








if and when this does actually happen, it will be the 'kiss of death' to US economic growth. America will be in trouble re inflation / interest rates if foreigners stop buying the new US Gov't bond offerings needed for the gov't to continue spending more money than it takes in via tax revenue. If foreigners who already hold a huge portfolio of US gov't bonds decide to start selling out, this puts them in direct competition with the US treasury dep't i.e. more bonds being offered for sale than there are buyers willing to make purchase offers. The ONLY practical outcome of such a situation is rocketing US interest rates and the exchange rate value of the US$ versus world currencies dropping like a stone.

No it won't.Originally Posted by Melonie
Or it could provide the necessary impetus for the government to stop wasting so money on foolish social programs that don't fix any problems. The US spends $650 BILLION per year on Medicare, Medicaid, and other welfare programs. Medicare alone is $400 billion per year. That could educate a lot of people who could contribute to society, instead of being wasted on those with a foot in the grave.Originally Posted by Melonie
No. The interest rate on that segment of bonds could increase. US currency dropping makes American goods less expensive on the world market. And that creates jobs. Which is a good thing, right?Originally Posted by Melonie





For better or worse, there are millions of extremely well organized, extremely well financed, extremely well connected registered voters who paid huge amounts of money in SSI and medicare taxes for the last 40+ years based on the delusion that they were paying for their own retirement, who will vehemently disagree with your recommendations on SSI/medicare i.e. AARP.The US spends $650 BILLION per year on Medicare, Medicaid, and other welfare programs. Medicare alone is $400 billion per year. That could educate a lot of people who could contribute to society, instead of being wasted on those with a foot in the grave.
There are also millions of potential future voters (well, providing the ballots are printed in Spanish) who are out in the streets protesting your plans for their medicaid and welfare benefits. And you didn't even mention the $40 billion dollar cost of the Earned Income Tax Credit, which could go into the hundreds of billions if currently 'illegal' workers earning minimum wage are suddenly made legal ! I mostly agree with the lofty principles behind your post, but the real world polito-economics involved aren't going anywhere that the latest 'straw poll' says would be bad for the congressman's/ senator's re-election chances.
If this were a one-way street, and if US manufacturers were competitive to start with, then yes. However for the most part, even if the exchange rate of the US dollar were to decline by 25%, the cost to Europeans and Asians of US made goods would still be way above the price of Chinese / Indian / Mexican made goods. Attempting to improve the efficiency of US industries is also an uphill battle since for the most part new production machinery now originates in Europe and Japan, meaning that US industries would have to invest 25% more US$ to buy that modern machinery priced in Euros or Yen on top of financing it at a higher interest rate ! Also, a 25% exchange rate swing also means that every US industry must now pay 25% more in energy costs on an ongoing basis, which will consume at least half of any export advantage a lower US$ might bring.The interest rate on that segment of bonds could increase. US currency dropping makes American goods less expensive on the world market. And that creates jobs. Which is a good thing, right?
Where US wage costs are concerned, seeing gas/oil prices, WalMart prices, Kia/Hyundai prices etc. rise by 25% is definitely going to create wage increase pressures on employers - which would significantly cut into any export currency advantage those US manufacturers might otherwise have had. Where US workers themselves are concerned, if they don't get a wage increase their standard of living will drop as the prices of energy and low cost imported items rise 25% while their paychecks do not. If US workers do get a wage increase, then their standard of living still drops because income taxes will automatically increase due to 'bracket creep' and negate a good portion of their higher pay rate.
The two primary export products of the USA are paper dollars and food products (with some of the production of those food products being gov't subsidized). A declining US$ is going to cause a LOSS of jobs in US bank/brokerage firms as middle easterners and other foreign investors bail out of their US$ denominated investments to avoid taking big losses in their home currencies. But granted that US 'corporate' food producers should do better (providing rising energy costs and property taxes don't wash out the currency export advantage). Ultimately, the only sure bet I'd take under these circumstances is that John Deere's new tractor sales will increase due to the currency advantage over Kubota !
Dudeski, most of your assessments, and most of your recommendations would have worked out very well in the US economy of 10-20 years ago. However, in the last 10 years the 'paradigm' has shifted even more than most people are aware i.e. nobody 'makes' anything competitively in the USA anymore, and de-facto US gov't policy doesn't want anybody 'making' anything in the USA anymore ! Today the US economy is far from self-sufficient, and is almost totally dependent on the US$, US bonds and US stock market remaining the most stable highest return investment target for foreign money. If that foreign money decides that the US$ is a loser, and moves elsewhere, welcome to a replay of 1929 !
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Last edited by Melonie; 04-09-2006 at 05:57 AM.




