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The World Rebalances


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It's all distraction. The Chinese are playing the long game. The plan remains the same. That's the problem with economics bods, narrow thinking. I know the debt ain't never going to be repaid, you know it, the Chinese know it and the Yanks know it. So what is going on here? You can't figure out why they are continuing to give more.

The Chinese objective is the industrialization and modernization of China. An objective they have achieved. The Yanks and the Euros are dependent on Father China because they no longer have any factories or engineers. The idea is to continue this plan a bit longer. Sucking out the last, most resistant, bits of tech that the West has left. Then when it's over, they are left in control. They can cut off their supply line and the hapless degenerate natives will be as helpless as an African tribesmen. It doesn't matter what this plan costs because once you are the only one left with any expertise, you call the shots and can grab it all back. China shall be the centre of the world and the other nations shall feel privileged to make their training shoes.

Yes I'm sure taking all that worthless $$ from gleeful US hands was all part of their evil plan...

I hear what you're saying, but playing the long game is meangingless should it all blow up in your face or your opponents call your bluff before the end game.

Edited by PopGun
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Fa!Fa! - good post but I think you miss one important aspect.

You say 'surplus countries lend money to deficit countires'....but it's a little bit more than that. We are selling our companies and our land. We are selling our fishing rods as they seek a productive return on their surplus and we seek to continue consuming. It makes the re-balancing much, much harder. Over 50% of all new build property in London is being sold to Far East 'investors' and rents are not falling, quite the opposite. So whilst what you say may be for the future, we still have a long way down to go before things get so bad 'they' don't want to 'invest' any more and we're forced to look at ourselves without clothes on..

I object to the post because of the spin on "boom and bust".

He says "Boom is demand driven, whilst the Bust is demand deficit"....

The spin is that the Boom was the normality and the cure is to boost the lack of demand in the deficit phase...this is more MMT nonsense.

As Ive said before, spinning reality like this is going to kill us all as anti austerity people use this nonsense to justify a mathematical impossibility.

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Maybe the same is happening in london, except directly into the hosuing market - it will completely ****** up companies with cost bases in london.

Very few companies based in London really need to be in London – although the few manufacturers in the area are a bit knackered. The benefit of a London base is that you have access to a large talent pool which can move around easily thanks to a (don't laugh) very effective public transport system (compared to the rest of the country). If the talent pool decides it's too expensive to stay, the companies will start to follow. There is, for example, now a media business in the northwest – Preston for newspapers and Salford for the Beeb – that could easily expand further based on lower living costs.

The only reason for having any financial operation in London is to have servers for HFT sitting underneath the LSE. The quants who program them could be anywhere. And who needs traders today?

Edited by Spork of Damocles
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Hey, not so fast Fa Fa!

I think you may have jumped over a few more fundamental issues vis-a-vis demand here.

Way back when, various thinkers including Marx posited that there would always be a demand shortfall (lets abbreviate it as "baked in demand shorftfall" or BIDS) lurking under the surface in the modern money based, capitalist economy. It had something to do with 'the tendency for the rate of profit to fall', IIRC.

Lets assume for one moment that this BIDS notion is valid - we can then see the importance of growth (real or credit based) to mask said shortfall. Further, we could suggest that BIDS still applies under globalisation, but that imbalances can get larger and persist longer on the global stage than they could in more localised days.

Which may well be the case, and no doubt asian production is an example of a demand shortfall being hidden for a while by an imbalance.

BUT, according to BIDS (and Marx, and probably Keynes as well in the final analysis) even without globalisation distortions BIDS is still there and would simply have reared its head earlier were it not for globalisation.

So when talking abou timbalances and demand, would you say that if the world were actually well balanced in terms of international trade deficit and surplus, there would be no demand shortfall?

[edit - spelling]

Edited by scepticus
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Exactly.

Did we borrow too much? Blame the lenders... :rolleyes:

And now we don't have a "recovereh" because of Europe... and not because the past decade was a fake, unsustainable economy, based on a credit bubble, as opposed to solid fundamentals and productivity. :rolleyes:

It was a bubble! A bubble! It burst!

What part of it people can't get??

"Recover" what? The bubble??

It was a bleeding bubble!

Yes it was the lenders fault, it allways is init ;)

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It's all distraction. The Chinese are playing the long game. The plan remains the same. That's the problem with economics bods, narrow thinking. I know the debt ain't never going to be repaid, you know it, the Chinese know it and the Yanks know it. So what is going on here? You can't figure out why they are continuing to give more.

