PeakTrader.com

[administrator]

MP: Study - We found that for every $299 iPod sold in the U.S., the U.S. trade deficit with China increased by about $150. For the iPhone and the iPad, the increase is about $229 and $275 respectively. Yet the value captured from these products through assembly in China is around $10.

Based on the way trade statistics like U.S. imports from China are mis-calcuated and overstated in terms of actual value added, I estimated we might actually have a trade surplus with China using a value-added approach.

-------

PeakTrader said...

More proof U.S. inflation is overstated. Instead, U.S. real GDP growth is understated.

Of course, some people try harder to create inflation than a central bank facing a deep depression.

And yes, the BLS adjusts prices for lower quality too (and consumers know a bargain when they see one).

******

NormanB says: "Please tell us where/how China is getting the $500B per year in foreign reserves."

China's foreign reserves are $3.2 trillion (which is the accumulated amount).

In 2007, China's exports were $1.22 trillion and imports were $956 billion for a trade surplus of $262 billion (in 2007, China had a $258 billion trade surplus with the U.S. alone).

China sold its exports too cheaply (which caused global imbalances), while imports were relatively expensive.

China had to make up in volume what it lost in value, e.g. to maintain employment.

If the true value of China's exports was $1.5 trillion in 2007 (instead of $1.2 trillion), then it lost $300 billion trading with the rest of the world (if imports were sold at fair value).

******

Buddy says: "Regardless, China's foreign currency reserves keep building and that is indisputable."

China not only loses from selling its goods too cheaply, which induces demand (or exchanging cheap exports for expensive imports), it loses by lending its foreign currency (e.g. dollars) too cheaply (through inflation, interest rates, and currency exchange rates).

Moreover, the U.S. gains indirectly from China's oil-intensive industries, since oil is priced in dollars on the world market, i.e. China pays a high price for oil, and then those dollars are invested (or lent) in the U.S. at low rates (e.g. by the Saudis).

The U.S. offshored oil-intensive industries, with declining prices and profits, and shifted resources into industries that produce goods that weigh little, or nothing, which made U.S. production "lighter."

Much of this was facilitated by Wall Street's pressure on U.S. corporations to maximize profits, which also resulted in higher U.S. living standards, for the masses.

---------

PeakTrader said...

How can you count a widget when it's invisible? Why U.S. real GDP is understated:

Part I

Why the Economy Is a Lot Stronger Than You Think
FEBRUARY 13, 2006

In a knowledge-based world, the traditional measures don't tell the story. Intangibles like R&D are tracked poorly, if at all. Factor them in and everything changes.

What if we told you that businesses are investing about $1 trillion a year more than the official numbers show? Or that the savings rate, far from being negative, is actually positive? Or, for that matter, that our deficit with the rest of the world is much smaller than advertised, and that gross domestic product may be growing faster than the latest gloomy numbers show? You'd be pretty surprised, wouldn't you?

Everyone knows the U.S. is well down the road to becoming a knowledge economy, one driven by ideas and innovation.

What you may not realize is that the government's decades-old system of number collection and crunching captures investments in equipment, buildings, and software, but for the most part misses the growing portion of GDP that is generating the cool, game-changing ideas.

"As we've become a more knowledge-based economy," says University of Maryland economist Charles R. Hulten, "our statistics have not shifted to capture the effects."

The statistical wizards at the Bureau of Economic Analysis in Washington can whip up a spreadsheet showing how much the railroads spend on furniture ($39 million in 2004, to be exact). But they have no way of tracking the billions of dollars companies spend each year on innovation and product design, brand-building, employee training, or any of the other intangible investments required to compete in today's global economy.

That means that the resources put into creating such world-beating innovations as the anticancer drug Avastin, inhaled insulin, Starbuck's, exchange-traded funds, and yes, even the iPod, don't show up in the official numbers.

As Greenspan would be the first to tell you, it's a lot easier counting how many widgets the nation produces in a year than quantifying the creation and marketing of knowledge. After all, we're talking about intangibles: brand equity, the development of talent, the export of best practices.

By the early '90s, Greenspan was becoming increasingly frustrated by the official numbers' inability to explain a rapidly evolving economy.

In 1996 and 1997 he refused to accept conventional data telling him that productivity growth was falling in much of the service sector, noting -- correctly, as it turns out -- that "this pattern is highly unlikely." He also pointed out that the official numbers for consumer inflation were too high.

******

Part II

At the Washington offices of the BEA, J. Steven Landefeld, who became director in 1995, felt pressure to include numbers that better reflected the knowledge economy. Landefeld isn't a rash fellow, and the pace of change at the BEA, while quick for a statistical agency, would be called deliberate by most.

