Marc Chandler's Compelling Perspective in 'Making Sense of the Dollar' 37 comments
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At a time when characterizing the United States as a dangerously imbalanced and declining nation has become a commonly asserted bit of "conventional wisdom", it is difficult to locate an intelligently constructed, counterveiling argument.
Fortunately though, Marc Chandler has written a book that lays out an argument worthy of that precise description. In Making Sense of the Dollar: Exposing Dangerous Myths about Trade and Foreign Exchange, Mr. Chandler draws upon 20 years of global capital market experience to present an argument that systematically dispels popular misconceptions about the dollar, trade, deficits, and much more. If you prefer economic literature that dwells entirely in abstraction and theory based analysis, then this book may not be for you; Mr. Chandler focuses on real world situations and knowledge derived from his experience in the foreign exchange market. Making Sense of the Dollar identifies ten specific myths that are widely believed as true; three of these are:
The Trade Deficit Reflects US Competitiveness
Most people are aware that the United States consistently records a multi-billion dollar trade deficit. A common interpretation of this fact is that the United States simply consumes far too much, and is no longer able to compete with foreign manufacturing. Such reasoning, argues Mr. Chandler, ignores the fact that our nation's current system of trade accounting was developed during and for a previous era of corporate evolution. Multinational corporations are increasingly choosing to produce and sell their products in the local foreign market, as opposed to older methods of producing in the corporation's home country, and exporting to foreign customers. This change in ways of conducting business increases the headline US trade deficit, however, profits are still retained by the US corporation. Mr. Chandler points out that every iPod sold in the United States increases the trade deficit by $150. Does this mean that our nation grows closer to collapse every time an iPod is sold?
You Can't Have Too Much Money
Yes, you can. The countries that consistenty purchase US Treasuries do so not because they are interested in funding our government's activities, but because the US Treasury market is the only place in the world with the capacity to absorb hundreds of billions of dollars worth of surplus capital. In that respect, the United States has served as a vital store of the world's excess capital; a role that no other country is remotely large enough to assume.
Globalization Destroyed American Industry
It has been technology, not globalization, that has contributed to the declining number of American manufacturing jobs. Manufacturing in the US has remained stagnant or declined for the past fifty years when measured by the population of the manufacturing workforce, and when looking at manufacturing as a percentage of GDP. However, the value of goods manufactured in the United States has continued to rise. In other words, more goods are being manufactured by less workers. This effect is known as productivity.
I found Making Sense of the Dollar to be very well written book, that manages to convey a complex argument without overwhelming the reader. Furthermore, the arguments made are compelling enough that only denial could cause a reader to dismiss their validity.
Disclosure: I just purchased a new iPod
This book is available from Bloomberg Press.
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This article has 37 comments:
---- So the technology must lie in China. Is that why manufacturing is being offshored there by American MNC's?
This is actually nonsense. What it actually means is that Capital is not getting invested where it would yield the greatest return. The US has totally corrupted International Capital Markets so it can consume without producing, whilst developing nations are starved of the capital requirements and forced to pay much higher interest rates when in reality most of them present a better investment risk than the US. The market is, however, belated in the process of correcting this anomaly, which is resulting in a much deeper crisis than that which has hitherto been recognized.
David Wrixon: When you said capital is not invested where it would yield the greatest return, IMHO you misunderstand tow important things. The first is conceptual. Capital does not simply seek the highest return. It seeks the highest return on a risk adjusted basis. Second, the data I found in writing the book suggests that US pays about 3% to service its liabilities and receives a little more than 4% on its international assets. That is one of the reasons why month in and month out the US records a surplus on the investment income that is reported with the US current account figures. Lastly, in your last sentence where you see the crisis getting deeper, I would argue the 50% plus rally in US shares shows the market anticipating recovery, and there is nearly universal opinion now that Q3 GDP will be strongly positive. The that fact that the US 10-year yield is only 25 bp more than Germany's and US short-term rates are below Germany suggest suggests that the international capital markets might not be as corrupted as you assert.
