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Archive for the ‘Economy’ Category

The Cost Of Those Cheap Imports

by coldwarrior ( 208 Comments › )
Filed under Economy at May 2nd, 2016 - 10:00 am

This is a quick drive by of why cheap imports are imploding the American Economy.

 

Back in the mid-80′ American made polo shirts were $45, brand name sneakers were about $100, a very nice TV was $800, and a decent couch was $1500 or so…eggs were .49 a dozen, milk was $1.79 a gallon, and bread was about .50.

 

Now we have replaced those American goods with cheap import that cost half as much. But, in real terms, the milk, eggs, bread have tripled in cost, so has the electric bill, the phone bill, and the water bill.

 

Prices on imported consumables are half as much, domestic consumables are tripled.

 

We spend far more on these domestic consumables than we do on the imported ‘durable’ goods. Therefore total family net out of pocket outlay is essentially the same.

 

In 1984 there were good paying manufacturing jobs, there was opportunity to make a good living making things. When a country makes things, they add multiple levels of value to the raw material and create wealth by selling finished products. In our ‘service economy’ (you want fries with that?) there is far, far less income opportunity. Real unemployment is at an actual 23% level.

What to do with all of these unemployed, how to ameliorate this income gap? Eventually they will get angry…easy, subsidize the income gap! Have you noted the increase in food stamps, SSI, disability, and other handouts? Where does that money come from? Well right now it comes from deficit spending to be repaid by The American Tax payer later. Repayment for these cheap imports. Your bill right now is $161,000. Enjoy that $500 Chinese big screen.

Total American debt is now THREE times GDP. THREE TIMES!!!! GDP growth is at .5% and unemployment is at 22% in reality.

Stop judging the quality of the economy by how cheap your i-phone is or by all of those Chinese bobbles that you can buy with that measly, stagnant paycheck. There has been 30 years of stagnant wages. This is a problem. A deflation or a standstill in wages is a direct indicator of an economy on life support and increases the number of Americans dependent on the government instead of out there making products and making a decent living from their work. If you graduated high school before the mid-80’s or so you remember what wealth from manufacturing looked like. Hint, it does not look like the ‘new normal’ of the last 30 years.

That 20 TRILLION dollar debt that we have is the gap in the economy from importing cheap goods and sending manufacturing jobs out of the country by so called ‘free’ trade. Adam Smith would spin in his grave if you pegged this on his idea.

This is insane and will stop one way or the other. We either collapse or we fix it. Fix it by bringing Manufacturing back to the US. Its not impossible. Yes, the price of goods will go up. Sometimes inflation is good. Rising wages are good, manufacturing at home is great. There will be growing pains as we ramp back up. But, if we don’t we are truly finished.

 

 

 

End Withholding

by coldwarrior ( 90 Comments › )
Filed under Economy, Open thread, taxation at April 19th, 2016 - 7:46 am

This is an idea that I have always backed, end federal and state and local withholding of taxes from your paycheck. Imagine the fallout!

 

Ban Tax Day

Today is Tax Day, when all of us collectively send our necessary tithe to the church of the almighty bureaucracy, peace be upon them. It’s also a day to consider one reform that would be very positive for the country: reversing the 1943 law making withholding mandatory. It is a dangerous, disruptive, and absolutely necessary step to end the current tax regime.

The overwhelming majority of Americans pay their taxes by having them extracted from their paychecks before they ever see the money. Operating under the fiction that the government is giving you money as opposed to returning what it has already taken is damaging to the psyche of the nation’s taxpayers. The primary argument against such a move – that millions of irresponsible Americans in the income tax-paying classes won’t save up enough to write a giant check to the government come April 15th – encourages a viewpoint of the role of government as an entity that must constantly protect us from ourselves.

Withholding was originally mandated as a wartime step, but its continuation since then disguises the property rights involved, essentially offers the government an interest free loan, and shields taxpayers from the ramifications of federal spending. The country would be better off if everyone experienced what entrepreneurs and business owners do: writing the most sizable checks every year to the government, and watching that hard-earned money walk out the door.

Taxes are terrible, and income taxes particularly terrible (from 1789 to 1913, the American system of taxation primarily relied on a system of import duties Alexander Hamilton designed in the space of a few months). Withholding is designed to make them seem less so. Ending the withholding mandate should be a bigger priority for those who want to reform the tax code. It increases the pain, but also the awareness of what causes this pain: the people in Washington who say you work and toil and earn bread, and I’ll eat it.

The Great Unwind Continues…China

by coldwarrior ( 103 Comments › )
Filed under China, Economy, History, Open thread at April 11th, 2016 - 6:00 am

The Deflationary Spiral / Debt Level cycle continues. Think of devaluation, foreign currency reserves, export costs, and the drag that excessive debt has on gdp as reading this article.

China guru warns of ‘ERM-style’ currency crisis as deflation persists

A top adviser to the Chinese government has warned that Beijing risks a currency blow-up akin to Britain’s traumatic ordeal in 1992, if it continues trying to defend its exchange rate peg amid a deepening deflation crisis.

