Special Analysis:
A Walk-Down Primer on the U.S. Trade Deficit with China
Published 2/11/2006 10:18:00 PM
Saturday, February 11, 2006
Special Analysis:
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oh me first...what an honor....I love the graphic for this...even though it is cyclically sad and accurate....
( no charms with the spam , the white trash trailer part of my soul was crushed....)
Come over and see me at the Enigma Cafe ( http;//watergatesummer.blogspot.com/ , )
I will fix you some grub- nuttin fancy- just black coffee and "fresh" Spam...
great blog....
Hrumph...I thought I was first, the silly thing said No Comments.
Well done, a nice graphic for those who haven't had their listening ears on these past months when you have pontificated your pronouncements on prosperity-neo-con style.
If I am incoherent, be it known that our lovely economy is permitting me to work 16 or more straight days with about 20 hours of overtime because job applicants all want banker's hours, $10/hour, and no weekends or holidays. Since I was here first, I think I should get those if anyone shall, not some clown off the street. Be it also known that the words "drug test" seem to weed out a vast majority of potential workers. Lots of interest in jobs, just no one worthwhile. Ah, well...anyone want a job? You'd have to live in a red state, and my boss listens to Country music, but the mountains are purty:)
Good morning, Dark Wraith.
Thank you. May we repost this elsewhere?
Good morning, Dark Wraith.
What a nice chart, and how interesting! I wonder if the neo-cons would look at it and understand just how much GW's rule has weakened our country?
I love the flames at the bottom. It makes me think of the saying, "Going to hell in a handbasket."
Er.. the pretty red/orange/yellow colors are flames, right?
Good morning, Stealth Badger.
In fact, I did this as a graphic precisely because I was hoping some folks would like to post it.
I'll do a complete expository analysis within the next couple of days, but I wanted to start this run with that graphic you see above. The full-blown analysis will have its own graphics, as well, to visually lay out some of the concepts. It's not that any single idea is all that complicated, but some of the chains of causality can leave people scratching their heads.
That's one of the problems with teaching just about any subject for a long time: it all looks so easy and obvious to the one showing the stuff, but that's only because he or she has done it for so long it's like second nature. Not so for the hapless student who's had other things to do over the course of a reasonable well-rounded life.
This is especially true in math: I have spent many an academic year with men and women who were just excellent mathematicians: they were either gifted of insight or had put long years into the subject; but they get into a classroom, and they are persistently just so frustrated because their students don't "see" how simple and obvious everything is. Everyone—the students as well as the teacher—wander away grumbling and crabbing.
Anyway, that's my little grumble and crab for the morning.
But, yes, by all means use this graphic.
The Dark Wraith sort of went off on a tangent there for a moment.
Good morning, Wild Clover.
Yes, the mountains really are purty in your neck of the woods. It would be nice if you worked at a job where you weren't too exhausted most days to appreciate that natural beauty.
SIXTEEN STRAIGHT DAYS?! I don't suppose they've heard of those new-fangled ideas about not working people until they drop before they're 50. This is beyond ridiculous: wages collapsing so precipitously that people are literally burning themselves up trying to maintain body and soul.
So much for the past several decades of human resource management theoreticians and their garbage about "nurturing" work environments. That would all be nice if we had real workplaces for most people rather than barren landscapes of crummy jobs.
Welcome to the 21st Century. Let's all be grateful they haven't imported gasoline service station robots to replace the workers there.
Well, at least they haven't imported robots like that yet.
Of course, then again, the robots might get downright techno-pop violent on that guy playing the country music.
The Dark Wraith would sort of like to see that.
Good morning, enigma4ever.
I'm glad you finally made it over here to the Dark (Wraith) Side.
I'll be over at your blog in a minute. And you don't have to fix me any Spam sandwiches; I usually have a couple of my own in the back seat of my truck.
The Dark Wraith always travels with food onboard.
Good morning, Old White Lady.
Yep, those are flames; but it's not so much that we're going to Hell: we've already made it to the last point on that chart.
The issue at this point is more one of when we're going to notice that the rather curious smell isn't the aroma of a great economy cooking along. It is, instead, the ever-so delicate aroma of our own bridges being burned behind us.
It was a whole lot easier to sell this country's assets than it will be to buy them back.
"Free trade," my backside. I can't find any econ text whatsoever that has a definition of "free trade" that includes holding an exchange rate fixed for long enough to choke a target country's productive infrastructure to death.
The Dark Wraith must not be reading the "Right" textbooks, these days.
Hello, long time lurker, first time commentor...also one of those math fools you speak of walking away in confusion =)
I heard years ago that if we had to sell actual land to satisfy the debt we owe that we would lose a chunk the size of the State of Washington. Have you heard any recent estimates?
Good morning, Dark Wraith.
Some sites tend to make a lot of mortgage equity withdrawals overall effect on the economy. I don't remember you addressing this issue.
Care to do so?
Good morning, Fred Bieling.
Yes, I've seen estimates like that, but there's a problem with them: it's related to the idea in accounting and (more importantly) corporate finance of "going concern" value versus "liquidation" value.
