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"Cliffs are in fashion this fall," economist Ed Yardeni writes. Not only is there the fiscal...
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Sunday, October 28, 2012, 4:26 AM ET"Cliffs are in fashion this fall," economist Ed Yardeni writes. Not only is there the fiscal cliff, there's the political cliff and the revenue cliff. “If they fall off of it,” says Yardeni, "so will the profit margin." Which makes for an earnings cliff too. Then there's the "capital strike," described by Barclays' Barry Knapp as industry's reluctance to invest until we know the election result and whether the fiscal cliff will be averted.
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Unlike unions and other groups, it goes on strike preemptively, in an attempt to extort political figures to coddle it like the whiny little baby that it often is.
Cuba is an alternative model.
I have heard it for the last 3 years. Maybe I am just listening and you are not.
Interesting that while the rich keep getting richer, signs of poverty are appearing everywhere....
Then the same guys who pushed for the fairy tales of trick down say we need to be like China.....really?
Manufacturing shoes for 16 hours per day and be paid a couple of dollars isn't wealth.....
That's what our oligarchs want, depress our salaries so they can force us into competing for more menial jobs.....
Unions have been declining since the 1970's and the standard of living has been increasing and our GDP is 15 times what it was in 1970. All classes are richer by comparison and our population is 50% larger.
Let's hear some names of people who think we should be like China. I hear Obama say we need to export which is China's main business so perhaps he is leading your thinking.
Please name the oligarchs also and where they meet so we can all show up at the next meeting.
I can help you with your argument but I will let you think about it.
Have you seen the latest reports on China where an estimated $3.9 trillion of that capital has been hived off to party officials and their families and associates via corruption and insider deals over the past few years.
Centralized control yields corruption at a staggering scale. It is in the formula. Just change the names and the faces.
The benefits of a country being a net exporter are obvious, Germany for example.
American oligarchs? or would be oligarchs? GOP PAC and super PAC donors pretty much stand out like a sore thumb. The Koch brothers aren't in the same class as the Russian version but the outsized political influence of a few wealthy individuals isn't exactly what the founding fathers had in mind. The Chinese have clearly developed their own version of oligarchs.
Benefits of being a net exporter are not obvious. I would rather import the stuff you busted your butt to make and in return give you paper.
Oligarchs will lose power on the left and right when we quit electing millionaires to office and do term limits to prevent them from becoming millionaires once in office.
A lot of the reduction of employment has to do with the development of more efficient manufacturing techniques. And yes, you are correct that high union wages helped support technology development budgets because saved man-hours equated to more money. In fact, some might argue that increased safety and regulatory guidelines spurred development as well.
I'm becoming a fan of Joseph Stiglitz because I think he has a strong grasp on the a lot of behavioral economic theories.
You could have an economy where you export very little but have a robust economy as you have an effective domestic economy.
Basically, we could have a fairly robust domestic economy without significant external trade if we all ate at each other restaurants or cut each other's hair. But, a service-based economy makes export very difficult.
This would cause international demand for our currency to be reduced because the currency could not be exchanged for an exported good or service. Being used as a reserve currency will help but, again, if the only value of the dollar is as a currency standard, it would not be very difficult to establish a new currency standard.
When I say a domestic economy I am not calling out the sectors but rather that the supply of goods and services meets the demand. And keep in mind that contrary to popular opinion the US does manufacture a lot of things.
You export what you have a CA in and what you can supply in excess of domestic demand and you import what you cannot produce. The amount of international trade varies depending on these factors.
With fiat money the amount is not necessarily as important.
China is full speed ahead on exports. They have over 1 billion people to keep employed and not rioting. They don't care what they are making.
Obviously, markets are more complicated than having any that are pure importers or pure exporters because any one-sided relationship like that will fall apart in a reasonable amount of time.
Secondly does anyone realize that the planet earth is not trading with the Klingons. How could that be? How could we have lived this long without trading with the Klingons? Well so far the planet earth has not fallen apart by not trading with the Klingons.
Do you get the point?
What I'm saying is that with a trade deficit, the U.S. is exchanging revenue generating notes (bonds) for imported goods. If, at any time, our capacity for repaying our bonds is cast into doubt, or the dollar inflates so quickly that bonds produce a negative real ROI, our trade deficit will disappear because no country will accept our bonds for their exports.