On Aug 22 02:23 AM MarvinMBA wrote:
> It all sounds like trade and budget deficits are just what the world
> needs and the good old USA is providing the action. One of these
> days the Stock Market is going to DROP. and interest rates are going
> to the sky. We CANNOT MAKE UP FOR LACK OF GDP WITH DEFICIT SPENDING
> AND TRADING. Our Deficit spending and Treasuries are just another
> bubble that can bust anytime..MarvinMBA
So are you saying then that total credit market debt of $53 trillion (Q1-09) which is 375% of GDP and has grown 35% faster than GDP since 2000 is a good thing? And is such a situation sustainable?
Here are some fun numbers. Take TCMD of $53 trillion and add total unfunded liabilities of $59 trillion (usdebtclock.org) = $112 trillion.
Now divide by the current estimated number of US households of around 118 million.
Total = $950,000 per US household (unless I've misplaced a zero somewhere). A sobering number but what is more sobering is the rate at which total debt is growing relative to national economic output.
Chart US Treasury international capital flows (line 30) of the Treasury report and you will see 2 things - 1) A strong negative trend and 2) A rapidly widening gap between US government monthly deficit demand and the supply of Treasury buyers (see 4th chart at tradesystemguru.com/co.../ ).
Given the size of debt (govt and otherwise) and the rate at which its growing, how long before debt demand outstrips the supply of dollars from those buying Tbonds? Or is that a healthy thing as well?
Often people in the US or in Europe thinks that everything is made in China and some of the people are upset. However, if they take a trip to China or Hong Kong, they will be suprised that:
Restaurants: in each and every major streets are filled with Mc Donald's, KFC, Burger King, Starbucks, and what not.
Soft Drinks: all the shelves are stuffed with Coke, Pepsi, Sprite, Fanta, etc (No Dr. Pepper yet though!)
Tooth Brush and shavers: in super markets its all Colgate, Johnson& Johnson, Gillet
Banking: European and US investment banks dominate investment banking activities and private banking businesses.
Basketball court or tennis courts: everybody is wearing Nike or Reebok
Golf courses: who doesn't want Callaways?
Cinemas: all the latest Hollywood films.
Thus it has been so apparent to me about this argument, but for those who never travled outside of US to Asia, it is a concept rather not easy to grab. Even the authour mentioned only about Ipod, but not about the fact that all the profits are shipped back to Dow Jones and NYSE, but there is not export in the equation.
Having said that, the argument still does not justify the annual budget deficit by the government, and the whole world subsidizes the US's consumers in consuming future's income with todays borrowing.
Basically what the government budget deficit means is borrowing from the public sector to create jobs that otherwise would not have been created in the private sector. And China pays most of the bills now. It really sucks because 10 poor factory girls works 60 hours week, pullling in US$150 monthly each so to subsidize the beautiful blonde's monthly facial, workouts, and buying of her cosmectic goods.
You get the idea. The US dollar is imbalanced. Bascially with a printing press, who wouldn't want to spend as much as they could. As Peter Schiff puts it this way: " wouldn't it be nice if you could walk into any Ferrari dealership, choose your car, and press print to pay for it, and simply walk out!"
Now the Ferrari dealerships are starting to wonder if the account receivables from Uncle Sam are worthy or not.....
When and should the US dollar loses its status, it becomes a fair playing field, and US trade deficit will decreases. So shall the blonde have to work harder to maintain her living style. Perhaps, by then the poor factory girls in China would instead of getting paid US$150 monthly, and will receive something like US$300 equivalent monthly. Perhaps, they could someday enjoy the living standard of 1/5 of the blonde's.
This is the big picture explained in one of the most simple understandable way. The global landscape is still imbalanced now, mainly because of the US dollar.
In the long term, however, the fundamentals will prevail. The debate should really be not IF this will happen with the USD, but WHEN. By printing enormous amounts of money, the US is taking an enormous risk. In 2008, this risk was outweighed by the risk of a financial melt down. That was nearly a year ago following Lehman. In August 2009 the question is: have we arrived to the point where macro economic fundamentals finally have their day and we have a mean reversion? Will the perceived recovery of the global macro economy release investors from risk averseness and will people be back at work and consuming? Actually neither is the case - investors saw the end of world in 2008 and are rightly still weary. Consumers are certainly not back in action.
> If you prefer economic literature that dwells entirely in abstraction and theory based analysis, then this book may not be for you
Is this to suggest that the writings have no theoretical basis? I would humbly suggest to clean up the marketing language, if the target audience is above average readers.