But in 1999 -- six decades after Kuznets laid the groundwork for calculating GDP -- Landefeld and the BEA decided to break with the past.

The BEA started treating business spending on software as a long-lived investment. The decision was overdue. Companies were spending more than $150 billion annually on software, far more than the $100 billion for computer hardware. And the software often stayed in use longer than the hardware.

Silly as it may seem now, it was a revolutionary change at the time. But over the past seven years the economy has continued to evolve while the numbers we use to capture it have remained the same.

Globalization, outsourcing, and the emphasis on innovation and creativity are forcing businesses to shift at a dramatic rate from tangible to intangible investments.

Want to see how this works? Grab your iPod, flip it over, and read the script at the bottom. It says: "Designed by Apple in California. Assembled in China."

Where the gizmo is made is immaterial to its popularity. It is great design, technical innovation, and savvy marketing that have helped Apple Computer sell more than 40 million iPods.

Yet the folks at the BEA don't count what Apple spends on R&D and brand development, which totaled at least $800 million in 2005.

Rather, they count each iPod twice: when it arrives from China, and when it sells. That, in effect, reduces Apple -- one of the world's greatest innovators -- to a reseller of imported goods.

But look at how our perception of the economy changes once you add in things like R&D and brand-building.

The published data show that total investment -- business, residential, and government -- has been falling over the past three decades as a share of national spending, while consumption has been rising. Add in the intangible investments provided by our three economists, and the picture changes completely.

Total investment rises, going from 23.8% of national spending in the 1970s to 25.1% in the early 2000s -- much higher than the 18.3% the conventional numbers show.

That helps explain why the economy has sustained strong productivity growth, and why foreign investors continue to pour money into the U.S.

Ricardo Hausmann, director of Harvard's Center for International Development, believes it should be. He describes these cross-border flows of knowhow as "dark matter."

Hausmann notes that U.S. multinationals consistently earn higher rates of return than their foreign counterparts -- an average of 6% on foreign operations since 2000, vs. the 1.2% foreign multinationals earn in the U.S., according to the latest BEA figures.

From that, he infers that the multinationals are benefiting, in part, from knowledge exported from the U.S., a country with faster productivity growth than the rest of the industrialized world.

------

Buddy R Pacifico said...

Peak Trader draws a quite the benign picture of China, as an enabler of U.S. wealth, with his new Etcha-a-Sketch.

"China not only loses from selling its goods too cheaply, which induces demand (or exchanging cheap exports for expensive imports),..."

"What if we told you that businesses are investing about $1 trillion a year more than the official numbers show?"

"Everyone knows the U.S. is well down the road to becoming a knowledge economy, one driven by ideas and innovation."

So, Peak would want China to buy U.S. produced knowledge products such as software, pharma and thousands of others. Almost all Americans want this.

Does Peak realize that almost all business software used in China has been pirated?

Any product with a trademark or copyright, of U.S. origin, is fair game for taking in China.

If U.S. companies want to sell in the Chinese market, they are forced into joint ventures, so that trade secrets are shared.

The U.S. Chamber of Commerce has been at the forefront of the fight to protect American Intellectual Property.

Chinese hackers have just hit the Chamber. From Fox News: "
It isn't clear how much of the compromised data was viewed by the hackers. Chamber officials say internal investigators found evidence that hackers had focused on four Chamber employees who worked on Asia policy, and that six weeks of their email had been stolen."

The Etch-a-Sketch can't draw details like the above. Yes, potential U.S. GDP is understated, because billions and billions of sales are lost to theft. It looks like it is only going to get worse.

The U.S. is going to thrive, because of new Free Trade Agreements with countries that protect foreign Intellectual Property. Other trading arrangements will be of lesser importance, thus becoming truly benign.

------

PeakTrader said...

Buddy, are you saying China will be producing pirated movies, Ford F-350s, Boeing 767s, etc. as good as the U.S.?

Even their Wu-Mart can't compete with Wal-Mart.

China is also hurting itself:

China's Piracy & Counterfeiting Problems

"China's inability to safeguard intellectual property rights limits the manufacturing of high-end technology goods in China and erodes the value of brand names because the public confuses their products with shoddy counterfeits.

Domestic manufacturers and suppliers can benefit initially from copying other software or content but ultimately will face the same problem themselves from smaller competitors if they develop into a larger player.

Foreign direct investment in China is limited by fears of counterfeiting. Many Western companies who possess proprietary technology are hesitant to move production, let alone research and development to China, for fear it will be copied. This means China is losing valuable opportunities to move its production to more sophisticated, higher value-add and higher margin products, as well as missing opportunities to train its workforce on more sophisticated product development techniques.

