[MrBill]

Strategy is knowing what not to do. Competing on price is a losing game as there can only be one lowest cost producer. The most profitable products trade on features, advantages and benefits for the buyer or user. Erecting trade barriers will just reward poor workmanship at the expense of innovation. Trust me, it has been tried by many developing countries who wrongly pursued import substitution policies - like India - and their economies only started to bloom once they embraced open economies, inward investment and trade.

I am not an idealist. I am very pragmatic. I know the difference between free trade and fair trade. Between a comparative advantage and currency manipulation.

The USA has been running a large current account deficit for the past thirty five years that has now reached unsustainable proportions. That is a net wealth transfer out of the domestic economy. And after a few decades those outflows start to add up to some serious money.

That Americans - including its various levels of government - collectively spend more than they make (individuals -0.30% for the past 15-years) is the problem. Not jobs going offshore or trade per se. Of course, if you are importing BOTH goods AND capital to subsidize immediate consumption today at the expense of saving and investment then no matter how large the domestic economy or how many jobs it creates it will never be enough. That is why a weak US dollar cannot close the trade deficit alone.

In other words no matter how much money you make you can always spend more. But when you're deep in debt and have painted yourself into a financial corner then obviously you are very vulnerable to any external shock. In this case in the form of a falling US dollar; increasing inflation; falling asset prices; a refinancing boycott; a collapse in the value of collateral backing loans; and finally rising unemployment as firms cut back in expectation of falling demand as well as due to their own liquidity problems.

$this->bbcode_second_pass_quote('', '
')


The Capital Structure Trap



A fundamental disequilibrium that has been building up over time is suddenly forced to break.

Exogenous Shock

Price of index asset drops

Corporations experience declining revenues and increasing debt costs
Investors see a reduction in asset values

Corporations hedge against index
Investors hedge against index or sell assets

Sell index assets

Price of index asset drops

Etc.

(continued)

5. The very act of closing out the position, of course, causes further price declines, which increase the number of actors that fall into the trap. The process is self-reinforcing until all actors are either fully hedged or in default. It is only then that the market stabilizes - perceptions of underlying value have very little to do with it.

[Doly]

$this->bbcode_second_pass_quote('MrBill', 'E')recting trade barriers will just reward poor workmanship at the expense of innovation.

[MrBill]

$this->bbcode_second_pass_quote('Doly', '')$this->bbcode_second_pass_quote('MrBill', 'E')recting trade barriers will just reward poor workmanship at the expense of innovation.

[MacG]

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('Doly', '')$this->bbcode_second_pass_quote('MrBill', 'E')recting trade barriers will just reward poor workmanship at the expense of innovation.

[Gerben]

$this->bbcode_second_pass_quote('MacG', 'I') suggest listening to Dr Ha-Joon Chang. Quite a blast. He talks about experiences from the real world, particularly Asia.

[threadbear]

$this->bbcode_second_pass_quote('Gerben', '')$this->bbcode_second_pass_quote('MacG', 'I') suggest listening to Dr Ha-Joon Chang. Quite a blast. He talks about experiences from the real world, particularly Asia.

[MrBill]

threadbear wrote:
$this->bbcode_second_pass_quote('', 'P')rotecting key sectors, worked very well, to stave off the ravages of a depression, for Japan. The US didn't raise more of a stink about it, because it was in their best interest not to. We're not talking textbook economics here, but what kind of lifeboat a society will take in order not to drown. Japan wasn't in a position to get all precious about what works best, in theory, nor will the U.S. be.

[threadbear]

$this->bbcode_second_pass_quote('MrBill', 't')hreadbear wrote:
$this->bbcode_second_pass_quote('', 'P')rotecting key sectors, worked very well, to stave off the ravages of a depression, for Japan. The US didn't raise more of a stink about it, because it was in their best interest not to. We're not talking textbook economics here, but what kind of lifeboat a society will take in order not to drown. Japan wasn't in a position to get all precious about what works best, in theory, nor will the U.S. be.

[threadbear]

double post

[threadbear]

From Newsweek article 1999:

"A confident Japan would import goods from devastated economies elsewhere in Asia. A defensive Japan will do what it always does: export its way out of trouble. And as the flood of Japanese products to the United States increases, the danger grows of a trade war with Washington".