We cannot maintain a trade deficit indefinitely because, at some point, people are going to want to use their dollars to buy something.
I wish I could recall the source, I think it was actually SA, but I was reading an article about how the Chinese have been using all of their stockpiled dollars to purchase dollar-denominated assets like precious metals and oil. This could be the reason that Japan is becoming our number one bondholder. Not because they have been buying more, but because China is executing a shift out of dollars without trading directly with the central banks.
Cash is only part of the money supply and a very small part at that. Money is a store of value and a medium of exchange. I can put money in the bank or my mattress. It is true that it replaces commodities or stone wheels as a form of currency but it does more than just facilitate trade/barter. It is also a store of value.
Keep in mind that importers in the US can pay for imports with gold, cash, etc. Say I buy Molson Beer from Canada. I send them some kind of payment drawn on me and it has nothing to do with the US government issuing notes. If I made the only import of the year and we did not export anything then the trade deficit is 1 Molson Beer.
China has been diversifying away from dollars for a couple of reasons. One they were too heavy into the USD and they also had a need to secure commodity supplies for their country. You can also look at oil and gold as currencies in some sense too. They store value and they can be used for exchange of other goods. It makes sense for them to lock down oil supplies. They are also looking at holding other currencies that are more solid. Nobody has it easy because western countries are driving too much debt that needs to be paid back eventually and there is a fear they will rely on inflation to help do it.
Japan has always been a large investor in the US although I don't know where they are now.
It's probably one reason why so many companies are accumulating so much cash.
I'd rather let them manage my money by buying their stock, rather than give it to the government via Treasuries. Stocks will be volatile but over the long run I'd rather the greedy business tycoons manage my money.
Agree with you comments.
There is also the 4 year POTUS election cycle issue, 1 year budget cycle and every 2 years congress election cycle. Nothing is long term in the US. We are structurally set up for cliffs.
If someone from the left and someone on the right can agree to a structural solution (ideally not pork-laden) then the solution is typically better than either side would have produced on their own.
That is not a valid option. Businesses are multinational so adversity just makes them invest elsewhere.
No. Return on capital and growth are primary especially with multinational companies. It is dial tone that revenues exceed expenses. Capital flows to the highest returns. So if you as a country are low return you get less and less over time until you are immaterial or are receiving nothing.
Value, perceived value, and expected value all play a role in capital flow.
Case in point, during the housing market collapse, Citi and other American firms were still selling stock and crappy products to the Arab countries, because the Arab countries believed that the value that was being presented was accurate. The perceived returns were extremely high, even though the actual returns were much lower. They could not determine a true expected value because they were not given all of the information.
And, to get back to the point, when I advocate and adversarial relationship, I mean the relationship between the referees and the players in sporting events. Refs do not permit holding because it helps the offensive player out...they penalize the player whenever they force undue risk upon other players (like clipping or facemask penalties). That is the role of government, to set reasonable, enforceable rules to permit rigorous competition but prevent the players from, intentionally or unintentionally, causing undue harm against other players.
No one likes the refs unless they're calling an unfair game for your side. The same goes for government officials.
I am telling you how US corporations behave which is most important to people on this board since most of the stocks are US companies.
On you other point, have you ever noticed the refs playing in the game? I like your analogy but that is not how our government behaves. They pick winners and losers. They are in the insurance business in housing and healthcare. The spend more time playing than they do reffing. And their playing sucks and the taxpayers have to pay for their performance.
All companies want a reduction in regulation on their particular company but no companies want across the board regulation cuts. Generalized reductions in regulations produce a much larger beta. When things are good, safety nets are unnecessary but, the unregulated companies stockpile less for the bad times.
Investing in countries with reasonable regulations actually provides a safer investment for those that do not reap direct rewards from the risks permitted in the weak regulatory environments. Compared to much of the rest of the world, we have had relatively few major chemical and biological disasters. This record of believing in and achieving safety is what has established our "brand". As my friend in the internet advertising world says, you can only whore out your brand once. Once the U.S. is no longer considered a safe place to do business because of demolished regulations, the U.S brand will suffer and we will lose a lot of the competitive advantage that we currently have in the world. Talent does not immigrate to the 3rd world and talented foreigners will no longer come here if we permit a regulations reboot.
The shmanalysts need to change the pills
Or maybe it's the media
About as many as there were "keep fully invested" prophets when the market was tanking.