USA 2009: A tale of two economies
Albert K. Fung
It was the worse on record, in quarter of a century. And the
US stock market yawned. Shares of Amazon.com hit an all time
high of USD 126 on reported record revenue. High end retail-
ers, the likes of Neiman Marcus, reported brisk sales also.
It should not come as a surprise, that sales of the e-tailer
par excellence is so strong.
The average income of an Amazon.com customer, is USD 70+K.
They are the exact same college educated, tech savvy, Apple
gadgets consuming crowd: the post-modern US workforce in the
knowledge/information economy. Who are enjoying high income,
and low unemployment rate.
While their high school graduated, blue collar, fellow citi-
zens are wallowing in a downward spiral of high unemployment
and diminishing earning power. While American industrial out
-puts are still rising, the size of its workforce is dwindl-
ing. This is due primarily to increasing industrial automat-
ion by robots on one hand, and secondarily to outsourcing to
lower wage countries on the other. Whose unrelenting mandate
is to produce more.
With less .... :)
BTW: Making cars does not automatically bring jobs to China,
for example. In the USA, labor accounts for increasing-
-ly small share of the costs of an automobile. It does,
howerver, increase the imports of of robots from Japan,
the EU and USA.
Regards,
Albert K. Fung
Emerald Terrace, Sai Kung, Hong Kong.
fyf...@gmail.com
The solution is for US$ to continue to depreciate to the point where
manufacturing jobs can be brought home. Right?
Albert K. Fung
> The solution is for US$ to continue to depreciate to the point where
> manufacturing jobs can be brought home. Right?
The incentive to support the USD ....
In all honesty, is simply not there. And in the short run it
actually encourages US exports and dampens imports, as trade
data lately revealed. US overall GDP grew by 3+% last Q, ex-
port - import was not an insignificant contributor.
Car making is not any longer a job creator, like it once was.
Contrary to popular belief, cars are made in the USA. Toyota,
Honda, Hyundai, etc. are all making cars for the US market in
the southern states of the USA. But post-modern car making is
a capital, not labor, intensive endeavor.
This, is due to the extensive use of industrial robots. Weld-
ing and painting, for example can be done entirely by an army
of robots with only a few technicians to keep them in good op
-erating condition.
Since the Chinese food & toy poisoning, faulty car parts, and
toxic wall boards, US multinationals had learned a harsh less
-on on outsourcing - legal liabilities, and public goodwills.
With the elusive profitability claims from the Chinese market
many already kick-started the process of reigning in the long
supply chain. The latest economic crisis, undoubtedly hasten-
ed the process.
After that famed Opium War during the Imperial Era, consumpt-
ion of the substance in China, abruptly and inexplicably stop
-ped. Historians conclude that addictive Chinese, were out of
money (silver) and had no alternative, but to kick the habit.
If one subscribes to notion, that cheap credit is but a meta-
phorical opium. Then it's not hard to understand American are
curtailing their consumption, en mass. Last month, US credits
dropped by USD 14.8 billion.
For the eighth time .... :)
BTW: With a barrage of reforms - health care, financial, con-
sumers, etc. and with the latest creation - a task-force
on job creation, the Obama administration, quite unwitt-
ingly, just kick-started the creation of the USA Inc.
The gentleman from Illinois will be visiting China short
-ly. Watch him to talk guns in BJ, and money in SH. USD,
isn't the only screw in his bag to force China's hands.
Stay tuned .... :)
fyf...@gmail.com
> fyfp...@gmail.com wrote:
>
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What kinds of hands of China do you think Obama wants to force?
Albert K. Fung
fyfpoon:
> What kinds of hands of China do you think Obama wants to force?
Quite a bit ....
For example, the rate of USD decline, though bad, is gradual
and orderly. An option for the gentleman from Illinois, for
instance, is to tell his Chinese hosts to buckle up and grab
a plastic bag. For they will certainly throw up, in the days
ahead, when he will be taking dramatic actions to balance US
trade with the world.
Such as a 2% drop for the USD, daily .... :)
BTW: Even the Chinese leadership acknowledges that their ec-
omic paradigm is not sustainable and needs to be chang-
ed. However, inertia is preventing them from taking act
-ion. The administration, has already taken a few small
steps to help push BJ's bureaucrats over the cliff. But
one has to look beyond the economic headlines, to fully
grasp the mini-trade war between Washington and BJ.