If it was your mother or father or child or loved one you would want them to have some form of coverage too.Originally Posted by dudeski
The ideas behind the programs arent at fault. There is alot of mismangement of funds and abuse of the system. With companies cutting benifits and destroying pensions something needs to be in place. Other wise you have millions of homeless, sick, elderly, and poor people roaming the streets.
Most of these people who are covered have contributed to society. Now that they are old who cares about them?
Doctors and medical facilities milk the system. People who are able to work but dont milk the system. Women having children just so they can get welfare milk the system. The programs are not at fault. It is mismangement of funds and little to no regulation of the current system that is.
Unless you mange your money well you will be on the pay rolls of "entitlement" programs too.

The system is doomed to fail. SS is a ponzi scheme with the average recipient taking out more than they ever contributed. The max contribution in the late 1940s was $30 per year per worker.Originally Posted by Melonie
And yet: US exports are up. Not just up, but up well over inflation. There are plenty of manufactured goods being exported, too. Machinery, medical devices and equipment, and other non-agricultural goods.Originally Posted by Melonie
Personally, I think unions had a lot to do with America losing it's competitiveness. But that's another issue. America doesn't have to lose competitiveness. I read about companies like Dell outsourcing jobs to India and their customers complaining about poor customer service and I just shake my head. Quality is worth paying for--always has been, always will be. I generally don't shop for clothes and places like Walmart, but I've bought some underwear and shorts when I was in a pinch and they are pure shit! The damn stitching was coming out after the first washing.
And as far as clothing is concerned, the markup at each step is typically 100%. So the shirt the store sells for $40 cost them $20 to buy, and was probably produced for under $10. Part of that is just pure greed. Cost savings from cheap overseas labor can be passed on to the customer, but isn't always. I don't know what it costs to weave cloth. But I think it would be possible to produce a nice finished dress shirt for $10 - $15 total cost in America.
Very few nations are completely self-sufficient. Russia, perhaps. But not many more.Originally Posted by Melonie
Money isn't real. It's fiat. If foreigners want to exchange finished goods for worthless paper, that is fine. Plus, foreigners holding our debt makes it less likely that they will attack us.Originally Posted by Melonie
The overall thing is this: no country, company, or individual is going to invest in America unless they believe that there are opportunities for returns on their investment. At the current time and for the foreseeable future, they do see growth opportunties.
I get sick of all the foolish "foreigners are buying all of our assets" bullshit. All foreign-held US debt and assets can be confiscated at any time, technically. What really irks me is that people don't realize that a German pension fund buying an American skyscraper is more an example of portfolio diversification on a global scale than American weakness. American businesses are diversifying overseas, too. Diversification is one of the first rules of investing.





Excellent post!Originally Posted by Vamp
Some Douchebag: "[Pimp C] 12:43 am: its true we got to stick together the black people on SW CK you is teh condoleeza of SW"