Chinese counterfeits are hurting the country’s own future export potential. A recent case of counterfeit ingredients poisoning medicines in Panama and Australia has put authorities there on guard against all Chinese imports of food and medicine. Similarly, dangerous fake dog food ingredients from China have made U.S. consumers wary of any foodstuffs coming from there."

--------

http://www.blogger.com/comment.g?blogID=28997633&postID=5669402734869968518

--------

PeakTrader said...

I've shown data before that a teen today living at home, for example, can work roughly the same hours to buy a new 2011 Ford F-350 as a teen would work in 1985 to buy a new 1985 Ford F-350.

So, all the quality improvements of a Ford F-350 over the past 25 years was free.

And when the difference in interest rates are included (since most people live month-to-month), a new 2011 Ford F-350 is much cheaper today than a new 1985 Ford F-350 was in 1985.

******

And for those people who believe inflation is understated and real GDP is overstated, because of some overdue cautious changes in how the CPI is calculated, they're ignoring a most dynamic economy.

******

VangelV says: "The economy is still not all that strong five years after the commentary was written (etc. etc.)"

That's because we got the opposite of Reaganomics, i.e. Obamanomics.

The government has one foot on the accelerator and the other foot on the brake.

We're burning cash as fast as possible - several trillion dollars just in the past three years, which we'll all pay for in the future, one way or another.

******

Hydra says: "The bill may yet come home in the maintenance (and) the real issue is the ultimate cost per ton mile."

You may want to look at a semi truck or a locomotive.

Ford F-150 Truck of the Year 2009

"Delivers unmatched capability and unsurpassed fuel economy."

The new F-150 delivers class-leading towing capability of 11,300 pounds and hauling capacity of 3,030 pounds – a combination no other competitor can match.

F-150 has improved its fuel economy by an average of 8 percent across the entire lineup, thanks to a wide range of engineering enhancements.

•“Automotive Excellence” award in the Workhorse Category from Popular Mechanics.

•“Top Safety Pick” from the Insurance Institute for Highway Safety for its standard safety technology.

Every new car has costs. The "maintenance" and "repair" categories over the first five years are relatively low.

******

Before most of the Baby-Boomers retire, there will be a "correcting mechanism" to make older Americans work longer, because younger Americans won't work that hard to provide the goods & services, and taxes, to support a massive retired population.

--------

PeakTrader said...

I'm sure there are many people like VangelV and Bart (Ron Paul is another), who don't have a clue about the real U.S. economy.

The facts remain. Americans live in bigger and better houses, drive bigger and better autos, consumed a huge amount of goods, including imports up to $800 billion a year more than exports.

The U.S. not only leads the world in the Information and Biotech Revolutions (in both revenues and profits), it leads the rest of the world combined, while the U.S. Agricultural and Industrial Revolutions are the most productive in the world by far.

Of course, I don't expect people like VangelV, Bart, or Ron Paul to even have a rudimentary understanding of how economic forces interrelate and interact. So, they continue to be one-trick ponies, and it's not even a good trick. They'll continue to focus on their very small slice of the economy, while rejecting the rest of reality.

--------

Ron H. said...

Peak: "If Bush could've been elected to a third term, given his past economic policies, we would've had a V-shaped economic recovery (which normally follow severe recessions)."

Is this the same Bush who said "I've abandoned free market principles to save the free market system."?

--------

bart said...

"I'm sure there are many people like VangelV and Bart..."

Thankfully there are. And yes, some things have and are getting better.

But more importantly, your personal attacks with zero facts (and your failure to address the raw facts cited, like how seniors on SS over the decades have lost very large amounts of purchasing power due to CPI *lies*, or the gigantic difference between CPI and GDP share of medical costs) tell a fuller and less convenient story.

The failure to address them and many others (including the raw facts about Prohibition and what happened when it was repealed) show your lack of command of the full picture... at best.

---------

PeakTrader said...

Ron, yes, that's the same Bush.

When your house is on fire, you call the government, i.e. fire department, not rely on the free market.

When the dam breaks, you expect the government to fix it to prevent water flooding your house, not wait for the free market.

When the Japanese attacked Pearl Harbor, you want the government to do something about it, not the free market.

What's your point?

---------

PeakTrader said...

Bart, I've shown many facts and how they fit together. Yet, some people choose to ignore it, while they continue to pound square pegs into round holes.

And "seniors" tend to be the wealthiest Americans.

---------

http://www.blogger.com/comment.g?blogID=28997633&postID=6597022585726986219