It works like this. If we were to have to unload all of the land in Washington state all at once to satisfy a liability, it wouldn't fetch more than a fraction of its value as stated in the normal course of reporting. The reason is that, as the supply of land on the market skyrocketed, the value of each unit of it would plunge. This is the "liquidation" value beginning to rear its ugly head.
The "going concern" value is what it's worth as a standing, productive (or potentially productive) resource.
What that means is that if we were to have to pay off all of the public debt we owe to the Chinese, we'd end up going through probably about five decent states before we had gathered enough money to achieve the goal.
As it is, with foreign purchases of American assets, those foreign interests capture (and, they hope) retain the going concern values.
To illustrate with an example, a real estate investment trust (REIT) with which I worked tangentially in the 1990s was huge: it held a staggering amount of land, shopping malls, strip malls, apartment complexes, and other real property. Essentially, a REIT is nothing more than a giant soufflé, buying and holding real estate and posting it on the corporation's books as assets.
I wasn't quite sure of how this REIT was getting the money together to go out and buy all this stuff; but then I watched the financial officer in action. He had a slate of properties ready for acquisition, and all he did was fax the list with the agreed-upon purchase prices to a brokerage house in Japan. This rather well-known investment banking firm/brokerage house then purchased a pile of stock the REIT had ready in a variation on what is called a "shelf registration" the REIT had already gotten qualified by the Securities and Exchange Commission (A "shelf registration" is done by huge corporations. They file the necessary paperwork with the SEC for a public offering, and then they just keep the securities—usually stock—on the "shelf" and sell it when they need equity money.)
Now, Mr. Bieling, we're talking about a deal that I saw on the order of $12 million. The Japanese house had the money in the bank account of the REIT within two days, and all that property was bought by the REIT within a couple of weeks.
The balance sheet of the REIT went north accordingly: the "Assets" rose by roughly $12 million, and the matching entry to the "Liabilities & Owners' Equity" went up by the same amount in the "Common Stock at Par" and the "Additional Paid-in Capital" lines. (Actually, if I recall correctly, the "Common Stock at Par" line had already gone up with the registration, but that looked weird to me.)
Anyway, my point is that the value presented on the REIT books wouldn't represent what would happen if the REIT had to sell every last bit of its property all at once. Liquidation value of that thing would have been a pittance. That's why the REIT had every incentive to keep both its corporate house in order and all of those properties it owned in productive configurations.
It was obvious who owned the property: the REIT did. But it was equally obvious who owned the REIT.
The guys I knew there were just marking time until they retired.
As I've said before, "ownership society," my backside.
The Dark Wraith almost went into another rant there.
In fact, I did this as a graphic precisely because I was hoping some folks would like to post it.
Drat. If you said no, I was going to reply with "a link is as good as a nod."
*ducks thrown tomatoes and will post it tomorrow morning, he's got something at the top of his front page he wants to keep there for a while*
Confounded badger.
The Dark Wraith lost his train of thought about second mortgage markets.
*cheesy grin*
I suspect that unfortunately the markets aren't going anywhere, and the news is not good. Consider this a brief respite from full comprehension of the sickening crunch.
You're welcome.
*ducks more tomatoes*
Dark Wraith, I have a question for you: Iran has stated its intention to move toward Euros when trading its oil. I have read several accounts positing that The World Bank is considering shifting from American dollars to either Yuan or Euros dependant upon which currency seems to have the stronger future (long term stability). What is your opinion on the matter? Do you think our increasing deficit with China, coupled with Iran's blustering will shift the issue; and if so in what direction? Or, do you think the entire question’s premature in the extreme? Will American dollars remain the world’s marquee currency (at least in the foreseeable future)?
Thankyou for the insite.
Wholly OT, but it fits nowhere:
I thought you might find this interesting, DW. It was an op-ed in yesterday's Boston Sunday Globe.
- oddjob
Good morning, Dark Wraith.
TFLS said Iran has stated its intention to move toward Euros when trading its oil. along with her question.
Wasn't Saddam Hussein planning on converting Iraq's money to Euros, before we took them over?
I guess that was just one more reason we had to go attack them.
old white lady...
yes, Saddam was looking into it.
China was also in talks to use Iraq as a source for oil....
side note Venezuela is looking to base its oil on the Euro....
What kind of real Texan gets shot and doesn't return fire, fer cryin' out loud?
Heh Heh. I guess the White House/CNN euphemism for shot is sprayed, as in Dick sprayed Harry. Must have learned that one from Bill or Monica.
Good morning, Fat Lady Sings.
You're asking a question that at one time I thought was fairly easy to answer. Unfortunately, once I stopped doing a knee-jerk, blow-hard reaction and started to think about it, I began a journey down a path that is bothering me more and more about the history of events in the Bush Administration.
Because I'm not finished with my own thinking about this, let me summarize what I understand and induce right now.
For some time, I assumed—and quite reasonably, I should say—that an important motive for invading Iraq was Saddam Hussein's rather transparent plan to begin denominating Iraqi oil contracts in euros instead of dollars. The impact would not have been all that great since Baghdad was selling oil only through the UN-sanctioned oil-for-food program. Whether or not that deal was riddled with this corruption or that corruption is immaterial to the point that Saddam's Iraq was no longer the major petroleum supplier on the world stage that it had once been.