Yu Hongding, a director of the Chinese Academy of Social Sciences, said China is caught in two concurrent “deflationary spirals” that are feeding on the other. A major devaluation and a blast of well-targeted fiscal stimulus will be needed to break out of the trap.

“They must stop intervening on the exchange market. China needs to devalue by 15pc. They are creating conditions for speculators,” he told the Daily Telegraph, speaking at the Ambrosetti forum of global policymakers on Lake Como.

Prof Yu, a former rate-setter for the central bank (PBOC) and currently a member of the national planning committee, said the government is making a serious mistake in trying to defend the yuan by burning through foreign exchange reserves,  already down to $3.2 trillion from $4 trillion in mid-2014.

He warned that the slowdown in capital outlows in March may prove fleeting.   “Reserves will continue to fall until we devalue. Once we get towards $2 trillion the markets will start to panic. They won’t believe that the government can control it any longer,” he said.

china

Reserves have fallen by $800bn to $3.2 trillion as capital leaks out of China Credit: Fathom

Prof Yu said Beijing had been caught off guard by the relentless slowdown over the last five years. “In 2011 we thought the economy would stabilize, and we thought the same thing in 2012, and again in 2013, and it continued to slide,” he said.

It is far from clear whether the world could handle a 15pc devaluation given the vast scale of Chinese overcapacity, or that the US Treasury and Congress would tolerate such a move.

Fears of uncontrollable capital flight and a yuan devaluation were key reasons for the plunge in global equity markets earlier this year, and are clearly what prompted the US Federal Reserve to delay rate rises.

The fate of China’s currency has become the most neuralgic issue in global finance.  One worry is that a sharp drop in the yuan would set off a second round of ‘currency wars’ across East Asia, transmitting a deflationary shock through the international system as cheap Asian exports flooded into Western markets.

Prof Yu’s life is a remarkable story of achievement in Maoist China. He worked for ten years in a machine factory, wrestling with Marx’s Das Kapital at night before discovering western economics. He devoured Paul Samuelson’s classic text, ‘Foundations of Economic Analysis‘, first in a Chinese translation and then in the original after teaching  himself English, no easy feat in the Cultural Revolution.

He went onto to earn a doctorate at Oxford University, and was still in England when sterling was blown out of the European Exchange Rate Mechanism in September 1992. He still recalls the exact details of the debacle, including the two desperate rate rises by the Bank of England in a single day. “The British experience is very interesting for us,” he said.

ERM

Black Wednesday was a traumatic day for Britain

He warned that China risks the same slow torture and ultimate defeat if it persists in trying to defend an exchange peg – albeit a loose trade-weighted peg – against economic fundamentals.

Much like the British case in 1992, the core problem is not that the currency is overvalued in trade terms. China has a current account surplus of 3pc of GDP. The more relevant issue is that the yuan peg is complicating a proper response to the cyclical downturn. Selling reserves to defend the currency entails monetary tightening.

China’s immediate imperative is to fight deflation before it becomes entrenched. He said swathes of overcapacity across Chinese industry have driven producer price inflation (PPI) below zero for 48 consecutive months. The PPI rate ticked up slightly last month to minus 4.9pc but the problem remains deep and pervasive.

“Companies can’t sell their products at decent prices, so they keep cutting. It is a vicious circle,” he said.

“Real estate investment was 15pc of GDP in the boom. The whole economy was geared to this madness: that is why we have so much capacity in steel and cement. It was all to build houses. The overcapacity is still getting worse: it has not yet stabilized,” he said.

china

China’s debt ratio is dangerously stretched for an emerging market

Deflation is metastasizing on a second front by pushing up real interest rates on an economy saddled with a debt ratio that has doubled to 250pc of GDP over the last decade. China risks the sort of “debt-deflation” trap described by the US economist Irving Fisher in the early 1930s.

“Corporate debt in China is $14 trillion – larger than in the US – and they have not even begun to deleverage. This is a dangerous situation for the banking system. A lot of debt is being rolled over and non-performing loans are much worse than they look. This cannot carry on,” he said.

Measured against core consumer price inflation, real five-year borrowing costs for Chinese firms are around 4pc. Set against PPI inflation, they are 9pc.

china

China has a huge trade surplus, which should limit any fall in the yuan Credit: Capital Economics

 

The authorities are afraid that if they let go of the yuan, the currency could go into an unstoppable slide. They learned the hard way last August – when they botched the switch from a dollar peg to a new basket regime – that the world is acutely sensitive to every sign of a policy shift.

Prof Yu said the yuan would find its level quickly once the boil had been lanced, and would then rebound like the pound in the 1990s as economic recovery gained momentum.

“Have you ever in history heard of a country with $3.2 trillion of reserves and a current account surplus of 3pc of GDP suffering a currency collapse? It is unthinkable,” he said.