At some point, US unions will be unleashed .... :)
Regards,
Albert K. Fung
Rancho del Canto, Paso Robles, California, USA.
fyf...@gmail.com
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Thus in your view do you think it is wise to convert all US$ into rmb?
Tks
Albert K. Fung
>
> For example, the rate of USD decline, though bad, is gradual
> and orderly. An option for the gentleman from Illinois, for
> instance, is to tell his Chinese hosts to buckle up and grab
> a plastic bag. For they will certainly throw up, in the days
> ahead, when he will be taking dramatic actions to balance US
> trade with the world.
>
> Such as a 2% drop for the USD, daily .... :)
>
> BTW: Even the Chinese leadership acknowledges that their ec-
> omic paradigm is not sustainable and needs to be chang-
> ed. However, inertia is preventing them from taking act
> -ion. The administration, has already taken a few small
> steps to help push BJ's bureaucrats over the cliff. But
> one has to look beyond the economic headlines, to fully
> grasp the mini-trade war between Washington and BJ.
>
> At some point, US unions will be unleashed .... :)
fyfpoon:
> Thus in your view do you think it is wise to convert all US$ into rmb?
Two hundred metric tons of gold ....
Was what India just bought with their hard earned rupees. It
is the USD/RMB peg, however, that's the center of all evils.
This is not just the position of USA.
But all G-20 - 1 countries are urging China to drop the peg.
It distorts trade, capital and resource allocations, causing
artificial, permanent structural imbalances that are not win
-win and therefore sustainable. In the long run, it benefits
no one.
Not even China ....
BTW: The net effect of the peg, is that all Chinese are ask-
ed to subsidize her exporters. Just ask any Chinese who
have no access to clean air, fresh water, education and
medical care. Or the vast majority of young couples who
have not any reasonable hope of buying a decent flat to
start a family.
All because of China's economic managers who're victims
of their own dogmas. For inexplicable reason, they fail
to see that domestic consumption is a far more powerful
driver of GDP, than (export - import).
And esteem reserves, over social investments .... :)
ltlee1
Think of it this way.
McDonald decides to drop the price of the Big Mac. In response,
Burger King also drops the price of its Whoppers. So we have
a price war. Such price war can be ruinous to all participants with
one exception. One company, let us say, McDonald is actully more
efficient and it can produce Big Macs at lower price. Under this
circumstance, McDonald can continue the price war indefinnitely.
But not Burger King or Wendy unless they can match the production
efficency of McDonald. Otherwise, dropping the price to compete is
like drinking poison to stop thirsty.
>
> BTW: The net effect of the peg, is that all Chinese are ask-
> ed to subsidize her exporters. Just ask any Chinese who
> have no access to clean air, fresh water, education and
> medical care. Or the vast majority of young couples who
> have not any reasonable hope of buying a decent flat to
> start a family.
Let Chinese people ask the government to raise the price of the
RMB.
>
> All because of China's economic managers who're victims
> of their own dogmas. For inexplicable reason, they fail
> to see that domestic consumption is a far more powerful
> driver of GDP, than (export - import).
How much to consume rest on other considerations? They have to
be based on China's situation. Not to satisfy other country's need.
Given China's low per capita endowment, it must be cautious in
stimulating domestic consumpton.
> And esteem reserves, over social investments .... :)
Social investment does not come from the vacuum.
>
> Regards,
>
> Albert K. Fung
> Rancho del Canto, Paso Robles, California, USA.- Hide quoted text -
>
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fyf...@gmail.com
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So after taking all that you have described into consideration, you
don't seem to subscribe
to the view that US$/RMB peg distorts resources allocation. This
seems to go against econ 101.
fyf...@gmail.com
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The microeconomics theory I learned years ago suggests this, albeit
Ltlee has a way
to discredit its substance.
Albert K. Fung
>
> Was what India just bought with their hard earned rupees. It
> is the USD/RMB peg, however, that's the center of all evils.
> This is not just the position of USA.
>
> But all G-20 - 1 countries are urging China to drop the peg.
>
> It distorts trade, capital and resource allocations, causing
> artificial, permanent structural imbalances that are not win
> -win and therefore sustainable. In the long run, it benefits
> no one.
>
> Not even China ....
>
> ed to subsidize her exporters. Just ask any Chinese who
> have no access to clean air, fresh water, education and
> medical care. Or the vast majority of young couples who
> have not any reasonable hope of buying a decent flat to
> start a family.