- Toffe
Well, yes it does actually. The US is not competitive with China for manufacturing. That's a fact, not a myth. Why was your iPod made in China? Why build a global supply chain half the way round the world - only to come back to your door?
The dollar is being held artificially high. If it was not, the trade gap would close over time as the dollar readjusted. Instead, as each year goes by, the world recycles its surplus dollars in to US government debt. This easy source of funds encourages the government to issue more debt. If this carries on, then you end up with the situation where the US government has unmanageable debts, most of which is owned by foreign governments. This process ends with the US "filing for Chapter 11" and national assets being distributed to our creditors.
I disagree. Author of book is totally off his rocker.
Here is the correct statement: If the IPOD was made in the US and sold in the US - it doesnt affect the trade deficit (it doesnt matter wether a foreign company made it or not)
If an IPOD was made in China by a US firm and then sold in the US it DOES affect the US Deficit.
It doesnt matter where the company is headquartered - it only matters where the product is made.
On Aug 22 03:17 AM Matt Blackman wrote:
> Marc C;
> So are you saying then that total credit market debt of $53 trillion
> (Q1-09) which is 375% of GDP and has grown 35% faster than GDP since
> 2000 is a good thing? And is such a situation sustainable?
>
> Here are some fun numbers. Take TCMD of $53 trillion and add total
> unfunded liabilities of $59 trillion (usdebtclock.org) = $112 trillion.
>
>
> Now divide by the current estimated number of US households of around
> 118 million.
>
> Total = $950,000 per US household (unless I've misplaced a zero somewhere).
> A sobering number but what is more sobering is the rate at which
> total debt is growing relative to national economic output.
>
> Chart US Treasury international capital flows (line 30) of the Treasury
> report and you will see 2 things - 1) A strong negative trend and
> 2) A rapidly widening gap between US government monthly deficit demand
> and the supply of Treasury buyers (see 4th chart at tradesystemguru.com/co.../
> ).
>
> Given the size of debt (govt and otherwise) and the rate at which
> its growing, how long before debt demand outstrips the supply of
> dollars from those buying Tbonds? Or is that a healthy thing as well?
The telling figure is the unfunded liabilities -these are not debt instruments, they are merely IOUs that we owe to ourselves (no one is on the otherside of the trade). When you subtract out the TCMD this resultant number is north of 450,000 per US household. Still a sobering statistic
On Aug 22 03:17 AM Matt Blackman wrote:
> Marc C;
> So are you saying then that total credit market debt of $53 trillion
> (Q1-09) which is 375% of GDP and has grown 35% faster than GDP since
> 2000 is a good thing? And is such a situation sustainable?
>
> Here are some fun numbers. Take TCMD of $53 trillion and add total
> unfunded liabilities of $59 trillion (usdebtclock.org) = $112 trillion.
>
>
> Now divide by the current estimated number of US households of around
> 118 million.
>
> Total = $950,000 per US household (unless I've misplaced a zero somewhere).
> A sobering number but what is more sobering is the rate at which
> total debt is growing relative to national economic output.
>
> Chart US Treasury international capital flows (line 30) of the Treasury
> report and you will see 2 things - 1) A strong negative trend and
> 2) A rapidly widening gap between US government monthly deficit demand
> and the supply of Treasury buyers (see 4th chart at tradesystemguru.com/co.../
> ).
>
> Given the size of debt (govt and otherwise) and the rate at which
> its growing, how long before debt demand outstrips the supply of
> dollars from those buying Tbonds? Or is that a healthy thing as well?
I think your reasonsing is shallow. The US trade deficit is being financed by foreign capital inflows in form of foreigners buying US governments.
This allows the Americans to consume well beyond their means. The most striking measure of that is the secular decline in the personal savings rate that only recently showed signs of reversing.
Nor I am impressed by the author's "capital market experience". Experience in trading does not translate into economic wisdom.
As Keynes said, "Practical men, who think themselves exempt from theoretical influence, are often the slaves of a defunct philosopher".
On Aug 16 08:26 PM Marc Chandler wrote:
> Sober Realist: Prior to the financial and economic China was losing
> manufacturing jobs too. So is nearly every country I can find data
> on. And yes the primary cause is technologicla advancement--replacing
> workers with machines.
