Marc Chandler

Reinstituting Glass-Steagall: Not as Easy as It Sounds

Banks are not weapons of war, but countries are engaged in global competition and the finance sector is one of the contested terrains. Breaking up US banks into utility/casino functions could put the US at a competitive disadvantage as Chinese banks bulk up and without necessarily preventing too big to fail. Tom, you might not like the analogy, but don't lose sight of the real argument.

Reinstituting Glass-Steagall: Not as Easy as It Sounds

I am not opposed to repealing the repeal of Glass-Steagall, but I am concerned that 1) it is tantamount to unilateral disarmament in the face of the rise of Chinese banks, 2) the is a reason why the original Glass Steagall was so watered down and then repealed entirely, and these reasons need to be explored more fully, and 3) what is the logical end of too big too fail. Surely it is not limited to banks.

I wonder if the era of the small proprietorship is over--that laws of capitalism entail consolidation and concentration. Perhaps we should come to grips with "big" and look for ways to make it serve a shareholders and stakeholders interests.

If Jimbo is right and "the whole damn system is corrupt", why are small business exempt from that claim ? What is so good about small businesses that they are not corrupt--in what ever meaning Jimbo gives of that ideologically laden word. The US has around 8000 banks. Only a handful of them of regarded as too big to fail. Is the solution really the other 7988 banks ? I don't think so.

The Evolution of U.S. Manufacturing

I don't know what to say to John Gordon's ill-attempt at wit, but Kimball Corson confuses the facts. We both agree that the data shows a decline in manufacturing workers and increase productivity. I must part ways when he says : "US abandoned and gave up on much potential manufacturing for export during that time." The fact of the matter is that US exports reached a record high during the last business upswing and manufacturing exports improved more than other types of exports.

Nor does the data confirm his assertion that: "The high productivity of the remaining workers should not hide the fact we abandoned much potential manufacturing output by the US for export and in fact shipped those jobs overseas." The data I cited indicates that other countries lost manufacturing jobs during the same time as the US did and some by more. US government data indicates that about 5 mln American workers work for foreign owned companies here in the US and another 5 mln are employed indirectly. American companies hire slightly more foreign workers than foreign companies hire Americans, but the imbalance is not nearly great enough to allow suych sweeping generalizations. Moreover, the data is also clear that American firms primarily locate in other high wage economies.

I am not sway by what I find to be a simplistic answer that: "The high productivity of the remaining workers was largely due to capital improvement so the gains largely went to capital and not the remaining employees (those still employed). " My artcile cited multifactor labor productivity and I provide data to show the each worker is working with more capital, but I do not think that that fact stands behind the widening disparity of income in the US.

I would suggest the breakdown of the social contract that had linked wages to productivity and inflation played a large role as did the US immigration policy. Roughly speaking 1 mln immigrants entered the US in the 1980s and 1990s, more than all the other countries combined (leaving aside political refugees) I embrace this as a important and vital part of America's economic prowess and dynamism, but at the same time , recognize the social strains it creates.

Rather than talk about classes, consider incomes shares. Two parts. Wages and salaries on one hand and profits and dividends on the other. There has been a significant shift from the latter to the former. We agree on that. Mr. Corson says it is justified on the grounds that capital was behind the boost in productivity. I say that there are many other social and political factors that lie behind the shift in income shares away from wages and salaries. Moreover, I would contend that this disparity will ease even as productivity and the amount of capital per manufacturing worker increases.

Norges Bank May Disappoint Wednesday

I was wrong. By indicating that it did consider hiking rates at today's meeting, Norway's central bank was more aggressive than I had thought and more aggressive than the market expected. Rather than a pullback in the krona that would have provided a lower risk buying opportunity the krona rallied by nearly 1% against both the dollar and euro (prior to the outcome of the FOMC meeting).

Kazakhstan's Diversification and Global Central Banks' Dollar Reserves

Peter--please with that sour grapes and hubris claims which is totally irrelevant--sour grapes about what--the point is not that it is or is not a lot of money for the Kazakhstan, but whether they can diversify. They say there is no alternative for their $17 bln. I say there is. I say that the euro is big enough, so is the C$ big enough to absorb their funds. That is the argument. Yes that is how they get their dollars, oil. But that is not important in this context. It is possibly on their import mix. In addition even this is not telling. Look at Canada. The US buys nearly 90% of its exports, yet Canada has roughly half of their reserves in US dollars.