Nevertheless, the shift would have had some notable impact in that it would have opened a door for wider consideration of the euro as a denominating currency, especially for those disinterested in allowing the United States to have a technical hegemony merely by virtue of the central importance of its currency in global commodity trading.
If the truth were to be told, some "market basket" of currencies might be an ideal endpoint for many countries in their commodities buying and selling arrangements; but as a replacement for dollar denomination as the pervasive specification of choice, this is years away, as I'll explain presently.
First, however, you must understand that the U.S. dollar is not the currency of choice because the United States is some mean schoolyard bully; it is instead the attractive currency because it is such a powerhouse: the amount of dollar-valued contracts (and therefore, assets) across the globe is just staggering. Both as a stock of value and as a flow of cash, the greenback is light-years beyond any other currency on planet Earth.
The U.S. dollar is implicitly backed by a huge, deep, long-surviving government; by massive present value of future expected cash flows from American enterprise and labor; and of no insignificant importance, by the undisputably most powerful engine of internal tax revenue generation and external war-making power the world has ever seen.
The greenback has been around as a sign and symbol of the United States in its sovereign status for well over a hundred years.
No currency on Earth can compare to it. Not in levels, not in depth of markets, not in assuredness of satisfaction of the claim it represents on the central bank of the United States.
All of this I've noted above is not to wave some "We're Number One" flag. It's simply the reality, and it's a reality that the United States government is not alone in grasping fully. Any nation that would fancy otherwise does so at its own peril and at great threat to the currency it would pretend to the summit of currencies.
The Europeans are not stupid. Their halls of finance are staffed by some of the most brilliant, some of the savviest, some of the most cultured men and women the world has ever known. These are people who understand the great experiment now underway in the union of the European nations. The 21st Century will be better for a great counterbalancing force against the twin dynamics of the U.S. and China, as well as against and with the lesser but still important dynamics of emerging nations and economic trading regions.
But in their full understanding of how to conduct their respective and integrated portfolio of finance, they know very well that their new currency, the euro, is in no way, shape, or form up to the task of handling the enormous task of being the denominator in any large-scale global market: the euro hasn't been around nearly long enough; the understanding of what it really is will continue to evolve, particularly as new nations are added to the European Union and as the central bank more fully defines and asserts its role; and the sheer depth of value carried in the amounts of it in circulation just isn't there.
And those factors will remain for decades a profound deterrent to using the euro as a substitute for the greenback in international trade. The euro just cannot of its own sovereignty handle the massive currents of modern trading. It just can't.
Neither, of course, can the yuan; and part of this is because the yuan has been used by the Communist Chinese Party as a toy for internal growth at the expense of other nations, most particularly the United States. Pumping yuan out in staggering amounts for years has done nothing to increase the depth of the yuan; in fact, it has had the opposite effect, and it's only a matter of time until that "miracle growth" of the Chinese economy (nearly 10% by some estimates) evaporates into a corrosive inflation that only the most draconian of Chinese central bank monetary policy regimes could bring under control.
No one in his or her right mind would be interested in denominating anything important in yuan.
And no European finance minister in his or her right mind would be interested in having any global commodity market use the euro as the denominating currency. Germany—the 800 hundred pound gorilla of finance in the EU—has already told the Iranians to lay off this idea of a Tehran oil bourse running its show in euros. And this is no mere idle European aversion to the limelight or fear of offending the Americans: the euro in an Iranian oil bourse would put the European central bank front and center in a world way beyond its current capacity. The market for euros just isn't deep enough, and an entire oil trading circuit jumping up and down on such a fragile platform would put the European currency structure (and therefore the emerging, unified European economy) at great and unnecessary risk.
The Iranians are planning to do something no one wants them to do, just like Saddam before them.
Now do you see why the Europeans are on the bandwagon to bomb Iran back to Hell?
And now do you see why I'm not so sure the American neo-cons were all alone in their desire to invade Iraq?
The Dark Wraith hasn't come to a final conclusion, himself, on that last matter.
Good Afternoon Dark Wraith,
Interesting, that last analysis. Food for thought.
The U.S. dollar is implicitly backed by a huge, deep, long-surviving government; by massive present value of future expected cash flows from American enterprise and labor; and of no insignificant importance, by the undisputably most powerful engine of internal tax revenue generation and external war-making power the world has ever seen.
So, if we the american citizens staged a tax revolt in order to curtail the war machine, we would hurt our own currency and international interest rates?
How about if we were to put all our tax money in escrow accounts, to be handed over when the govt gets out of other countries??? (I read a prophetic book that claimed the Bush wars won't stop until we do this)
...the euro in an Iranian oil bourse would put the European central bank front and center in a world way beyond its current capacity. The market for euros just isn't deep enough, and an entire oil trading circuit jumping up and down on such a fragile platform would put the European currency structure (and therefore the emerging, unified European economy) at great and unnecessary risk.
So, what are the bad case scenarios? I would think it would be great for EU to get the extra money that it would if Iran did this. Isn't Venezuela also threatening to do the same?
