solarbird | cranky cranky economists

Kevin Depew is not normally this cranky. I mean damn. Go read that, it's amusing. (He's reacting, if you're wondering, to this, which is also here, with different details. Oh, and also, to the US dollar being in the toilet. He's picked up on what that means for real stock values vs. raw numbers. How do you disguise a bear market? Undermine the currency in which it's based. Yay!)

I mean, it's not that they don't have things to be cranky about, not with trade numbers looking bad, and retail numbers not exactly looking great either. And everyone finally more or less knows about housing, of course. But still, you think I'm cranky? Kevin's got it all over me. Mmmmm, that's good rant!

Oh, and, if you're interested in this sort of unusual-numbers thing, check today's DJIA/NASDAQ/S&P trading charts. (You can do that here if you want.) See how they're not just rescaled versions of each other? That's atypical, in my experience. I like flipping between them to see how close the curves are, and they're usually pretty close. It's not bad, as far as I know, that they've stopped matching up. It's just atypical. It might imply that there's some sort of shift happening in larger the broad-market funds. But that's just guessing.

(Edited slightly to clarify the nature of my reaction. The climbing rant count is an interesting economic-pressures indicator in its own right, but I think Kevin's gotten a tad excitable over this particular event. One presumes it's a matter of straw, camel, all that.)

Current Mood: amused
Current Music: PASS A LITTLE MORE | riddim saunter

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From:

llachglin.livejournal.com

He kind of ruins his legitimate points about mortgages, debt, and the decline of the market as denominated in foreign currencies with a lot of ideological nonsense and rhetorical overreaching.

For one thing, the system that he's bemoaning *is* free-market capitalism. He's right that in practice it often amounts to looting, but the reality is that markets are influenced by the regulatory environment of government and so can never be free, and any reforms to the regulatory environment that would eliminate the looting would also eliminate the word "capitalism" as a proper description. Capitalism is the economic system that favors the investor class; looting is the end-result of that class using the regulatory protections of capitalism pursuing its self-interest to its logical extreme. Reforms to limit that looting necessarily restrict the rights and privileges of investors, and amount to a mixed economy combining capitalism and social democracy.

He calls this collectivism but in reality this is its antithesis: when you have unrestrained private interests, cronyism and corruption result, and the collective or common interest is tossed aside.

He calls the policies of the Fed hyperinflationary. The Fed is not responsible for the trade deficit or the budget deficit (the major contributors to the declining dollar), and when it acts recently it has a bias against inflation. Because of other factors, the result is an increasing supply of dollars that globalization and debt sucks up so that there is relatively little corresponding domestic inflation. At some point, domestic inflation will occur, but not because of inflationary policies at the Fed.

He claims that wealth is transferring from the middle class to the poor in China. The numbers tell a different story--the middle class money is ending up in the pockets of investors everywhere, including wealthy Americans as much as anywhere. The weak dollar does help Chinese workers, but only secondarily, and there's little sign that middle class American jobs are being lost overseas (net, that is).

Decline in manufacturing? No. America makes more stuff than it ever has, it's just that fewer people are working to produce those goods thanks to automation and the offshoring of manufacturing jobs, which so far is outpaced by the growth in middle class jobs elsewhere. Debt is a real middle class crisis, but the underlying issue that he doesn't mention is stagnant middle class wages.

From:

angharads-house.livejournal.com

Interesting. I just pulled some of the numbers and ran them in our in-house model. It's one hell of a good time to buy RMB and sell USD. (And at this very moment I am inutterably pleased that my base-pay is set in RMB terms). I still think we are about three/four months away from ugliness; almost certain that the January/February consumer low will be really low, this coming winter.

Angharad Lewis
who never thought that working arbitrage between currencies could actually be personally worthwhile -- but it is.

From:

solarbird

China has been working very hard to prop up the US dollar, along with other east Asian countries (Japan, South Korea to some extent) and India, specifically in order to keep their own currencies cheaper than they would otherwise be. So far, Saudi Arabia has been helping out too, by reinforcing their dollar peg, and most of the rest of the gulf states have been following their lead. The Financial Times refers to it as outsourcing the strong dollar policy; Brad Setser talks about it here at RGE Monitor. The implications are pretty profound, but it's in China's interest to keep their currency cheap, so something would have to happen to get them (and Saudi Arabia) to change their minds. China has thrown up a few warnings in that direction, and the Saudis let the dollar peg get shaky a bit last week (possibly as a warning), but... yeah.

I don't suppose I could get you to elaborate on your "in-house model," could I?

From:

solarbird

Dollar bears have had a profitable few years. Even very cautious dollar bears. There was a bit of a hiccup for about a year. The big question now is whether the Euro agreement will fall apart now that there's serious economic pressure on its export capability as a result of its strength. You're seeing a variety of protectionist moves popping up here and there. Hopefully that won't get too crazy out of hand.

From:

alonglongtime.livejournal.com

I can't see the Chinese suddenly ending their repurchasing of US Treasury securities (short of a very unlikely war), primarily because it would badly damage their exports, even to other nations. If the American dollar really and truly tanked - to the extent that the loss of the Chinese propping up would entail - wouldn't the global economic picture worsen significantly as American purchasing power plummeted? China will remain an export-driven economy for many years to come, in my opinion. Until then, their dollar holdings amount to a huge loan we won't have to pay back for quite some time.

From:

solarbird

Indeed. Whatever else may be happening, they certainly must enjoy having control over American monetary policy. They've also been reportedly doing a decent bit of diplomatic work for the Bush administration in North Korea, and some other places. It's an interesting game, is it not?

From:

alonglongtime.livejournal.com

That it is. Granted, I'd like to see them show some movement on Burma and the Sudan, but I wouldn't hold my breath. China will act when it sees fit and only in its own interest, with little regard for international human rights concerns. This is part of why I view the strengthening of the US-Japanese and US-Indian alliances as so important. The Shanghai Cooperation Organization could pose a significant rival to our ability to act in the Asia-Pacific region, if we're not careful.

From:

angharads-house.livejournal.com

I'll think about that a bit -- suffice to say that we retain a consulting economist to keep us on the straight and level despite exposure to multiple currency risks. As we closed out old contracts, we negotiated new ones in CDN and RMB (as appropriate) -- the big problem with RMB is, of course, the limited ability to repatriate one's earnings. Given as one possible life trajectory has me emigrating to XJ, and the other one has me displacing to the Queen Charlottes, the differential currency issues are problematic. Most likely outcome for the following year is slight climb of CDN against RMB and EUR, and profound climb of CDN against USD and GBP. As you noted, dollar bears have done well. And I've certainly benefitted from being a dollar bear, as witness current unscheduled holiday jaunt towards Cape Cod.

From:

solarbird

Most likely outcome for the following year is slight climb of CDN against RMB and EUR, and profound climb of CDN against USD and GBP.
Your economist has ideas similar to mine - well, I hadn't thought about Can$ vs. £, but given the early fall of the North Sea fields, that makes sense. Interesting. (I'm estimating a target of around Can$1 = US$1.30ish, with room on the upside to around US$1.50, particularly if China lets the RMB appreciate at all.) I'm rather interested in the model your economist is using more than anything else.

From:

solarbird

with little regard for international human rights concerns
Little? Heh. I suppose "none" can be thought of as a subset of "little..."

From:

angharads-house.livejournal.com

I'll ask. The response I get may be unprintable, though. I am constantly reminded that I rent such expertise, rather than purchasing it outright.

A. the survivor, dancing under Damoclean cutlery at the moment