>
> David Wrixon: When you said capital is not invested where it would
> yield the greatest return, IMHO you misunderstand tow important things.
> The first is conceptual. Capital does not simply seek the highest
> return. It seeks the highest return on a risk adjusted basis. Second,
> the data I found in writing the book suggests that US pays about
> 3% to service its liabilities and receives a little more than 4%
> on its international assets. That is one of the reasons why month
> in and month out the US records a surplus on the investment income
> that is reported with the US current account figures. Lastly, in
> your last sentence where you see the crisis getting deeper, I would
> argue the 50% plus rally in US shares shows the market anticipating
> recovery, and there is nearly universal opinion now that Q3 GDP will
> be strongly positive. The that fact that the US 10-year yield is
> only 25 bp more than Germany's and US short-term rates are below
> Germany suggest suggests that the international capital markets might
> not be as corrupted as you assert.
Also, the idea that someone living in China and buys something that says Colegate on it proves that it is made in America. Anymore than if I buy a BMW in the USA that it is made in Germany. I would love to see statistics about the percent of franchise products that are produced in the country of brand origination. Do McDonald's beef, buns, coke, etc actually come from USA? And since the franchise owner is probably from that country the bottom line doesn't automatically end up in the USA.
On Aug 22 03:17 AM Matt Blackman wrote:
> Marc C;
> So are you saying then that total credit market debt of $53 trillion
> (Q1-09) which is 375% of GDP and has grown 35% faster than GDP since
> 2000 is a good thing? And is such a situation sustainable?
>
> Here are some fun numbers. Take TCMD of $53 trillion and add total
> unfunded liabilities of $59 trillion (usdebtclock.org) = $112 trillion.
>
>
> Now divide by the current estimated number of US households of around
> 118 million.
>
> Total = $950,000 per US household (unless I've misplaced a zero somewhere).
> A sobering number but what is more sobering is the rate at which
> total debt is growing relative to national economic output.
>
> Chart US Treasury international capital flows (line 30) of the Treasury
> report and you will see 2 things - 1) A strong negative trend and
> 2) A rapidly widening gap between US government monthly deficit demand
> and the supply of Treasury buyers (see 4th chart at tradesystemguru.com/co.../
> ).
>
> Given the size of debt (govt and otherwise) and the rate at which
> its growing, how long before debt demand outstrips the supply of
> dollars from those buying Tbonds? Or is that a healthy thing as well?
2)The United States is the largest exporter of goods and services in the world.
3)I'm not sure why some of you continue to confirm my point about iPods. There is an undue amount of focus devoted to where a product is actually being produced. A company from Cupertino, California designed that iPod, and profits each time one is sold. Technology will continue to advance, possibly at an exponential rate, which will inevitably reduce the number of humans employed in the manufacturing of that iPod. Eventually, a single person might be able to oversee an entire iPod manufacturing facility. This trend is extremely obvious; do we really want to decry our relative lack of dependence on manufacturing and exports?
On Aug 22 01:35 PM Suncatcher wrote:
> So, I guess, China and other "producing" countries are buying our
> manufactured goods, cutting off our labels, putting on their own,
> and reselling it to us? I don't know about anyone else, but it is
> almost impossible to find products made in the USA. Now I know that
> is anecdotal but is sure makes me wonder about the premise of your
> book.
> Also, the idea that someone living in China and buys something that
> says Colegate on it proves that it is made in America. Anymore than
> if I buy a BMW in the USA that it is made in Germany. I would love
> to see statistics about the percent of franchise products that are
> produced in the country of brand origination. Do McDonald's beef,
> buns, coke, etc actually come from USA? And since the franchise owner
> is probably from that country the bottom line doesn't automatically
> end up in the USA.
I am a firm believer that we will not only maintain our manafacturing dominance going forward, but that this dominance will grow even greater as we produce more and more to both enable the developing countries of the world to bring their ballooning middle class the transportation, food and luxuries that we enjoy, as well as putting Apple, Nike, McDonalds, Ralph Lauren, and Tommy Hilfiger product in the hands and on the backs of all of these young "western wannabe" consumers.