>
> of their own dogmas. For inexplicable reason, they fail
> to see that domestic consumption is a far more powerful
> driver of GDP, than (export - import).
>
ltlee:
> Think of it this way.
> McDonald decides to drop the price of the Big Mac. In response,
> Burger King also drops the price of its Whoppers. So we have
> a price war. Such price war can be ruinous to all participants with
> one exception. One company, let us say, McDonald is actully more
> efficient and it can produce Big Macs at lower price. Under this
> circumstance, McDonald can continue the price war indefinnitely.
> But not Burger King or Wendy unless they can match the production
> efficency of McDonald. Otherwise, dropping the price to compete is
> like drinking poison to stop thirsty.
Contrary to popular belief ....
It is not the USA that cries foul the most, but China's Asia
neighbors. From Vietnam to Indonesia, from Malaysia to Thai-
land, they want the RMB/USD peg goes away. Which, is causing
all kinds of problems for them.
Not the least of which is inflation due to the tanking USD.
If the situation is not remedied soon, they will be fored to
pegging their currencies to the USD as well. Which will give
them a competitive level playing field vis-a-vis China, and,
insulation from inflationary pressure.
With that, a competitive devaluation will ensure ....
BTW: Whopper does not compete with Big Mac on price. That is
the premise behind Burger King's competitive strategy -
the value proposition. Many can certainly sell a cup of
coffee for less than Starbucks.
Starbucks, is not sweating .... :)
Demorising
China hints at resumption of yuan appreciation [right before Obama
visit]
http://news.yahoo.com/s/nm/20091111/bs_nm/us_china_economy_yuan_1
ltlee1
I do.
If McDaonald drops the price of the Big Mac, not because it is a more
efficient producer but simply to gain market share, It could lose more
money
with increasing market shares.
Similarly, the issue on resource allocation depends on whether China
is
an efficient producer. To be exact, whether each merchandise it
exports
has competitive advantage. To optimize resource allocation,
competitive
advantage trumps production efficiency. Given the zillion of items
involved,
I am sure there will be distortion at many exchange prices. However,
this
could only be determined after an industry by industry audit by China.
In
contrast, those who suggested rmb should appreciate often just throw
out
some number without any backing.
In addition, environmental factor should also be a consideration. For
example,
China's energy use per $1000 GDP jumped during the last several years
because it increase its heavy industry output. A MC=MR approach would
be
less than optimal environmentally speaking from China's stand point.
But
again, the decision should be rest with China and its envisioned
developmental
trajectory.
ltlee1
Should be COMPARATIVE .
> advantage trumps production efficiency. Given the zillion of items
> involved,
> I am sure there will be distortion at many exchange prices. However,
> this
> could only be determined after an industry by industry audit by China.
> In
> contrast, those who suggested rmb should appreciate often just throw
> out
> some number without any backing.
>
> In addition, environmental factor should also be a consideration. For
> example,
> China's energy use per $1000 GDP jumped during the last several years
> because it increase its heavy industry output. A MC=MR approach would
> be
> less than optimal environmentally speaking from China's stand point.
> But
> again, the decision should be rest with China and its envisioned
> developmental
> trajectory.
>
>
>
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> - Show quoted text -- Hide quoted text -
fyf...@gmail.com
>
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The CCP is more concerned with its staying in power than any economic
implication. By pegging its currency to the US $, it hopes to
maintain its current rate of employment and thus the level of social
stability. But I am afraid that the game is over pretty soon.
ltlee1
Only because their exchange rates are also linked to RMB/USD
through pegging.
>
> Not the least of which is inflation due to the tanking USD.
>
> If the situation is not remedied soon, they will be fored to
> pegging their currencies to the USD as well. Which will give
> them a competitive level playing field vis-a-vis China, and,
> insulation from inflationary pressure.
>
> With that, a competitive devaluation will ensure ....
>
> BTW: Whopper does not compete with Big Mac on price. That is
> the premise behind Burger King's competitive strategy -
> the value proposition. Many can certainly sell a cup of
> coffee for less than Starbucks.
In that case, the exchange rate should not be of any concern.
>
> Starbucks, is not sweating .... :)
>
> Regards,
>
> Albert K. Fung
ltlee1
If keeping the rmb weak will cause greater privation of the people,
such policy
will not contribute to the desire to the CCP's stying in power.
> But I am afraid that the game is over pretty soon.- Hide quoted text -
Albert K. Fung
>
> It is not the USA that cries foul the most, but China's Asia
> neighbors. From Vietnam to Indonesia, from Malaysia to Thai-
> land, they want the RMB/USD peg goes away. Which, is causing
> all kinds of problems for them.