The Chinese objective is the industrialization and modernization of China. An objective they have achieved. The Yanks and the Euros are dependent on Father China because they no longer have any factories or engineers. The idea is to continue this plan a bit longer. Sucking out the last, most resistant, bits of tech that the West has left. Then when it's over, they are left in control. They can cut off their supply line and the hapless degenerate natives will be as helpless as an African tribesmen. It doesn't matter what this plan costs because once you are the only one left with any expertise, you call the shots and can grab it all back. China shall be the centre of the world and the other nations shall feel privileged to make their training shoes.

To add to this ... if you control a sizeable area, have enough control over resources (imperial or otherwise) and have enough population, you can essentially operate an entirely internal economy, isolated from everything "outside". The Ottomans did this up until the 19th century. They had no foreign debt before this era because they simply didn't export or import outside their imperial zone.

The interesting thing here is that it was industrial and technological advances in the West that started to weaken the Ottoman economic set-up. So if China wishes to become the globally ruling empire overlords, nicking Western technology and teaching before cutting us off entirely is rather a clever way to go about it.

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If Japan, China, South Korea, Taiwan and friends opened the flood gates and started spending it would lift the boats all the way around the world.

Imagine your family owned a Scotch distillery and peat bogs.. and a Chinese national chain store decided to stock your brand. You soon could have so much money that just managing the money becomes time consuming. And to increase production more bogs, more distilleries.. and a sane society would make those jobs good paying jobs. (part of the brands appeal might be that it is a little more expensive and thus higher status).

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To add to this ... if you control a sizeable area, have enough control over resources (imperial or otherwise) and have enough population, you can essentially operate an entirely internal economy, isolated from everything "outside". The Ottomans did this up until the 19th century. They had no foreign debt before this era because they simply didn't export or import outside their imperial zone.

And they turned the 14th-16th centuries' most innovative society into a stagnant backwater and the so called "sick man of Europe". The Islamic world is still "enjoying" the fruits of that particular policy....

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Anyway, my point was there is a lack of demand globally due to under consumption in trade surplus countries. This was covered up by essentially lending the trade surplus to the deficit countries. However the point was reached where the people in the deficit countries could neither service the debt nor repay the capital. The demand deficit then becomes exposed. Hence the demand deficit predates the credit boom.

The problem is no-one in the trade surplus or the trade deficit countries wants to re-balance and alter their behaviour as this would be too painful. However, they will be forced to, eventually, by events.

Isn't the real problem inherent in the basic rules of the game we are all now playing?

What capital wants is two things- It wants to sell as much as possible at the highest price while using the least amount of labour possible paid at the lowest price possible.

But there is a problem- the source of those sales are the wages that create effective demand. So the system is in conflict with itself-it wants to eliminate the source of it's own demand-so the more it succeeds, the more it fails.

So the credit boom did act as a mask- but what was being masked was the reality that a combination of trade and financial deregulation, labour saving technology and the decision of China to get into the capitalist game has created a situation where more and more of the rewards of the system are captured by capital and less and less by labour- because labour simply lacks the pricing power to extract wealth from the system.

So I would argue that the idea that Global trade can rebalance between the surplus and deficit nations will founder on the rock of capitalism itself. Any attempt by the surplus economies to seriously raise the wages of their people to the level needed will be treated as the infection it is by the antibodies of the free market system- which will respond by deploying technology, out sourcing and capital flight to cheaper locations in response to any higher wage costs being imposed.

Even Chinese companies cannot abolish the free market- it is the ocean in which they now swim- and if they do not automate or relocate to cut labour costs they will be destroyed by those who do.

So while in theory a state in surplus can choose to raise wages- in practice the market will not allow this to happen.

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+ 1

The UK monetary authorities could, and should, have curbed the credit bubble. They had tools enough for it, usually IRs, but since this bubble was mainly property based, mortgage regulation would have prevented most problems. But there was a lack of competence and political will.

BTW, Mervyn is also trying to blame the "surplus countries", obviously... :rolleyes:

Yup!!!

i.e. LIAR LOANS..... Weapons of mass destruction if there ever were such... :rolleyes:

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Isn't the real problem inherent in the basic rules of the game we are all now playing?

What capital wants is two things- It wants to sell as much as possible at the highest price while using the least amount of labour possible paid at the lowest price possible.

But there is a problem- the source of those sales are the wages that create effective demand. So the system is in conflict with itself-it wants to eliminate the source of it's own demand-so the more it succeeds, the more it fails.

So the credit boom did act as a mask- but what was being masked was the reality that a combination of trade and financial deregulation, labour saving technology and the decision of China to get into the capitalist game has created a situation where more and more of the rewards of the system are captured by capital and less and less by labour- because labour simply lacks the pricing power to extract wealth from the system.