Dark Wraith - I do understand what you are saying about the stability of the American dollar. The reasoning behind its use is apparent even to those of us not intimately acquainted with the vicissitudes usually associated with world currency flows. I have also paid some attention to The Bilderberg Group, its membership, meetings and the resulting economic impact that generally follows one of their ‘get-togethers’. Not to put too fine a point on it – but their last meeting was late September, and there has been much more noise on this subject ever since. I think certain issues are in process of re-direction – prudent (from a Bilderberg standpoint) or not. You may not be aware, but Syria just announced it has already switched all its foreign currency transactions from Dollars to Euros – private included. I am well aware of the impact, here; especially should other countries follow suit. You spoke of the idiocy of such a move; that neither Euros nor Yuan are stable enough to handle the weight. OK – economists agree – stupid move. But aren’t some of the politico’s making these decisions dumb as a box of rocks to begin with? Or – at the very least – blind as bats in bright sunlight? So Bush and his family cabal have their fingers in a multiplicity of pies – using war and rumors of war as clubs with which to pursue their own agenda’s. What about wild cards? After all, even the great Hari Seldon couldn’t foresee the advent of ‘The Mule’? (Fictional – yes; but it illustrates my point).
So, if we the american citizens staged a tax revolt in order to curtail the war machine, we would hurt our own currency and international interest rates?
Not DW, but I can't see how it wouldn't. If truly done by a large enough portion of the population it would horrendously upset the present order of things. That kind of instability is exactly the sort of thing DW was pointing out is absent from the dollar's history.
- oddjob
The Fat Lady Sings blogged..."I have also paid some attention to The Bilderberg Group..."
Then you might be interested in the following article entitled
"Bilderberg and the Islamic hate cartoon connection"
by Tony Monday, Feb. 06, 2006 at 9:52 PM
"MERETE ELDRUP, managing director of company that published the anti-Islamic cartoons in Denmark (JP/Politikens Hus) is married to ANDERS ELDRUP, who has attended the last FIVE Bilderberg meetings. She is a former Head of Secretariat at the Ministry of Economic and Business Affairs and Deputy Director of the Danish Energy Authority."
Read the entire article at
http://tinyurl.com/bxjqv
>> OK – economists agree – stupid move. But aren’t some of the politico’s making these decisions dumb as a box of rocks to begin with? Or – at the very least – blind as bats in bright sunlight?<<
Personally, I'm not sure it is stupidity or blindness. They may not be 100% aware of the depth of difficulty a massive switch away from the dollar would cause, but I'm sure they are bright enough(not being republican neo-cons) to figure there is going to be a cost. I think the prime motivator is to spit in the eye of Bushco and put distance between themselves and the lunatics running our asylum. If you can't use force of arms, can't use sanctions, can't use diplomacy to get Bushco to sit up and notice (or care) that the WORLD DISSAPPROVES, it leaves you with threats about converting to Euros. At least that's my read. I think some figure that the pain caused by using a lesser currency will be less damaging in the long run than to leave Busco unchecked. Fter all, with the deficits they are running, and our consumer based headed for collective bancruptcy, how long before the dollar ceases to be attractive and stable?
Good evening, Progressive Traditionalist.
I must apologize for delaying a response to your question about the second and third mortgages markets. I thought long and hard about whether or not I should frame my answer broadly. The issue has its roots in the conceptual foundations of finance, and the way it should be framed is sometimes most uncomfortable territory.
I vaguely recall quite awhile back in some comment thread explaining the "Myth of Ownership"; but even if I already set forth the matter, I should do so again.
To begin this, I must go down another track for a moment, a track that has to do with cash flows, the streams of "money" that go to and come from an asset. There are two kinds of cash flows: explicit and implicit. They really have no difference except that the implicit kind isn't physical, and so it tends to be ignored in discussions, even though people, corporations, and other economic entities react to it every bit as much as they react to the explicit kind.
Let me give you a couple of examples, starting with owner-occupied housing, which delivers a whollup in terms of implicit cash flows, most of which are positive. When you live in a house, you don't have to rent an apartment for yourself, and you most likely have no need of paying rent of any kind for an alternate accommodation that delivers all of the amenities you derive from where you live. That mean you are deriving an implicit stream of cash flows from those amenities because you would otherwise have to pay for them someplace else.
Now, you might be thinking to yourself that you do pay for them in terms of mortgage payments, property taxes, utility bills, and maintenance costs, but that's another issue entirely: those are explicit cash outflows, and they are independent of the implicit cash inflows from the improved real estate upon which you are dwelling.
Effectively, from a finance point of view, you're paying yourself a stream of rents. (In fact, in some countries that stream of implicit rents is taxed because it really is a revenue one derives from one's own pocket, and the revenue stream represents money that doesn't have to be paid to a landlord.)
Think about another asset you own: your car. If you didn't have the car, you would most likely either rent or lease a vehicle and thereby be exposed to an explicit cash outflow. By owning a car, you don't have to pay that cash outflow. You, in essence, pay yourself the cash flow.