Looks like raising trade barriers and trying to export your way out of trouble works best. Witness the lack of bloodshed in Japan, and count on the US to try to do the same thing. It will reindustrialize with a cheap dollar, close it's doors to foreigners, when and where it can. Some of the transnational corporations won't like it, but you know, they can all...how can I put this in genteel economic terms....get stuffed?

[paimei01]

Right now on http://edition.cnn.com/

$this->bbcode_second_pass_quote('', '
')Dow 12422 -0.41 (-0.00%)
Nasdaq 2308 -16.45 (-0.71%)
S&P 1341 +0.28 (+0.02%)

[MrBill]

$this->bbcode_second_pass_quote('threadbear', 'F')rom Newsweek article 1999:

"A confident Japan would import goods from devastated economies elsewhere in Asia. A defensive Japan will do what it always does: export its way out of trouble. And as the flood of Japanese products to the United States increases, the danger grows of a trade war with Washington".

Looks like raising trade barriers and trying to export your way out of trouble works best. Witness the lack of bloodshed in Japan, and count on the US to try to do the same thing. It will reindustrialize with a cheap dollar, close it's doors to foreigners, when and where it can. Some of the transnational corporations won't like it, but you know, they can all...how can I put this in genteel economic terms....get stuffed?

[threadbear]

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('threadbear', 'F')rom Newsweek article 1999:

"A confident Japan would import goods from devastated economies elsewhere in Asia. A defensive Japan will do what it always does: export its way out of trouble. And as the flood of Japanese products to the United States increases, the danger grows of a trade war with Washington".

Looks like raising trade barriers and trying to export your way out of trouble works best. Witness the lack of bloodshed in Japan, and count on the US to try to do the same thing. It will reindustrialize with a cheap dollar, close it's doors to foreigners, when and where it can. Some of the transnational corporations won't like it, but you know, they can all...how can I put this in genteel economic terms....get stuffed?

[Scactha]

The Economist is biased towards liberalism and anglo-saxon´s but they don´t claim anything else. Just read on with that thought fresh in your mind and it´s alright.

As a dilettante in macroeconomics I´ll offer no opinion but agreeing to Mr Bills that a knee-jerk protectionist reaction is most likely.

[roccman]

$this->bbcode_second_pass_quote('threadbear', ' ')I see a wave of protectionism coming that could revitalize Detroit automakers and revitalize domestic manufacturing.

Thoughts?

[patience]

This guy agrees Roccman,Depression

And so do I.

[DantesPeak]

$this->bbcode_second_pass_quote('patience', 'T')his guy agrees Roccman,Depression

And so do I.

[EnergyUnlimited]

$this->bbcode_second_pass_quote('DantesPeak', 'T')he Fed/Treasury/Executive will take these measures without Congressional approval becuase it will be perceived as an emergency.

[KevO]

There you have it.
It is official. we are literally entering the Mad Max zone.
And we always thought that peak oil would have been the end of it all.
And it's going to go on FOREVER - unless something like a WW3 or Bird flu pandemic came along, then we'd be OK again one day.

Go party

$this->bbcode_second_pass_quote('', 'A')merica's mortgage crisis has spiralled into "the largest financial shock since the Great Depression" and there is now a one-in-four chance of a full-blown global recession over the next 12 months, the International Monetary Fund warned today.

The US is already sliding into what the IMF predicts will be a "mild recession" but there is mounting pessimism about the ability of the rest of the world to escape unscathed, the IMF said in its twice-yearly World Economic Outlook. Britain is particularly vulnerable, it warned, as it slashed its growth targets for both the US and the UK.

The report made it clear that there will be no early resolution to the global financial crisis.

[jlw61]

Sorry, but I'm really not that concerned about a global financial crisis that predicts a $1 trillion loss when that is less than 10% of the global GDP. Yeah, it will hurt, yeah it will suck, and yeah, the various governments will do everything they can mitigate it but in the end will only make it worse.

Now tell me we're well and truly past the oil production plateau, or that there is a pandemic, or even that there are green space aliens landing and I'll start cleaning my guns.

IMHO we've been long overdue for a global financial crisis with all of the rampant BS in the markets. Building wealth by passing paper and promises only lasts as long as there are enough suckers. How the hell does anyone think they can do that and keep it going?

The US has a recession every 10 (or so years) whether we need it or not. This one is a little early, but it happens. Is refusing to read history books and understand the idea of corrections one of the requirements to become a speculator in the market?