Now, let’s talk about unwind…Total American Debt is about 60,000,000,000,000.

60 Trillion dollars and growing, most of it taken since the 1980’s, Our annual GDP is about 20 Trillion and not growing.

Guess what, this doesn’t end well for us either.

 

Russia offers to help Israel Develop Gas fields

by Phantom Ace ( 101 Comments › )
Filed under Economy, Energy, Israel, Russia at April 8th, 2016 - 7:00 am

For every action, there is a reaction. The Obama regime has been one of the most anti-Israel administrations. The god-king regularly trashes Israel and encourages the hard Left to demonize the nation state. Instead of isolating Israel, the Jewish state does what most nation when threaten do. They take an offer of friendship from whatever quarter they can get it.

Despite hostility with the US and Western Europe over the latter embrace of post modern cultural Marxism, Russia has gotten closer to the state Israel. The mutual dislike of Obama by both Israeli PM Netanyhu and Russian President Vladimir Putin. Frequent visits between the two, increase trade between the 2 nations and a growing distrust of the Neo-Marxist West has driven Israel and Russia closer than ever. Russia even double crossed Hezbollah whom they are allied with in Syria by assisting Israel in killing child murderer Samir Kuntar.

In the latest development of Russian and Israel cooperation, Russia is now offering to assist Israel develop their gas fields in the Mediterranean.

Consider it a form of ‘protection.’ Russia’s President Vladimir Putin has offered to invest in Israel’s natural gas development.

Diplomatic sources told the Middle East Newsline (MENL) on Wednesday, “Putin very much wants to make Russia into the major developer of energy fields in the Mediterranean, and the first target has been Israel.”

A decision last month by Israel’s High Court of Justice nullified a “stability clause” that would have blocked regulatory changes to an offshore gas outline for the next 10 years.

[….]

Hezbollah representatives spent months referring in various speeches to the reserve. Lebanon even attempted to recruit help from the United States in 2014 in seizing the reserve from Israel.

Putin, however, has pledged Russian influence to block attacks by Iranian proxies against any Russian-operated field. Efforts by Hezbollah to stop Israel from developing its natural resources beneath the Mediterranean would likely be among the targets of Russian ire.

[….]

Several weeks ago, Putin said he plans to meet with Netanyahu in the nearest future, noting that Russia and Israel have “many issues” to discuss.

Kremlin spokesperson Dmitry Peskov told media on Wednesday that such a visit is indeed under consideration. “We will make a relevant statement in a timely manner” Peskov said, according to TASS.

Israeli media reported this week that Netanyahu plans to travel to Moscow later in the month, allegedly on April 21, to meet with Putin.

Many Israelis are off Russian roots and many Russian even Orthodoxy Christians have Jewish roots themselves. In many ways both nations are natural allies a sboth believe in defending Judeo-Christian civilization and are rejecting the Neo-Marxists of West.

As the Obama regime and the European Union try to isolate Israel, they have also increased their military ties with the Russians.

The Pentagon announced on Wednesday that it was refusing to hold “de-confliction” talks with the Russian Defense Ministry to coordinate the two nations’ air-operations over Syria and would make do with just “technical details.” At the same time, de-confliction talks, of the kind the Americans rejected, between the Israel Defense Forces and their Russian counterparts, led by the deputy chiefs of staff of both militaries, were already wrapping up in Tel Aviv’s HaKirya headquarters.
Israel’s willingness to hold these talks reflects of course the recognition that after many years of operating nearly freely in Syrian airspace, things have changed with the arrival of a modern and well-equipped air force. But it also reflects the Russians’ desire not to have any confrontation with Israel in the region.

In the past, Israeli officials used to explain the desire to stay on Putin’s good side, despite his growing animosity towards the West and the erosion of civil rights in Russia, as part of its concern for the safety of hundreds of thousands of Jews still living in Russia. But there doesn’t seem to be any true basis for such fears, at least not under Putin. He is interested in the ties just as much as Israel.
To this day there are various explanations as to how Putin actually feels about Jews. His many supporters among the Jewish community in Russia insist that he is philosemitic, due to the friendships he had with Jewish classmates back in his childhood in St. Petersburg and the influence of Jewish teachers who perceived his potential. Putin’s critics ask why then are the Kremlin-funded propaganda channels filled with Holocaust deniers and anti-Semitic conspiracy theorists, masquerading as respectable commentators? But even those critics agree that Putin has a high regard for Jews and regrets the emigration of many thousands of Jewish scientists and researchers following the disintegration of the Soviet Union.

The Unites States is making a huge geo-strategic and moral mistake by turning it’s back on Israel. Putin always being the opportunist sees the potential of an a pro-Russian Israel as a means to extend his power into the Mediterranean.  Nations do not have permanent friends, but permanent interests. Russia wants to dominate the eastern Mediterranean, Israel wants to survive as  a nation. Both nation’s interest are coinciding and the growing ties are a result.