This seems like some kind of moot point, doesn't it? It sounds like the whole thing about opportunity cost (the cost of the best foregone alternative) comes out to be a wash in some way.
It doesn't, though.
Think about a business example. Suppose a company, in calculating the costs associated with a project it is considering, includes all kinds of explicit expenditures, but it doesn't include the cost of land, and it ignores this cost because it owns the land on which the project factory is going to be built.
Do you see why this is absolutely incorrect thinking? The land could have been sold, or it could have been rented to someone else. To use it for the project under consideration categorically ends the possibility that it could be used for some other purpose that would realize explicit cash flow. In other words, the land really must be included in the costs of the project.
Now, I went down that side road to highlight the idea of cash flows arising from ownership. But all of that talk of cash flows points to a really fundamental feature of assets, which I can set forth as such: assets are merely a complex of claims on implicit and explicit cash flows.
The claims can have all manner of characteristics. Some of the claims are prior, since they must be satisfied before others; some are subordinate to the prior claims; and some are residual, meaning that they are claims on what, if anything, remains of cash flows after all of the superior (debt) claims are satisfied in their timely manners.
Some claims are contingent: "if this, then that" types. In real estate, a "remainder" claim is contingent: "From Joe to Sue for the life of Sue, and then to Fred." In this example, "Sue" has a life estate, and Fred is the remainderman. Fred's claim is contingent upon Sue's death. Should Sue outlive Fred, Fred's claim passes, possibly in estate to his beneficiary (or possibly not, depending upon how the original hand-over was specified).
Holding a powerful set of claims on a real property involves command over the real estate, its improvements, and the stream of benefits arising from the amenities. The enjoyment, use, exploitation, and right of transfer of the property constitutes the quality of the title an "owner" has, but no such control is absolute. Only in the ancient monarchies was there an entity, embodied as it was in the king or queen, that had no authority with power of seizure. When people look back derisively on the statement by Louis XIV that, L'état, c'est moi, they simply don't understand that this was a statement of fact: the state could not intervene, confiscate, or otherwise impair the king's authority over the real property and sovereign estate of the kingdom.
That having been said, a title in modern Western republics can be as high as the "fee title simple," but the title doesn't have to be that strong for people to genuinely enjoy use, exploitation, enjoyment, and right of transfer. Nevertheless, whatever levels of such they do enjoy are nothing more than implicit and explicit cash flows. They might not seem like it, but they are.
In statutory terms, a person might "own" a property even if there's a mortgage on it; but in financial terms, the point is quite a bit more blunted. The mortgage holder is the prior claimant on a stream of explicit cash flows (the mortgage payments), and the "owner" is nothing but the residual claimant on a stream of implicit cash flows (arising from the amenities and benefits of the property).
Hence, in a very, very real sense, the whole "ownership" concept is almost irrelevant, especially when a mortgage contract exists: claims on cash flows arise, and those claims pierce right through the property, itself, and go right to the people who signed the mortgage agreements. In other words, the mortgage puts not just the property at risk, but the "owners," as well because of the potential for mortgagor recourse against mortgagees in default.
Now, if you want to talk about second mortgages, all you're going to see is just another layer of prior claims on cash flows against residual ("homeowner") claims on amenities and other such implicit cash flow generators.
And as you might suspect, mortgage bankers and their second mortgage (sometimes less reputable) cousins need billions and billions of dollars to keep this engine of cash flow claims generation going year after year. This is the private debt equivalent of the public debt I've discussed previously. The money for this beast has to come from somewhere, and it has to come in nearly endless buckets and buckets.
Guess where a whole truckload of those buckets ultimately come from.
And to this extent, the question is not, "Whose buying America?" That question is really irrelevant for anyone who understands how cash flow claims matter far more than any statutory standard of "ownership."
After all, the whole concept of "title" is just Medieval artifice to make people feel good about mowing their lawns.
And besides, "L'état, ce n'est pas toi." (In fact, L'état, ce n'est pas le tien.)
The Dark Wraith has spoken (in French, no less).
Good Morning, Dark Wraith, and thank you for your thorough reply. You have given the phrase "ownership society" a darkly nuanced meaning.
L'état est celui que les néo--cons disent qu'il est.
Peter of Lone Tree has replied (after accessing BabelFish,
http://babelfish.altavista.com/
no less).
Good evening, Dark Wraith.
Your quote of the day...If the President had gone hunting with Mr. Cheney, would the Vice President have been charged with shooting the last dodo?
is hilarious!
I wonder what's going to happen, now that the fella had a heart attack due to a pellet from Cheney's gun... probably nothing, but Whittington is an attorney. Do you think, if he makes it, he'll sue?
Good evening,Mr. Wraith. I really appreciate your Trade Deficit Primer, as it pulls together all the tidbits of info I've read on this. 10-Q berry muck!
Good evening, Mr. Rogers.
Just about the only people I know who would be able to think up a pun like that are folks in "the business." That would mean you've been in public reporting for or auditing of a public corporation, or you're an EDGAR filing agent, or you're a compliance officer (maybe Series 24 or 27), or perhaps you're an attorney who deals with corporate matters, or maybe you're a corporate officer who has to sign off on filings under Sarbanes-Oxley, or you're a commercial insurance underwriter who deals in D&O.
