' around." I wouldn't borrow it to spend protecting Saudi Arabia, just so I could borrow some more to put saudi gas in my gas tank, and go "cruzin' aroun'."

There's no future in what we're doing, PT. We're gambling with wrecking our credit rating, and ending up in the "poor house."

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PeakTrader said...

Larry, it's the cost to maintain employment, i.e. generate a virtuous U.S. cycle of consumption-investment, where they sell their goods too cheaply and lend their dollars too cheaply.

Rufus, trade deficits have strengthened the U.S. economy over the past 30 years.

And they'll continue to strengthen the U.S. economy over the next 30 years.

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Rufus II said...

PT, I think a little trade deficit is fine. Probably even "good," as long as the money is coming back in real, honest to goodness, investment.

But, running a trade deficit, just so the the Chinese, et al, can loan the money to our crooked politicians to buy votes, and fight wars to enable us to buy oil to waste, nonsensically, just doesn't make financial sense. It has to end in disaster.

We will end up with nothing to show for it but a big stack of IOUs that we can't pay.

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Larry G said...

" But, running a trade deficit, just so the the Chinese, et al, can loan the money to our crooked politicians to buy votes, and fight wars to enable us to buy oil to waste, nonsensically, just doesn't make financial sense. It has to end in disaster."

SCORE!

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PeakTrader said...

Rufus, if foreigners didn't invest in U.S. Treasury bonds, there'd be less investment for the private sector.

The U.S. consumes more than produces in exchange for protecting the civilized world. That's the price we pay.

The bigger the U.S. trade deficit the better, because it means the rest of the world is financing the U.S. military.

The U.S. has a world empire to defend anyway, and Middle Eastern oil is very cheap to produce.

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Rufus II said...

PT, if the Chinese didn't have the Treasury Bonds to buy they Would Have to Invest in our Private Sector (or, whoever they sold the bonds to would have to.)

I'm loathe to use an expression that's been way overworked, recently, but this Treasury bond thing HAS turned into a Ponzi Scheme. And, those guys Always, eventually, end up in jail.

Now, as for that "International cop" metaphor: Cops get paid; we're not getting paid. We're being allowed to "Borrow Money." More money than we can pay back.

Cops can go bankrupt, too.

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Rufus II said...

(or, whoever they sold the bonds to would have to.)

should read: or, whoever they sold the "dollars" to

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Larry G said...

" The U.S. consumes more than produces in exchange for protecting the civilized world. That's the price we pay."

well....no....

we borrow 1.5 trillion a year from the Chinese to do it.

at some point - the Chinese use that money to outbid us for Middle-East oil.

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Rufus II said...

We have some problems (like housing) that will just have to, more or less, work themselves out, but we can get busy on that Imported Oil thingie. We have stuff we can do, there.

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NormanB said...

MP you've produced some great pieces but this one is right up there, maybe the best I've seen.

US in decline due to the tremendous energy in other parts of the world? Sorry that isn't true!! I love it. Go to hell Krugman others of his ilk.

So we want to be like Europe? Go to hell Obama and the Democrats in Congress. No wonder China, India, etc copied our system and not theirs.

Now if we can only get this chart disseminated to everyone in the US and even Europe we could continue doing smart things.

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PeakTrader said...

Larry, unless the yuan, or a universal currency, replaces the dollar as the world's reserve currency, China has to pay, whether it benefits or not.

China buys oil with dollars, i.e. petrodollars, which come back to the U.S., either directly or indirectly.

China needs oil, in part, because the U.S. offshored heavy goods to China (which to a large extent is a U.S. factory), and imported those goods at lower prices and higher profits.

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Rufus II said...

The problem is, PT, a few of my neighbors used to work at that factory before they moved it to China. Now, I'm stuck paying their unemployment, Food Stamps, SCHIP, and Medicaid; which isn't leaving me much money to buy stuff from Any factory.

The thing is, the local factory made it almost as cheap, and a hell of a lot better.

I'm trying to look at it from your standpoint (the accepted "Economics" view,) but my pocketbook just keeps getting in the way.

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PeakTrader said...

Rufus, when a U.S. firm offshores production of a good to China, because China can produce the same standardized good at half the cost, then U.S. consumers benefit from a lower price and the U.S. firm benefits from a higher profit.

So, U.S. living standards rise, which is the ultimate goal.

Of course, that will displace U.S. workers, who are freed from unnecessary jobs, and can work in new jobs, in new industries, or work less for lower prices and lower interest rates.

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Shane Leavy said...

So how significant is population change in that graph? I'd also like to see "share of GDP per capita". A region could increase its share of GDP even with stagnant economic growth. Individuals living in that area could experience little improvement in standards of living, which presumably is the whole point of economic growth.

Right, from the ERS statistics:

United States GDP per capita in 1969 was $21,021. By 2010 it was $42,517. This is an increase of 102%.

EU15 GDP per capita in 1969 was $15,383. By 2010 it was $32,531. This is an increase of 111%.

So the EU15 actually grew faster than the US, when expressed as GDP per capita. The US is still wealthier, but the gap closed. So I would question the usefulness of showing only the share of GDP. I guess one wouldn't be particularly bothered by GDP share, or by population decline, if one's income has risen faster than one's neighbours' incomes. No?

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PeakTrader said...

That's why GDP is a poor measure of living standards.

For example, in the E.U., the mix of GDP is different than the U.S..

In the E.U., there's more public consumption and less private consumption, some countries have trade surpluses, and the entire E.U. economy is on the verge of collapse from its bureaucratic weight.

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