>
> Not the least of which is inflation due to the tanking USD.
>
> If the situation is not remedied soon, they will be fored to
> pegging their currencies to the USD as well. Which will give
> them a competitive level playing field vis-a-vis China, and,
> insulation from inflationary pressure.
>
> With that, a competitive devaluation will ensure ....
>
> BTW: Whopper does not compete with Big Mac on price. That is
> the premise behind Burger King's competitive strategy -
> the value proposition. Many can certainly sell a cup of
> coffee for less than Starbucks.
>
> Starbucks, is not sweating .... :)
fyfpoon:
> The CCP is more concerned with its staying in power than any economic
> implication. By pegging its currency to the US $, it hopes to
> maintain its current rate of employment and thus the level of social
> stability. But I am afraid that the game is over pretty soon.
Just imagine ....
The Chinese government flooded the economy, to the tune of a
jaw-dropping 13% of her GDP. All she could muster, is barely
8% growth. That is an astounding return on investment. While
the lack of investments in her water, sea, land, and air in-
frastructures is coming back to haunt her.
Gobi Desert, for example, is expanding by 1,400 sq km/year.
As a result, her grain basket of the central plain is shrink
-ing at a jaw-dropping rate. Moreover, the water table under
China's central great plain, is now too low, muddy and salty
for irrigation purpose. Grain will soon have to be imported.
This, will be permanent and irreversible.
Water is lacking in 50% of her cities, and is getting worse.
Global warming, is forcing a hasty retreat on the Himalaya's
formerly reliable glacier. Which is important source of head
-water for the Yangtze and Yellow Rivers. They are important
sources of water for a ginormous part of her population. Ex-
tended drought in S. China, lately, is even curtailing water
supply to HK.
Making matters worse, is the dawning of 2012, a pivotal year
for China. It is the year when her demographic pyramid, will
begin its collapse. The decades old one-child policy, is now
coming home to roost. In a few short years her retirees will
outnumber her working age population. Increasingly, a young
couple in China will have to support two sets of parents and
their own child without a robust social security system. Due
to lack of social investment for decades, it is all but non-
existent.
A silver lining is that her ruling elites, suddenly, woke up
and broke into a collective cold sweat. President Hu request
-ed that the government set aside a large sum for social in-
vestments going forward, especially in the rural areas. Per-
haps the gentleman's sensing the gravity of the situation in
the coming decade, he is tightening the grip on China's news
media, Internet and briefing up internal security apparatus.
For instance, a latest high profile case, amongst other less
noticeable ones, is the behind the scene clampdown on the in
-fluential and popular Cijing magazine. Clearly, the gentle-
man is not taking an chance, and is proactively shutdown all
eyes and ears. This much he knew:
It will not be pretty ....
Albert K. Fung
> The CCP is more concerned with its staying in power than any economic
> implication. By pegging its currency to the US $, it hopes to
> maintain its current rate of employment and thus the level of social
> stability. But I am afraid that the game is over pretty soon.
ltlee:
> If keeping the rmb weak will cause greater privation of the people,
> such policy
> will not contribute to the desire to the CCP's stying in power.
One must understand ....
That CCP is a victim of its own dogmas. For three-quarter of
a century, it has been running around in circle, chasing its
own tail. Moreover, it does not have the consent of the gov-
erned to rule.
Without legitimacy, it cannot think outside the box ....
ltlee1
The above return compares favorable with similar stimulation in
America. Historically, the return is 0.4% GDP growth or every 1%
of money grwoth over a 12 quarter horizon.
http://research.stlouisfed.org/publications/mt/20090501/mt_20090428.pdf
"The chart indicates that in the very short run (say at the 2-quarter
horizon), money base growth is slightly negatively associated with
GDP growth. How ever, around the typical business cycle horizon
(say within the horizon of 8 to 16 quarters or 2 to 4 years), money
base growth has a significant positive relation with GDP growth. In
particular, at the 12-quarter horizon, for every 1 percent increase
in
money base growth, there is about 0.4 percent corresponding
increase in GDP growth. Such a positive relation disappears again
in the very long run beyond the typical business cycle, perhaps
because in the long run money growth is inflationary, which leads
to higher prices and lower output."
fyf...@gmail.com
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Exchange rate is not a concern only if China is willing to further
subsidize US trade deficits.