On Aug 22 02:15 PM Carneades wrote:
> 1)The United States manufacturing sector is larger than the entire
> Chinese economy.
> 2)The United States is the largest exporter of goods and services
> in the world.
> 3)I'm not sure why some of you continue to confirm my point about
> iPods. There is an undue amount of focus devoted to where a product
> is actually being produced. A company from Cupertino, California
> designed that iPod, and profits each time one is sold. Technology
> will continue to advance, possibly at an exponential rate, which
> will inevitably reduce the number of humans employed in the manufacturing
> of that iPod. Eventually, a single person might be able to oversee
> an entire iPod manufacturing facility. This trend is extremely obvious;
> do we really want to decry our relative lack of dependence on manufacturing
> and exports?
>
> On Aug 22 01:35 PM Suncatcher wrote:
On Aug 22 09:26 AM American in Paris wrote:
> Marc,
>
> I think your reasonsing is shallow. The US trade deficit is being
> financed by foreign capital inflows in form of foreigners buying
> US governments.
>
> This allows the Americans to consume well beyond their means. The
> most striking measure of that is the secular decline in the personal
> savings rate that only recently showed signs of reversing.
>
> Nor I am impressed by the author's "capital market experience". Experience
> in trading does not translate into economic wisdom.
>
> As Keynes said, "Practical men, who think themselves exempt from
> theoretical influence, are often the slaves of a defunct philosopher".
>
Nonsense. Central banking and dishonest money destroyed american industry. Productivity gains should make products progressively cheaper but consumers never see it because productivity gains are absorbed and destroyed by planned currency debasement by the Fed. The automobile industry is a perfect example. Productivity gains should allow an average worker to pay cash for a new car every two years. Instead, car prices rise due to banks lending phony money until there is nothing left but an ocean of bad debt and worthless money. GM was destroyed by bad debt, not productivity gains.
The CIA factbook which you can access on-line states that China's 2008 est. GDP is $4.2 tr @official XR, and $7.8 tr @PPP (purchasing power parity, the more reasonable measure). It states that US GDP is $14.33 tr. The US manufacturing sector is between 10% and 13% of US GDP, depending on the source, so US manufacturing output is about $1.7 tr, i.e. around 40% of China's GDP (@ official XR), and 22% of China's GDP (@PPP).
Thus, your statement that US manufacturing is larger than the entire Chinese economy appears false, and based on hubris, not facts.
On Aug 22 02:15 PM Carneades wrote:
> 1)The United States manufacturing sector is larger than the entire
> Chinese economy.
> 2)The United States is the largest exporter of goods and services
> in the world.
> 3)I'm not sure why some of you continue to confirm my point about
> iPods. There is an undue amount of focus devoted to where a product
> is actually being produced. A company from Cupertino, California
> designed that iPod, and profits each time one is sold. Technology
> will continue to advance, possibly at an exponential rate, which
> will inevitably reduce the number of humans employed in the manufacturing
> of that iPod. Eventually, a single person might be able to oversee
> an entire iPod manufacturing facility. This trend is extremely obvious;
> do we really want to decry our relative lack of dependence on manufacturing
> and exports?
>
> On Aug 22 01:35 PM Suncatcher wrote:
Which business would you like to be in? Sneakers or 747s?
Most of the total US trade deficit is due to oil imports. Fix that and the trade deficit problem isn't a problem. It is no coincidence that serious trade deficits started in the mid 70's. That is when the oil embargo and price shock occurred.
It is unbelievable that so few are aware of these basic facts.
On Aug 22 07:03 AM chap08 wrote:
> "Does this mean that our nation grows closer to collapse every time
> an iPod is sold?"
>
> Well, yes it does actually. The US is not competitive with China
> for manufacturing. That's a fact, not a myth. Why was your iPod made
> in China? Why build a global supply chain half the way round the
> world - only to come back to your door?
>
> The dollar is being held artificially high. If it was not, the trade
> gap would close over time as the dollar readjusted. Instead, as each
> year goes by, the world recycles its surplus dollars in to US government
> debt. This easy source of funds encourages the government to issue
> more debt. If this carries on, then you end up with the situation
> where the US government has unmanageable debts, most of which is
> owned by foreign governments. This process ends with the US "filing
> for Chapter 11" and national assets being distributed to our creditors.
