No Inflation? Think Again.

[FaninAma]

http://stockcharts.com/h-sc/ui?s=$USD&p=M&yr=7&mn=6&dy=0&id=p59061288944&a=120090376&listNum=1

The USD is worth 36% less than it was in 2002. That means Americans can buy 36% less cheap Chinese products at Walmart today than they did in 2002.

So, if you are bitching about the price of oil and other imported products(which is almost everything we buy in this country) you might want to stop bitching at the oil companies and start bitching at the people resonsible for the weak USD and allowing our national debt and trade deficits to reach unsustainable heights.

And Tuba, don't tell me the weakness of the USD is good for our manufacturing......you've got to have a manufacturing base and actually be exporting something before you can benefit from a weaker USD. Right now, only the US farmer and other commodity producers are benefitting from a weak USD.

BTW, has anybody seen the price of Silver and Gold lately. :D

[royalfan5]

Good thing I decided to get involved in Agriculture and Commodities as a Career.

[JohnnyMack]

778.80

[C&CDean]

Yup. Commodities. People gotta eat, yo.

[jeremy885]

http://stockcharts.com/h-sc/ui?s=$USD&p=M&yr=7&mn=6&dy=0&id=p59061288944&a=120090376&listNum=1

The USD is worth 36% less than it was in 2002. That means Americans can buy 36% less cheap Chinese products at Walmart today than they did in 2002.

Actually, it's only gone down 19% against the Yuan. http://finance.yahoo.com/currency/convert?from=USD&to=CNY&amt=1&t=5y

And Tuba, don't tell me the weakness of the USD is good for our manufacturing......you've got to have a manufacturing base and actually be exporting something before you can benefit from a weaker USD. Right now, only the US farmer and other commodity producers are benefitting from a weak USD.

1.4 Trillion dollars in exports for 2006 does not seem to be immaterial.

http://www.commerce.gov/s/groups/public/@doc/@os/@opa/documents/content/prod01_002835.pdf

I do, however, agree with you about getting our house in order.

[FaninAma]

Actually, it's only gone down 19% against the Yuan. http://finance.yahoo.com/currency/convert?from=USD&to=CNY&amt=1&t=5y


1.4 Trillion dollars in exports for 2006 does not seem to be immaterial.

http://www.commerce.gov/s/groups/public/@doc/@os/@opa/documents/content/prod01_002835.pdf

I do, however, agree with you about getting our house in order.

And how much do we import?

And how much of our exports are services....ie not actually products? You do realize that the government calculates money brought in by investment firms and banks from overseas as exports, don't you? Add that to the agricultural exports, military exports, entertainment and commodity exports and that accounts for the vast majority of our exports......not manufacturing.

Also consider that when a foreign company moves in here and manufactures a product( like Toyota) and exports that product out of the country that is also included even though the profita benefit a foreign manufacturer.

And did you realize that government expenditures are included in the calculation of gross national product?

[jeremy885]

You didn't mention the deficit and by the $ getting weaker, imports (in theory) should go down.
From the weak $ prospective, services and goods are the same thing. A weaker $ makes the US more competitive against other countries.

So does money leaving the US count as an import? I think you are referring to income earned abroad, which is not counted in GDP.

Why is a foreign company manufacturing here and exporting abroad a bad thing? I'd rather have that then a US firm manufacturing abroad and importing it to the US.

Yes, but no one cares about GNP. It's GDP now. Why shouldn't government expenditures get counted in the calculation?

[JohnnyMack]

So does money leaving the US count as an import?

Messicans?

[FaninAma]

You didn't mention the deficit and by the $ getting weaker, imports (in theory) should go down.
From the weak $ prospective, services and goods are the same thing. A weaker $ makes the US more competitive against other countries.
In what specific areas? Textiles? We have no textile industry. Electronics? Outside of the computer hardware and software industry the US has no electronics industry.
http://www.forexblog.org/2005/03/weak_dollar_not.html
http://www.dailykos.com/story/2007/10/4/161740/593


So does money leaving the US count as an import? I think you are referring to income earned abroad, which is not counted in GDP. No, I'm referring to stocks and bonds and other financial instruments sold by investment firms in the US to investors from other countries. This is a huge component of the products and services the US exports out of this country.