So I would argue that the idea that Global trade can rebalance between the surplus and deficit nations will founder on the rock of capitalism itself. Any attempt by the surplus economies to seriously raise the wages of their people to the level needed will be treated as the infection it is by the antibodies of the free market system- which will respond by deploying technology, out sourcing and capital flight to cheaper locations in response to any higher wage costs being imposed.

Even Chinese companies cannot abolish the free market- it is the ocean in which they now swim- and if they do not automate or relocate to cut labour costs they will be destroyed by those who do.

So while in theory a state in surplus can choose to raise wages- in practice the market will not allow this to happen.

When I read through these threads I occasionally come a cross a great post. When I scroll back up to see who has written it 8 time out of 10 it is you.

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Why not? That is exactly what the US did, they manufactured, exported to the rest world and consumed themselves as thepr export trade paid for higher incomes and made the country richer. The jobs were very much embedded on their own country and much of the consumption then became circular - the more they built and the stonger tgheir industry became the more competitive they were and the more they could consume themselves.

The US has/had a massive resource base. China doesn't even have enough water, let alone anything else. I don't see China going back to a self-contained economy.

Fa!Fa! - good post but I think you miss one important aspect.

You say 'surplus countries lend money to deficit countires'....but it's a little bit more than that. We are selling our companies and our land. We are selling our fishing rods as they seek a productive return on their surplus and we seek to continue consuming. It makes the re-balancing much, much harder. Over 50% of all new build property in London is being sold to Far East 'investors' and rents are not falling, quite the opposite. So whilst what you say may be for the future, we still have a long way down to go before things get so bad 'they' don't want to 'invest' any more and we're forced to look at ourselves without clothes on..

Yes, I'd agree, but the Asians still need demand which they won't get if they continue to pursue investment and manufacturing ad infinitum. Excessive rent seeking is a killer, even if you don't think/know you are rent seeking. We need trade. We don't have any.

I object to the post because of the spin on "boom and bust".

He says "Boom is demand driven, whilst the Bust is demand deficit"....

The spin is that the Boom was the normality and the cure is to boost the lack of demand in the deficit phase...this is more MMT nonsense.

As Ive said before, spinning reality like this is going to kill us all as anti austerity people use this nonsense to justify a mathematical impossibility.

I didn't mention MMT

Hey, not so fast Fa Fa!

I think you may have jumped over a few more fundamental issues vis-a-vis demand here.

Way back when, various thinkers including Marx posited that there would always be a demand shortfall (lets abbreviate it as "baked in demand shorftfall" or BIDS) lurking under the surface in the modern money based, capitalist economy. It had something to do with 'the tendency for the rate of profit to fall', IIRC.

Lets assume for one moment that this BIDS notion is valid - we can then see the importance of growth (real or credit based) to mask said shortfall. Further, we could suggest that BIDS still applies under globalisation, but that imbalances can get larger and persist longer on the global stage than they could in more localised days.

Which may well be the case, and no doubt asian production is an example of a demand shortfall being hidden for a while by an imbalance.

BUT, according to BIDS (and Marx, and probably Keynes as well in the final analysis) even without globalisation distortions BIDS is still there and would simply have reared its head earlier were it not for globalisation.

So when talking abou timbalances and demand, would you say that if the world were actually well balanced in terms of international trade deficit and surplus, there would be no demand shortfall?

[edit - spelling]

Thanks for that. The savings problem is something I am vaguely aware of, but hadn't thought of it in this context. I was just trying to outline the point that the source of all these troubles are the trade imbalances, the issue of credit flows from this not the other way around which I think is commonly believed.

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snip

Thanks for that. The savings problem is something I am vaguely aware of, but hadn't thought of it in this context. I was just trying to outline the point that the source of all these troubles are the trade imbalances, the issue of credit flows from this not the other way around which I think is commonly believed.

the trade imbalances are only there at all because of government action...

In a free-er market, the sellers population would get richer and prices would rise to meet the demand, so eventually choking off said demand as the buying foreigners found prices grew too high and they could, once again, make the goods themselves.

Balance would restore...as it must as it is a balance...If the trade is one way, there can never be balance.

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the trade imbalances are only there at all because of government action...

In a free-er market, the sellers population would get richer and prices would rise to meet the demand, so eventually choking off said demand as the buying foreigners found prices grew too high and they could, once again, make the goods themselves.

Balance would restore...as it must as it is a balance...If the trade is one way, there can never be balance.

Sure, the imbalances are only there because of government action. But all action is due to government regulation or absence of government regulation. IMHO the notion of a market being "free" is entirely a misnomer. All markets have rules for the participants.

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Sure, the imbalances are only there because of government action. But all action is due to government regulation or absence of government regulation. IMHO the notion of a market being "free" is entirely a misnomer. All markets have rules for the participants.

so, no rules means that the rules the traders make themselves freely is not a free market?