OK, how about this instead: The U.S. Export Import Bank, which exists to help fund and guarantee trade for U.S. corporations, is extending $10 billion in loans and guarantees to facilitate the PURCHASE AND EXPORT (hence ExIm) of at least $10B in U.S. products and services to Brazilian oil companies.
If you don't understand the details, you probably don't get the real picture!
Yesterday a SA commenter from China pointed out that much of the manufacturing being done there is on contract. The Chinese manufacturers merely produce products to order for a contracted per unit price, which is typically low. Then the owner of the product's patent and proprietary production processes sells those goods around the world, and earns the lions share of the profits.
This explanation was given as a reason Chinese export factories have a hard time converting to domestic production. They don't own the rights to the products they had been producing so before they can convert they need some new Chinese owned products to make.
So carneades and Marc Chandler are right on this point. iPod profits end up in Apple's pockets in California, no matter where in the world they are sold. I will take a blind guess that the per unit manufacturing cost is under $10 so only a small fraction of an iPod's price stays in China.
Chandler is right!!
On Aug 23 04:18 AM debtacid wrote:
> So american industry was destroyed by productivity gains?
> Nonsense. Central banking and dishonest money destroyed american
> industry. Productivity gains should make products progressively cheaper
> but consumers never see it because productivity gains are absorbed
> and destroyed by planned currency debasement by the Fed. The automobile
> industry is a perfect example. Productivity gains should allow an
> average worker to pay cash for a new car every two years. Instead,
> car prices rise due to banks lending phony money until there is nothing
> left but an ocean of bad debt and worthless money. GM was destroyed
> by bad debt, not productivity gains.
Henry Ford was a tight old bastard, but he paid his workers twice what he had to, because he understood that if the people making the goods couldn't afford to buy them, the system doesn't work. The geniuses running the world today forget that at their own peril. Do those profits go to the wages of the Americans buying ipods? Do they go to the Chinese making them? If all the value goes up and none comes down, the cycle is broken and you just have huge storm clouds of marginally productive wealth, searching out any investment niche possible, hanging over a parched economy.
Here it is in the simplest terms possible; Growth is bottom up, not top down. When the top gets too heavy for its foundation, the whole structure collapses.
No longer is the US the John Smith of the world producing sneakers and toys the world can enjoy but providing the technology, money and the means for the bigger part of the developing world to become the John Smiths of tomorrow - serving the US consumers.
The US hold a disproportionate amount of cash in the world and majority of the most sophisticated production equipment while China hold most of the basic tools of production and the cheap labor.
Divide the $2 Trillion excess cash of China among it's 1.3 billion population and what have they got? = $1,538 per person. That is the wealth they obviously have.
Is that a fortune in america? The last US stimulus package gave every american $600 pocket money in cash just to spend. A small amount as compared to the size of it's economy.
For every hour a Chinese cuts a small piece of steel with hand saw, an American robot will cut more steel plates with lasers within few minutes or seconds. And a chinese will receive penies for such day-long labor while a few minutes of automated job will earn an american a few dollars.
Who would you like to be: a John Smith or Uncle Sam?
Problem is people still have to work, and not everybody can work in a high-tech job or as an accountant or a financial consultant or any of the jobs that requires knowledge and experience in high-end manufacturing and in international banking, trade and finance most of the developing world lacks. So the problem of unemployment inside the US is a big one unless and until the US is able to export many of it's human assets to the developing countries as trainers or consultants and be able to educate future generations not on how to be a John Smith but rather be a 'Doc' Brown (of Back to the Future), an Uncle Sam or even an Uncle Scrooge.
That is where the money is. High-tech, banking and finance. That is why the US is and will keep developing (and protecting) it's military superiority and it's unrivaled knowledge and experience in banking, insurance, trade and finance.
Not by remaining a John Smith of the world for all eternity.
You miss 2 important points.
1. It doesn't matter how big or great our manufacturing is. What matters here is the overall result which is reflected in our current account and capital account. We consume more than we produce. In economics the Balance of Payments tells us that we can only do that if we are supplied with capital from abroad. That capital is a big and growing claim on the assets of the USA. This can not go on for ever. The activities of US MNCs do not change this reality.