Either that, or you're just one very sharp cat.
One way or the other, this is the blog for you.
The Dark Wraith should have thought of that pun himself years ago.
Good evening, Old White Lady.
That old geezer isn't going to sue anybody. If he lives, he'll consider that "spray scar" his badge of permanent Republicanhood at the old age home he'll be in from the infirmities the trauma has caused him.
Pellets "migrated" to his heart, my backside. The man was hit in the face and neck. Of course pellets lodged into the veins sticking out of his scrawny old turkey neck, fer cryin' out loud.
Now, if Cheney had been the one getting blasted, it wouldn't have been an issue: the pellets wouldn't have traveled to any vital organ the man needs or uses.
The Dark Wraith is just glad that careless nut doesn't own a bazooka.
Good evening, Dark Wraith.
I suspect that if he owned a bazooka (or any other shoulder-fired rocket) then we would have been blessed with his removal from office a long time ago.
Well, yes, Stealth Badger; but imagine that boy with a whole arsenal of nuclear nuclear missiles.
Give that loon a couple fifths of Wild Turkey and a fleeting site of Osama bin Laden at the Pork & Pheasant Bowling Alley on the outskirts of Batavia, and we'd have a whole battery of mobile ICBMs wheeling around for target acquisition, then ending up cratering the Eastern Seaboard.
Someone needs to buy that Dick fellow a Sony PlayStation2 and a copy of Doom: The Trigger-Happy Platinum Edition.
The Dark Wraith would even throw in an extra-wide plasma TV for him to play it on.
The greenback has changed some since the abandoning of the gold standard, they just have this cliche' quality now...we print them about as often as we print "Support Our Troops" magnets, and with much the same mindset.
Much as I would love to get lost in the sexiness of liquidation value, I am delurking for a purpose:
I wanted your blessings to display your Dark Wraith button, as you are truly a rambler after my own heart.
And you conduct your forums with such such competent, attentive precision.
The greenback has changed some since the abandoning of the gold standard, they just have this cliche' quality now...we print them about as often as we print "Support Our Troops" magnets, and with much the same mindset.
Much as I would love to get lost in the sexiness of liquidation value, I am delurking for a purpose:
I wanted your blessings to display your Dark Wraith button, as you are truly a rambler after my own heart.
And you conduct your forums with such such competent, attentive precision.
Good afternoon, Lily.
You've actually brightened my day. Yes, of course: use the logos at your discretion.
I've been working on this blog's cascading style sheet and graphics all morning, and I'm about to turn into a Southern Baptist, what with getting the CSS to work in Internet Explorer, Firefox, Safari, and Opera all at the same time with nearly the same effect.
Now, this is all to a purpose, obviously. If you promise not to tell, I'll share the secret of what I'm doing.
Once I have everything cleaned up properly, I'll be able to offer visitors user selectability for the color scheme of The Dark Wraith Forums. For a while, anyway, I shall offer only this default color scheme, which I call Midnight Embers, and I shall offer an alternative color scheme I call Afternoon AshFire.
I'm working on it, but this preliminary clean-up work is enough to make a preacher cuss.
The Dark Wraith has invoked the Lord's name in vain on several occasions over the past five or six hours.
Pellets "migrated" to his heart, my backside. The man was hit in the face and neck. Of course pellets lodged into the veins sticking out of his scrawny old turkey neck, fer cryin' out loud.
But that probably wouldn't have produced a heart attack. Usually that happens when a portion of the heart muscle is no longer receiving its required blood supply. The only way that could take place that I can think of (involving bird shot pellet) would be for some of it to get to one of the coronary arteries feeding the heart itself.
Weird....
- oddjob
Dark Wraith,
I have to tell you that we would all sleep better if blogger used a universal hex system.
Then again- aren't you happy to set up a Mac and PC side by side, and engage them in precarious browser play????
Please don't keep Dog Marsala in your trunk. And as far as your textbooks- I think we should throw most of them away and convert our business schools to ecofinance.
i am your humble student. thank you. i must share your chart with my few readers.
Wraith, doesn't your graph slide over the idea that a trade deficit is due to a mismatch in investment funds required and domestic saving?
Good evening, Phoenician in a time of Romans.
In fact, that's the myth of the neo-Classicists: somehow, there's an "imbalance" between savings and investment.
The savings rate is not autonomous. As I explained some time ago (and I do need to finish up a refresher on this topic, I know), when China constructs the artificial exchange rate between the dollar and the yuan, what effectively happens is that Americans purchase the Chinese goods and thereby effectively "save" through transfer of funds to the foreign reserves account of China. In exchange, the Americans "earn" the exact effect of an interest rate on their savings by the artificially low prices on the Chinese goods.
Those greenbacks the American households transfer in exchange for cheap goods are then returned to the United States as foreign investment here.
There's no imbalance whatsoever. All that's happening is that the exchange rate distortion creates an "equal and opposite reaction" in terms of exactly where the savings are made and, therefore, from where the investment using those savings comes.