Why is a foreign company manufacturing here and exporting abroad a bad thing? I'd rather have that then a US firm manufacturing abroad and importing it to the US. Again, list the manufacturers that are still located in this country besides the sectors I listed earlier. And if a corpaoration is a big multi-national that also imports to the US a weaker USD probably hurts them because it hurts the US consumer.


Yes, but no one cares about GNP. It's GDP now. Why shouldn't government expenditures get counted in the calculation?
Yes, but the national debt as a percentage of the GDP is given as justification for continuing to pile up the debt on future generations. So it seems a bit disingenious to take government spending and count is as GDP. Government spending, even the part that is non-borrowed, is a net sum zero figure since taxes are taken in(ie. away from consumers or producers). Nothing is produced by government spending. And it's really absurd to count borrowed money spent by the governement as a product.

[Stoop Dawg]

And how much do we import?

Also consider that when a foreign company moves in here and manufactures a product( like Toyota) and exports that product out of the country that is also included even though the profita benefit a foreign manufacturer.

So when US companies move out of the country to manufacture goods then "import" them back into the US, is that counted among our "imports"?

[FaninAma]

Here is the formula for calculating GDP:


GDP = consumption (http://en.wikipedia.org/wiki/Consumption_%28economics%29) + investment (http://en.wikipedia.org/wiki/Investment) + (government spending (http://en.wikipedia.org/wiki/Government_spending)) + (exports (http://en.wikipedia.org/wiki/Export) − imports (http://en.wikipedia.org/wiki/International_trade)), or, GDP = C + I + G + (X-M)
2 components of that equation jump out to me......consumption and government spending.

It seems absurd that deficit government spending and mass consumption of cheap foreign products as well as consumption via credit can be skewed to infer that our economy is doing well economically.

And, again, it is absurd that some want to point to this flawed calculation as a reason that is't OK to continue spending like a drunken sailor at the expense of our kids.

Stoop Dawg, I would assume that the answer would be yes.

[SoonerProphet]

Here is the formula for calculating GDP:

2 components of that equation jump out to me......consumption and government spending.

It seems absurd that deficit government spending and mass consumption of cheap foreign products as well as consumption via credit can be skewed to infer that our economy is doing well economically.

And, again, it is absurd that some want to point to this flawed calculation as a reason that is't OK to continue spending like a drunken sailor at the expense of our kids.

Stoop Dawg, I would assume that the answer would be yes.

According to some, this indicator is infallible and in no way, shape, or form be distorted to fit an ideological bent.

[TheHumanAlphabet]

Can someone please tell me why the Fed is allowing the dollar to sink so low and why no one is doing anything to stop the attack against the dollar? Soon oil will be traded by Euros and the Dollar will not be the currency of record on transactions.

[jeremy885]

No, I'm referring to stocks and bonds and other financial instruments sold by investment firms in the US to investors from other countries. This is a huge component of the products and services the US exports out of this country.


So the value of the financial instruments are counted as exports??? I would think it would be the actual cost of the service billed to the other country.

[Stoop Dawg]

It seems absurd that deficit government spending and mass consumption of cheap foreign products as well as consumption via credit can be skewed to infer that our economy is doing well economically.

I'm no expert, but it seems to me that:

1. "mass consumption of cheap foreign products" would be offset by the "minus imports" part of the equation.

2. "consumption via credit" would be offset by lowered (or even negative) "investments".

3. "deficit government spending" would be offset by lowered (or even negative) "investments".

So if I consume $100 of cheap toys from China, then imports from China also go up $100. That nets zero GDP. If I bought that $100 toy on credit, that's a negative $100 worth of "investments" (I presume). So now the GDP is a negative $100.

OTOH, I really have no idea. I could very well be completely wrong.