Dave Wrixon posits an "Asian unity". Really ? And in what other areas would we see that unity ? And who counts as Asians ? Japan ? China ? Turkey ? Interesting hypothesis, but beside this, is there really an evidence. Can it be in Karl Popper's terminology falsified ?

Roger Knights makes a broader claim--herd mentality, which gets to perhaps the first mover disadvantage. But he goes too far for me that the herd is beginning to turn. Is there a single shred of evidence for this often repeated claim. The IMF says that the dollar's share of reserves INCREASED from Q2 08 until Q1 09, the latest data available. Commodities--from hydrocarbons, to precious and base metals and foodstuffs and fibers continue to be denominated, traded and quoted in US dollars. As an invoicing and vehicle currency its status appears unchanged.

Don't tell me what people, like foreign officials are saying, show me what they are doing. The TIC data came out today and yes once again foreign central banks continue to be net buyers of US Treasuries.

Greenspan's 'Fairly Pronounced' Recovery

Greenspan was just my straw man as a way to discuss the likelihood of stronger growth in the US. I think though that you both exaggerate Greenspan's significance. He is but one man. He did not force banks to take on ninja loans, he did not sanction the leverage of the financial system. He warned as other international officials did that investors were mispricing risk. I suspect that most people who would be considered as candidates would not have done much differently. My point here is not to defend Alan Greenspan but to suggest that the real problem is systemic not personal. The US challenges are much bigger and more significant than one man.

Moreover, the US might have provided the spark, but the dry kindling was globally distributed. It was a global crisis and some countries that had lower rates than the US did not have a housing bubble and some countries with higher rates than the US had a larger bubble. The key source was the surplus savings and the financial incentive structure.

ECB's Nowotny: No Dollar Shortage in Europe Anymore

AJ Clausen--I did not say one should buy the dollar here or invest in the US dollar whatever that means. And one compelling reason why short term speculators should not be so bearish on the dollar is because so many--the vast majority of people, like yourself, are very bearish and are confusing, imho, cyclical forces for structural. I believe Robert Prechter of Elliott Wave fame cited a 5% bullish sentiment number. Sounds extreme to me. New dollar shorts now are going to a New Year's party after midnight.

Albert Meyer--My hypothesis is that the reason the dollar rallied as the crisis become more acute is not so much its safe haven status as the fact that many people, investors and institutions, were effectively short the dollar--(using the dollar for a funding currency). There was a large currency mismatch if you will and when push came to shove these folks needs dollars. There weren't enough around. They did not have access to the Fed. US banks where charging a fortune if willing at all--see the spike in LIBOR (london interbank offered rate). Through the swap lines the Fed made dollars available to the foreign central banks, who then would auction them to their members. This address the dollar shortage problem in a way that intervention might not have and would have sent arguable ambiguous if not counter productive signals.

Marc Chandler's Compelling Perspective in 'Making Sense of the Dollar'

I think the depth and breadth of the dollar denominated debt market is indeed a good thing. There are several problems however dividing the size of this market by the US population. Let me cite two critical problems. The first is that it is only the issue. Should not liabilities be understood in the context of assets. As it turns out at bottom of the stock market and with housing prices still falling, US household net worth, which includes assets and liabilities, stood at $50.4 trillion ath the end of Q1 09. The US is most certainly not a bankrupt country by any stretch of the imagination.

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.

G20: What the Big Deal Is

Conceptwizard, perhaps it is because you are commenting so much on other people's work, you do not have time to read them very carefully, but I clearly state that economic and financial crisis continues to command the attention of policy makers. There is no assumption that the crisis is over, but rather I argue that the way the crisis has been responded to and in particular the commitment to export led growth in Germany, Japan and China will prevent a serious address of the structural imbalances. It seems to me that you took advantage of my original work, simply to make your own point.

Marc Chandler's Compelling Perspective in 'Making Sense of the Dollar'

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.

Why China's New Colonialism Should Precipitate a Crisis

In the first 2 qrtrs of 2008, as the USD was going Down the Tube, says Freya: These are the facts: the euro fell 0.09% in H1 09, the Swiss franc fell 2.23% and the yen fell 5.8%. The dollar did sell off against the 4 currencies that were the hardest hit in H2 08, Australian dollar, New Zealand dollar, British pound and the Scandi-bloc.

An appreciation of the CNY iis not tantamount to a dollar devaluation because CNY appreciation says nothing about the euro-dollar exchange rate or the dollar-sterling or the dollar-yen rate.