With interest rates in the United States strong enough to sustain a decent savings rate, we could otherwise go to some empty-calories sociological model of a deep character flaw in American citizens that makes them irrationally ignore the standing incentive to save. That's a road for polemicists and pundits, but it has no place in economics and international finance.
What we can and must talk about is not only the powerful distortion of the global exchange rate mechanism, but also the corrosion of per-person purchasing power that compounds the problem of the desire to buy cheap imports. Although those artificially low prices would have a strong and debilitating draw on people's pockets, it wouldn't be nearly so strong if there weren't so much less ability of the average person to maintain lifestyle with existing income.
It is far too easy—and entirely incorrect from the economics perspective that people act with bounded rationality—to suppose that, in the presence of adequate income levels, the national account listing for personal saving is negative because people are just stupid or excessively greedy or whatever.
People might very well be stupid, excessively greedy, or whatever, but they don't run headlong off a cliff of personal risk of mass bankruptcy for no reason.
We're buying cheap products from foreign countries, we're drawing down personal savings, and a huge swath of Americans have experienced an erosion of purchasing power over the past several decades.
A neo-Classicist would claim there's some "imbalance" in savings versus investment, and this is the character flaw of Americans, themselves, who should simply save more and consume less. A neo-conservative would jump right up out of his seat, then, and bawl, "Tax incentives for savings! Tax incentives for savings!"
That, I would submit to you, is a simplification worthy of the Bush Administration "experts" and their politically opportunistic, wealthy support circle.
The Dark Wraith needs to get all of this into a long-winded post someday soon.
The savings rate is not autonomous. As I explained some time ago (and I do need to finish up a refresher on this topic, I know), when China constructs the artificial exchange rate between the dollar and the yuan, what effectively happens is that Americans purchase the Chinese goods and thereby effectively "save" through transfer of funds to the foreign reserves account of China. In exchange, the Americans "earn" the exact effect of an interest rate on their savings by the artificially low prices on the Chinese goods.
This is a definition of "saving" that makes no sense whatsoever. "Substitution of imports for domestic goods", perhaps, but "savings"?
And I didn't mention lack of savings as a moral failing. Being from New Zealand, it would be rather hypocritical of me to laugh at Americans for their "moral weakness" on this point.
Would you care to elaborate further, sticking to a firm definition of "saving", "investment" and how they interact to trade?
Good evening, once again, Phoenician in a time of Romans.
Think about what "saving" represents. Unfortunately, in common usage as in relatively elementary economics pedagogy, "saving" is a substitute for consumption. In fact, however, "consumption" is a spectrum of choice on a time line: consumption now, consumption a little later, consumption quite a few years down the road. The core, "real" interest rate is the reward for the trade-off of consumption immediately for consumption briefly into the future. Interest rates in general, therefore, reflect as part of their overall return the opportunity cost of foregone consumption.
What happens when a consumer purchases a cheap import? The consumer receives a benefit now rather than later. Why didn't the person put the money in the bank down the street instead? The short answer is that the bank down the street was offering an inadequate reward to the person to surrender immediate consumption. But that "inadequate reward" must be measured against something else, and that something else was the price of the foreign import the consumer chose over the savings account.
So, you might be thinking, this is simply proof positive that the person didn't save; the person, instead, consumed.
Not exactly. The person's holding of a greenback had insufficient reward compared to some other commodity; but the Chinese central bank saw the exact opposite: that greenback was quite valuable compared to whatever trinket its economy could pump out. It wants the U.S. dollars to invest back into the United States economy because it can achieve a high return on investment here.
Therein lies the central point: there's no imbalance between the investment and the savings rates: on a global metric, the savings and investment rates match; it's just that the concept of savings has to be understood more broadly: the American buyers of those Chinese products are effectively putting their money into a Chinese account that has the seemingly strange feature of no withdrawal opportunity (or, more accurately, of an extremely high penalty that would be paid by an American government confiscation or devaluation of the dollar). The reward paid by the (foreign central) bank is the extraordinarily low price the American consumer gets for a Chinese product.
Now, how could I possibly know that this is just a perverse savings rate? First, the consumer is receiving an extraordinary reward for buying the Chinese product. Second, and far more importantly, those U.S. dollars show up back here—every last one of them has to—as investment.
There it is: the investment couldn't be happening if the savings didn't exist in perfect match.
Not to take you (or a couple of economists reading this blog who try to fight off this logic in conversations we have) too far afield, but this has an exact analogy in physics: gravity is indistinguishable from an acceleration, and that's because, mechanically and mathematically speaking (and avoiding quantum mechanics nonsense), gravity is an acceleration. That means I don't have to see the second of two bodies to know that, if one is undergoing acceleration (as in non-linear—say, orbital—motion), the second body must be there, and it must be providing exactly the force of gravity necessary for first body to be doing what it's doing.
In other words, I don't need to find a source of savings to fill some gap in the U.S. savings rate: provided a certain level of investment is flowing into the U.S. economy (through asset purchases, loans to the federal government, or whatever), I know for a fact that the savings pool is delivering that money.
More importantly, it's a pool of greenbacks since those are the only currency that could be invested here. And where did those greenbacks come from?
No, not China, not originally.
They came from Americans.