[tommieharris91]

Recessions and expansions are cyclical. So, according to data of potential vs real GDP over the last 50 years, the recession can't last forever. The real question is, when this recession stops, where will the GDP/GNP and other economic factors be when it stops, and does anything really need to be done? More and more especially due to the housing market, I think the Fed needs to, and likely will, lower the interest rate again.

[tommieharris91]

I'm no expert, but it seems to me that:

1. "mass consumption of cheap foreign products" would be offset by the "minus imports" part of the equation.

2. "consumption via credit" would be offset by lowered (or even negative) "investments".

3. "deficit government spending" would be offset by lowered (or even negative) "investments".

So if I consume $100 of cheap toys from China, then imports from China also go up $100. That nets zero GDP. If I bought that $100 toy on credit, that's a negative $100 worth of "investments" (I presume). So now the GDP is a negative $100.

OTOH, I really have no idea. I could very well be completely wrong.

I think you're right, but i-finance tore me a new ******* so I'm not the best mind to verify that.

[limey_sooner]

My favorite is when they strip energy prices out of the "core rate" of inlflation, because you know those extra bucks you pay for gas and the extra few cents for food at the market due to transport costs just don't count.

[SoonerBOI]

Can someone please tell me why the Fed is allowing the dollar to sink so low and why no one is doing anything to stop the attack against the dollar? Soon oil will be traded by Euros and the Dollar will not be the currency of record on transactions.

I have heard several people comment that, hypothetically speaking of course, China were to divest itself of all the US government debt it presently holds, this would be catastrophic. Could someone comment on what the actual impact of such an, albeit unlikely, event would be?

TIA

[royalfan5]

I have heard several people comment that, hypothetically speaking of course, China were to divest itself of all the US government debt it presently holds, this would be catastrophic. Could someone comment on what the actual impact of such an, albeit unlikely, event would be?

TIA
The end result would be a massive Latin American style devaluation of our currency.

[SoonerBOI]

The end result would be a massive Latin American style devaluation of our currency.

Hyperinflation?

So assuming the Chinese did......a) dump their US Treasuries OR....b) lots of capital flight occurred from China to the USA (if China does run into a real financial crisis)....OR c) both "a" and "b" happened......then my question is this:

How would that impact the US economy in general and the US financial sector in particular? I can see how the "flood" of money could cause some US inflation (demand - pull, perhaps) with higher Fed rates due to the higher money supply, but I can also see how the "flood" of money could actually give a "kick start" to our slowing economy, thus spur growth. In other words, I can see how it could be bad (i.e. higher inflation and Fed rates resulting in slower growth) OR good (i.e. giving our bull some extra legs to run on with all that incoming capital).

Any thoughts? This one is complicated and way beyond me.

TIA

[JohnnyMack]

China is in fact shifting part of its assets away from USD and into Gold. If they keep it up, inflation will continue its assault.

[royalfan5]

Hyperinflation?

So assuming the Chinese did......a) dump their US Treasuries OR....b) lots of capital flight occurred from China to the USA (if China does run into a real financial crisis)....OR c) both "a" and "b" happened......then my question is this:

How would that impact the US economy in general and the US financial sector in particular? I can see how the "flood" of money could cause some US inflation (demand - pull, perhaps) with higher Fed rates due to the higher money supply, but I can also see how the "flood" of money could actually give a "kick start" to our slowing economy, thus spur growth. In other words, I can see how it could be bad (i.e. higher inflation and Fed rates resulting in slower growth) OR good (i.e. giving our bull some extra legs to run on with all that incoming capital).

Any thoughts? This one is complicated and way beyond me.

TIA
Considering the dollar retains a lot of value on the fact that it is the international currency of choice, the liquidation of U.S. Treasuries would indicate that faith is gone. A very weak dollar would destroy people's savings, crimp consumption, and drastically alter the United States quality of life. There wouldn't be a silver lining, especially as import dependent as the United States in many areas.

[Chuck Bao]

The end result would be a massive Latin American style devaluation of our currency.