Only if you think that US economic growth is fueled by government spending. There are studies that support that notion, though not many. There are other studies that support the notion that US economic growth is supported by mostly by consumer and business spending. The majority of economists support the latter notion. Rising interest rates will definitely benefit older Americans who tend to be living on fixed incomes. Also, rising interest rates will benefit bond investors, again those who tend to be older.Originally Posted by Melonie
This would tend to favor US manufacturing, especially exporters. Farm machinery, large appliances, aircraft, steel, aluminum and coal would be major beneficiaries of a falling dollar. Likewise, a falling dollar would help prop up GM and Ford, by making imports more expensive. However, Honda and Toyota with their major US manufacturing operations would also benefit. Honda and Toyota might increase their exports of automobiles from the US. Certainly US commodity exports would also be helped. As long as oil is generally priced in dollars, there would be little real change in energy prices. However, if the petroleum exporting countries shifted to a different currency that might cause a rise in US energy costs.The ONLY practical outcome of such a situation is rocketing US interest rates and the exchange rate value of the US$ versus world currencies dropping like a stone.
If China maintains the Yuan's peg with the Dollar, then trade between the two countries would be unaffected. However, if China decided to unpeg the Yuan, the results are unpredictable. China avoided the "Asian Contagian" by holding the Yuan's peg to the Dollar. If, China unpegged the Yuan, a new round of Asian Contagian might break out. Presently, no one has any faith in the Yuan. It must be heavily supported by China's holdings of foreign securities. My own view is that if China sells off US government securities, it will have to replace them with Japanese, Korean, UK or Australian government securities. Otherwise, the Yuan will melt, not the Dollar.





Well, I happen to be one of those people who notices that DEFENSE related industries seem to be the major engine of 'positive' growth right now, with the core funding being gov't spending. Obviously consumer spending of borrowed money creates a sort of 'growth' as well which primarily benefits US retailers, US real estate & construction, US financial industries, and offshore manufacturing industries providing very low cost products for import into the US. However, consumer spending is likely to be extremely interest rate sensitive, such that this sort of 'growth' could turn on a dime based on borrower creditworthiness standards (which are already tightening).Only if you think that US economic growth is fueled by government spending. There are studies that support that notion, though not many. There are other studies that support the notion that US economic growth is supported by mostly by consumer and business spending. The majority of economists support the latter notion. Rising interest rates will definitely benefit older Americans who tend to be living on fixed incomes. Also, rising interest rates will benefit bond investors, again those who tend to be older.
As to rising interest rates benefitting bondholders, the opposite is true for owners of fixed interest rate bonds where the resale value of their bond falls in proportion to rises in market interest rates. It is only TIPS bonds and money markets which (inadequately) index interest paid to inflation where rising market interest rates translate into rising interest payments from the bond. And none of these US dollar denominated bonds compensates the bond/account holder for currency exchange rate (purchasing power) losses when the price of every global commodity i.e. oil, copper, steel, concrete rises in US dollar terms.
Again this is not an automatically safe conclusion. Prices of steel, copper, aluminum and energy are global, such that drop in the US dollar exchange rate is going to cause a proportional rise in the US dollar price of component materials for those appliances, aircraft etc. The only real economic advantage from a falling dollar would come in the form of (from a global standpoint) reduced labor cost - and the global competitiveness would still be a function of absolute labor cost. In other words if a unionized manufacturer's $30 an hour US dollar denominated labor costs falls by 20% in global terms due to a 20% decline in the US$, is that enough to make the absolute labor cost competitive with south Korean or Chinese or Mexican wages ?This would tend to favor US manufacturing, especially exporters. Farm machinery, large appliances, aircraft, steel, aluminum and coal would be major beneficiaries of a falling dollar. Likewise, a falling dollar would help prop up GM and Ford, by making imports more expensive
I am in partial agreement. However, the flip side argument is that China may sell off some of its US gov't securities and invest the proceeds in global oil companies, mining companies, and other private sector investments rather than in alternate currency reserves. If so, this only increases inflationary pressure against the US dollar by the Chinese 'bidding up' private sector assets.My own view is that if China sells off US government securities, it will have to replace them with Japanese, Korean, UK or Australian government securities. Otherwise, the Yuan will melt, not the Dollar.





Melonie, your are quite the pessimist.
Which is why China will do nothing to harm its exports to the US.Originally Posted by Melonie





Guilty as charged ! However, I have made more money by taking pessimistic investment positions lately than if I had been bullish.Melonie, your are quite the pessimist.
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