Americans who were transferring highly liquid greenbacks into perfectly illiquid savings and thereby getting two things in return: cheap products and a return of those dollars as investment back into the economy.
Whether or not the structure and form that investment takes is to the benefit of the average American is another, but related, question.
Anyway, that's a rough pass at the higher end of economics in this type of situation. I took it about as far as I could in a summary comment; and I do appreciate that it was a rather rough and cursory pass.
But there you are: economics in a slightly more hard-core frame.
And the Dark Wraith didn't even use any math to run that one through the grinder.
In other words, I don't need to find a source of savings to fill some gap in the U.S. savings rate: provided a certain level of investment is flowing into the U.S. economy (through asset purchases, loans to the federal government, or whatever), I know for a fact that the savings pool is delivering that money.
More importantly, it's a pool of greenbacks since those are the only currency that could be invested here. And where did those greenbacks come from?
No, not China, not originally.
They came from Americans.
Okay, I'm getting closer to what you're trying to get through.
My understanding was that those greenbacks did indeed come from Americans, paying more for Chinese goods than they rec'd from the Chinese in exchange for American goods (assuming, for simplicity, only two countries). In a world of fluctuating exchange rates, the reason why they might be paying more is because there's a flow of greenbacks back in in order to cover an investment gap - American save less than they need to invest domestically, while Chinese save more than they need to invest domestically.
From this perspective, what you seem to be saying is that by artifically pumping out the yuan to keep the exchange rate lower than it would normally be, the Chinese are offering a benefit to American consumers in the form of artifically low priced imports, appropriating American money that would otherwise be saved which is now used to pay for these imports, and using it to seek more investment in the US than would otherwise be justified (or, of course, shovelling it out to others who want greenbacks instead of yuan)?
But, uh, if this ceased - if the yuan and dollar floated to their "correct" levels, wouldn't this just mean American consumers would be spending *more* on consumption and therefore have less to save domestically than they already do now?
Damn - I'm confused.
but this has an exact analogy in physics: gravity is indistinguishable from an acceleration, and that's because, mechanically and mathematically speaking (and avoiding quantum mechanics nonsense), gravity is an acceleration.
Er, no. Gravity causes a curvature in the path of objects under inertial motion - when you're falling, you don't feel any acceleration despite the ground getting closer and closer faster and faster. Compare this with acceleration, where you do feel something.
Resisting gravity (i.e. feeling weight) is indistinguishable from acceleration.
Good evening, Phoenician in a time of Romans.
Actually, your distinction between acceleration and gravity is the result—although I grant that you probably don't know about this context—of what I call the New Age Physics that tries to punch holes in Einsteinian/Newtonian mechanics at any opening.
The principle of equivalence stands, despite the popular point nowdays of a technical (and reaching, in my judgment) "flaw" in the example.
When the scientist stands in the windowless room, he simply cannot of his own device distinguish between acceleration and gravity. To him, because one could not be differentiated from the other, gravity is equivalent to acceleration: both alter inertia (be it zero or rectilinear motion), thereby constructing a non-zero second derivative. The "feeling" of which you are speaking is merely the Newtonian mechanics of the object at rest or in rectilinear motion tending to that state against a force altering the state (mathematically, that's the second derivative emerging from zero to some positive or negative value).
Gravity suddenly grabbing you or a car's acceleration suddenly pulling you as a passenger will be the same thing to you if you know nothing more of the situation.
The point of the principle of equivalence was not, as some latter-day physics folks try to make it, to present a factual proof that two disparate things were in some cosmic sense unified, but rather to demonstrate an example of relativity and equivalence of forces: if they create the same effect, they can be treated as the same. This leads straight into special relativity theory, where distinctions between and independence of time and accelerations come into very important play.
To a somewhat more mundane example, a planet orbiting a star is in a perpetual acceleration as the star exerts its gravity. Assuming the planet's orbit is stable, its fall into the star will be permanently postponed because the forward component of its path is sufficient to keep its fall from taking it into the star. To this extent, then, for purposes of describing the planet's celestial mechanics, the acceleration the planet experiences is equivalent to the gravity it experiences.
From an Einsteinian relativistic perspective, the warpage of space-time created by the mass of the star is the warpage of the planet's path from rectilinear. This was a monumental, if rather simple and in retrospect somewhat elementary, enlightenment: the planet's acceleration (curved path) isn't the "effect" of gravity, it is indistinguishable from gravity: gravity is the warpage; but the warpage has no meaning if nothing is there; acceleration is the warpage of that something as it exists as a state of motion or rest.
The downside, of course, is well noted by the post-Einsteinians. I need not go into their deconstruction of the principle of equivalence; it's well documented, but old geezers like me are still impressed not only by how the old equivalence view clarifies gravity as a mechanical force, but also by how far its understanding carried us in using, mitigating, and altering forces to the ends of technological accomplishments and purely revelatory experience in science.
That's how the Dark Wraith views it all, anyway.
When the scientist stands in the windowless room, he simply cannot of his own device distinguish between acceleration and gravity.
Apart from the teeny tiny fact that if his room and he were free in a gravitational field, he'd be floating around?