That said, I tend to believe that the currency is not the key way China competes in the world economy, but rather by cheap labor. Asian Development Bank estimates that Chinese mfg wages are 1/33 of US. CNY doubles and their wages are 1/16 of America's.

It looks to me like the US is one of the few countries that as a declaratory policy says that a strong currency is in its interests. The Swiss don't say that. They intervene to sell their currency. The British, Canadians, Europeans do not say they want a strong currency. Geithner and Bernanke have recently repeated the US mantra. They do not say they want a strengthening dollar, simply a strong dollar. No straw man here please.

Why China's New Colonialism Should Precipitate a Crisis

I don't get it. I present a rational argument that:
1. China got the better of the US in the propaganda battle. It changed the agenda to int'l currency reform and took attention away from it.
3. China's reserves are an embarrassment of riches given how poor the country is.
4. China's policies in LDC is a grab for resources. It will not lead to development of these countries.
5. First the US in decline camp said the euro would replace the dollar. Now it is the yuan. Neither case is true.

I would add, I see no sign that the US is seeking a weaker dollar. Some European finance ministers have expressed concern about the euro's aprpeciation (though it is down year-over-year). The Swiss, with their current account surplus, have intervened to knock its currency down. Canada and the UK have also expressed concern that their currencies' strength could derail the recoveries.

I would also add that as closer readers of Adam Smith could attest, the origins of the wealth of nations does not lie in reserve accumulation but the division of labor and the productivity gains that follow.

I do not understand many of these comments which attack my integrity instead of the arguments. To simply assetr that this is spin and misinformation is not enough. There is a difference between assertions and arguments. I presented an argument that said essentially China is not eating the US lunch. I give numerous reasons. I could learn and others might as well if there was a alternative argument rather than name calling.

Easing Inflation Worries

DCB agree that inflation measure, any measure has flaws, but the methodology has not changed recently and surely the government's survey beats you little survey. As investors, we cannot simply go from flawed data to the government telling lies. It strikes me that a greater part of the economic and financial crisis stems from lies in the private sector. Lastly, never did I suggest there was no inflation, rather, that inflation and inflation expectations--the latter is surely not about "lies" remain very subdued even though many investors I talk with are terribly concerned about it.

BRIC or CRIB?

What we now popularly call emerging markets, once called Third World economies typically grow faster than advanced industrial nations. They say Brazil is the country of the future. They said it ten years ago and they'll say it ten years from now.

A recent post of mine was criticized because I cited US data which some comments said was flawed. But now i am told that we should not just accept Chinese data at face value, but that we should bolster it and the other BRICs by using PPP levels. PPP--purchasing power partity--levels for EM--typcially are above spot levels, due to higher inflation. So this too is not new in the BRIC concept.

And what of democracy. It does not appear that many of these comments see any risks posed by the lack of representative government. I submit representative government allows for continuouos changes while undemocratic governments produce large changes/discontinuities when they collapse

Many comments seem to think the BRICS are a free-lunch--so superior of an investment to the US--yet what looking at things on a risk adjusted basis. Won't that reveal different conclusions ?

An Open Letter to John Galt

Much of the comments are ad hominum attacks. If one disagrees with Rand it is because one did not read the book or because one did not understand it.
I not only have read Atlas Shrugged but I have read nearly all of her books. When I was seeking admissions into college when I was just 17 and without a high school diploma, I was required to write an essay on the best book I read. It was Atlas Shurgged. Easy. That is fine for adolescence, but as I grew, read and thought more, I changed my mind.

Few of these comments address my arguments.
1. One of the greatest followers has recanted the role of self-regulation in the financial sector and has called for nationalizatino of the banks to easer the transfer of bad assets.
2. Rand's views conflict with both the Chicago efficient market school and the Austrian school of economics. Neither of course are socialists.
3. The view of human nature as lone individuals--sort or like groups don't exist only people exist, does not set well with me. I don't think people can be separate from human society and be recognizeably human.
4. I suggested that the financial crisis was caused by financial institutions taking incrdible leverage, not by suprime borrowrers. (S has 50 mln mortgages. 3 mln were foreclosed upon in 2007 and 2008 combined. ave mortgage is $210k roughly, and ave recovery rate historicaly 75%,but even assume 50%. 3 mln mortgages=$330 bln. No trillions.
5.Lastly, I suggest value creators are not realy striking. No commet suggested any really was. Getting together with some like minded people to share complaints is not the same thing.