In a market, if a stool holder puts a sign up...."no blacks" because he wants to and his is the only stool, will quickly find another competing stool who is willing to sell to the "banned".

Government then thinks it needs to come in and take a side....when in fact, there is no need.....all they have to do is send in the Police and make sure no crimes are bing committed...ie, thugs sent to discourage the new competitor should be arrested and their paymasters sent to jail.

we dont need a law that says, for example, a trader cannot refuse to serve another person unless he is selling green carrots and cucumbers, whereupon he can refuse, subject to him having purchased the regulation licence so that he may wear the purple tie of power.

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  • 4 weeks later...
Foxconn begins replacing workers with robots ahead of US expansion

High-value engineering trumps cheap labor

In June 2011, Foxconn CEO Terry Gou announced plans to deploy one million robots across factory assembly lines, as part of a company-wide effort to adopt more automated manufacturing processes. The company has been reluctant to discuss any progress toward this goal, but according to the Wall Street Journal, the automation process is already underway, and some workers are beginning to feel its effects.

One such employee is a man known as Zhang, who has spent the last two years working on the assembly lines at Foxconn's Shenzhen plant. Zhang told the Journal that he and some of his colleagues were recently transferred to different positions after factory managers began deploying robotic arms to plug components into a motherboard. "There were about 20 to 30 people on the line before, but after they added the robots it went down to five people, who just pushed buttons and ran the machines," he said.

The initiative could face some political blowback, as well, since the company has long been a provider of consistent, low wage employment across China.

http://www.theverge.com/2012/12/11/3753856/foxconn-shenzhen-factory-automation-manufacturing-US-expansion

I think Foxconn are worried that they will start to lose out to US based competitors- after all a robot can work just as cheap in the US as in China.

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+ 1

The UK monetary authorities could, and should, have curbed the credit bubble. They had tools enough for it, usually IRs, but since this bubble was mainly property based, mortgage regulation would have prevented most problems. But there was a lack of competence and political will.

../....

ABSOLUTELY BANG ON THE NAIL. A FABULOUS SUMMARY OF NIEU LABBIA'S UTTER USELESSNESS & FAILURE, THANKS TO ONE GORDON IDIOT-BROWN -- THE BIGGEST FOOL THAT EVER HELD THE REINS OF POWER IN THE HISTORY OF THE UK. :angry:

Edited by eric pebble
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http://www.theverge....ng-US-expansion

I think Foxconn are worried that they will start to lose out to US based competitors- after all a robot can work just as cheap in the US as in China.

that depends on the wages of the "operators" loan costs and more importantly, property costs and taxes.

foxconn took thousands of US jobs away.

what is returning is an army of robots.

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Rebalancing?

Check out this chart (Deninger) - US annualized income progress.

http://market-ticker.org/akcs-www?post=213972

It's interesting that the chart shows the annualized income progress going profoundly negative starting exactly from year 2000, not 1999 and not 2001 but exactly 2000 - it's as if it had all been planned to happen from that date.

There are charts of debt which show the debt increasing hugely from that exact date as well.

Edited by billybong
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that depends on the wages of the "operators" loan costs and more importantly, property costs and taxes.

foxconn took thousands of US jobs away.

what is returning is an army of robots.

+1

There was much excitement that Apple was bringing some of it's production back home- until it came out that it meant a total of about 200 new jobs at best- with most of the work being done by automation.

Apple's Mac Manufacturing Returns: But What About The Jobs?

To a reasonable level of detail there are two ways you can make things. You can use a lot of low priced labour. Or you can use a few high priced machines. No one actually uses entirely one method or the other but everyone lies somewhere along that spectrum. What makes the decision one way or the other is the relative expense of each method. Until recently in China labour was so cheap that lots of labour was the answer. However, just recently, we’ve seen people complaining that the $400, $500 a month the workers get is changing that equation. Even Foxconn itself has said it will install a million robots over the next couple of years.

So now let us take a look at costs in the US. Given US labour costs, are we going to see Apple go the labour using route? Given that even at Chinese labour costs this is looking less attractive, obviously, at much higher US labour costs no, of course they’re not. They’re going to go the machine, mechanised route. Which of course means that there just aren’t going to be many jobs.

By the way, no, we can’t just say that US labour is more productive so this labour cost issue is less important. For the very reason US labour is more productive is because it uses more mechanisation.

There’s a joke about the factory of the future. It employs one man and one dog. The man is there to feed the dog and the dog is there to bite the man if he tries to touch any of the machines. While that’s extreme, it’s not that far off the mark. It’s exceedingly unlikely that any manufacturing that Apple does in the US will be done by human beings. There will be a few around to set up the machines but that’s about it. There just aren’t going to be many jobs from this.

Edited by wonderpup
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