2. The world does not stand still. Today's high tech is tomorrow's low tech. What about the iPod, is that high tech or low tech? China continues to move up the value chain, building brands, high tech competence and scale. Each year companies are investing in new plant. When they do this, they think about where to locate it. As each year goes by, more and more companies make the decision to put the new plant in asia. It is great that the US has a large and highly skilled manufacturing base. That doesn't mean it will last.
As far as China moving up the value chain? Assembling iPods is a higher value activity than planting rice. But assembling iPods from parts made elsewhere is still relatively low tech low value work that is easily moved to the low labor cost locations. Designing the masks used in the chip foundries to write the masks on the silicon wafers is high tech. China is not competitive in these areas at all. Will they get there? Perhaps. But Japan and Europe have been trying build competitors to Intel for a long time without much success. Why would China do any better?
On Aug 24 06:41 AM chap08 wrote:
> bricki, aarc & others
>
> You miss 2 important points.
>
> 1. It doesn't matter how big or great our manufacturing is. What
> matters here is the overall result which is reflected in our current
> account and capital account. We consume more than we produce. In
> economics the Balance of Payments tells us that we can only do that
> if we are supplied with capital from abroad. That capital is a big
> and growing claim on the assets of the USA. This can not go on for
> ever. The activities of US MNCs do not change this reality.
>
> 2. The world does not stand still. Today's high tech is tomorrow's
> low tech. What about the iPod, is that high tech or low tech? China
> continues to move up the value chain, building brands, high tech
> competence and scale. Each year companies are investing in new plant.
> When they do this, they think about where to locate it. As each year
> goes by, more and more companies make the decision to put the new
> plant in asia. It is great that the US has a large and highly skilled
> manufacturing base. That doesn't mean it will last.
That was irrelevant to my initial point though, which was directed towards the US manufacturing sector, that is, the annual revenue generated by US manufacturing companies.
Regardless, the problem with your calculation is that you're using numbers generated by outdated accounting techniques. For instance, when you talk about US GDP, you are netting out the $150 "import" of every iPod, not to mention the oil factor. Basically, you're calculating a percentage of a number that has already seen the export factor netted out through imports.
Perhaps if you had performed some research that was more thorough than a visit to the CIA fact book website, you might have discovered some of these distinctions.
On Aug 23 08:50 AM prudentinvestor wrote:
> Please state the source of your information, because your 1st point
> appears incorrect.
>
> The CIA factbook which you can access on-line states that China's
> 2008 est. GDP is $4.2 tr @official XR, and $7.8 tr @PPP (purchasing
> power parity, the more reasonable measure). It states that US GDP
> is $14.33 tr. The US manufacturing sector is between 10% and 13%
> of US GDP, depending on the source, so US manufacturing output is
> about $1.7 tr, i.e. around 40% of China's GDP (@ official XR), and
> 22% of China's GDP (@PPP).
>
> Thus, your statement that US manufacturing is larger than the entire
> Chinese economy appears false, and based on hubris, not facts.<br/>
The second point to consider is that the US and US companies are not the only ones to issue dollar-denominated debt. Many developing countries do. In fact often their dollar denominated debt is more liquid than the local currency debt. Some developed countries also issue dollar denominated debt, such as Switzerland, for example. Then there are companies too that issue dollar denominated debt, like Germany's equivalent to Fannie Mae called KfW and that paper is rated triple-A.
Of course with rising unemployment here, we must take a look at arguments about the US sending jobs overseas. The evidence is very clear on this point: the affiliates of US multinational companies hire foreign workers mostly, though of course not solely, in other high wage economies, like Canada, Europe, Japan, and Australia. Even in a low wage continent like Africa, US affiliates hire more workers in the higher wage countries, like South Africa and Nigeria, than other lower wage economies.
Secretarial jobs and bank teller jobs have not be exported to China, Mexico, any place. They have gone the way of the buggy whip maker and the blacksmith. Replaced by machines--secretaries maybe by Microsoft office suites and tellers by atms. And yes I call this progress.
I enourage people to take the smell test. When you travel ask a cabbie if you could give them dollars for the fare. Then ask to give them Chinese yuan--be careful when you ask the second question that you are near your destination.