I disagree. Basically, China can't even begin to sell off part of its US dollar assets without hugely devaluing the vast majority of its overseas investments.

I'm very confident in saying that the technocrats managing China's foreign reserves would never, ever want to lose money and take the blame. They certainly wouldn't want to set the world on a financial doomsday scenario. That's just not going to happen.

But, this next development is going to be very, very interesting.

I don't know if this is common knowledge or what.

Basically, the Bank of Thailand is asking the Thai government for more flexibility in managing its foreign exchange reserves.

They want to be allowed to use foreign reserves to invest in companies, instead of parking their reserves in t-bills and just gathering the interest. Why? They want to invest directly in commodities. They want to invest directly in oil companies.

I suppose China is the same.

I suppose that this whole new way of thinking is part of the crazy stock market euphoria on commodity shares.

So, I don't think it is a dollar vs. the Euro or yen. It is a switch to commodities and equities that own commodities.

[royalfan5]

I disagree. Basically, China can't even begin to sell off part of its US dollar assets without hugely devaluing the vast majority of its overseas investments.

I'm very confident in saying that the technocrats managing China's foreign reserves would never, ever want to lose money and take the blame. They certainly wouldn't want to set the world on a financial doomsday scenario. That's just not going to happen.

But, this next development is going to be very, very interesting.

I don't know if this is common knowledge or what.

Basically, the Bank of Thailand is asking the Thai government for more flexibility in managing its foreign exchange reserves.

They want to be allowed to use foreign reserves to invest in companies, instead of parking their reserves in t-bills and just gathering the interest. Why? They want to invest directly in commodities. They want to invest directly in oil companies.

I suppose China is the same.

I suppose that this whole new way of thinking is part of the crazy stock market euphoria on commodity shares.

So, I don't think it is a dollar vs. the Euro or yen. It is a switch to commodities and equities that own commodities.
I don't think China would, but if they did that's what would happen, because it would also cause Japan to dump theirs as well. I don't think either scenario is very likely.

[Chuck Bao]

Japan and China are two very, very different ways of thinking. Count on the technocrats from China to be much more aggressive.

I can't prove it, but I am thinking that China is parking some of its reserves in Thailand's stock market and buying commodity plays.

And, why shouldn't they?

Ask any steel trader how China has manipulated the world steel price for at least 10 years already. Strangely enough, they know demand and supply and will use it to their advantage. They're pretty ruthless in the capitalistic system.

[SoonerBOI]

Reading the thread and how it evolved to China, I sometimes believe that China is not the problem. The problem is that the US has borrowed from everyone, including its own homeowners and taxpayers, to sustain an unsustainable economy.

The recent "globalization" of the corporate financial and manufacturing structures has been largely financed by US willingness to export jobs and import consumer goods, and to borrow money to balance the outflow of dollars. Economic history has shown, that there is always a day of reckoning. The crisis, when it comes, whether slow or fast, will represent a massive failure of insight and will on the part of all Americans, leaders and average citizens.

If there is concern about China, then be worried about putative "allies" in the Middle East and elsewhere. For example, Saudi Arabia, Kuwait and the UAE have a bigger pile of US $ than China. Add the other miscellaneous Gulf oil states, and you have a huge mountain of $ that does not want to be in $ anymore.

For America, the credit card bill has come due. No matter what the Fed and government do now, they cannot restore confidence or solve the pressing current economic problems, even if they knew how.

A time of decline and retrenchment is at hand, after which much re-building will be required, if the national will and budgets still exist for such.

Thoughts?

[Chuck Bao]

No, I think China is very much part of the problem. Even if the yuan appreciates by 20%, 40%, 100%, China can still discount the world in terms of labor. We are talking about like a billion people.

[Stoop Dawg]

For America, the credit card bill has come due. No matter what the Fed and government do now, they cannot restore confidence or solve the pressing current economic problems, even if they knew how.

I thought that 10 years ago.

Never underestimate the stupidity of Americans willing to borrow more $$$ than they can EVER repay. And never underestimate the greed of lenders willing to give it to them.