Saudi Arabia, who usually mimics every FOMC move, has refused to cut interest rates in lockstep with the US
Federal Reserve for the first time., According to a UK Telegraph article (Fears of dollar collapse as Saudis take fright, September 2007), is  signalling that the oil-rich Gulf
kingdom is preparing to break the dollar currency peg. This could potentially cause a cascading chain reaction across the Middle East — setting off a stampede out of the dollar and towards either a basket of currency, or more likely the Euro.

Last month, this same author was expressing concern that the "Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation."

Described as China’s "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels. It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds. (August 2007)

Bcnsaudi119

Before you dismiss the author of both of these pieces as a Dollar Bear, recognize what he has said in the past about the Greenback:

"Disregard all hysteria. The ailing Greenback will not collapse this year, not in ten years, not in twenty years, not in half a century. There is no credible currency against which it can collapse. (Unless you count gold). None of the world’s rival power blocs have the economic and demographic depth to challenge American dominance." (July 2007)

That this is the same author suggests that something significant has changed recently . . .

>

UPDATE 2 September 21, 2007 4:35pm

We revisited this subject in some detail today

>

UPDATE September 21, 2007 2:04pm

My fishing buddy, David Kotok, does not think the Saudis will "decouple" from the US Dollar

The Euro, the Dollar & the Saudis
http://www.cumber.com/commentary.aspx?file=092107.asp&n=l_mc

>

Sources:
Fears of dollar collapse as Saudis take fright
Ambrose Evans-Pritchard
UK Telegraph, 8:39am BST 20/09/2007
http://tinyurl.com/yp7q5u

China threatens ‘nuclear option’ of dollar sales
Ambrose Evans-Pritchard
UK Telegraph, 8:39pm BST 10/08/2007
http://tinyurl.com/ysxlok

Dollar to collapse?
Ambrose Evans-Pritchard
UK Telegraph, 12 Jul 2007  at 16:48
http://tinyurl.com/2vjbj8

Category: Currency, Federal Reserve, Inflation, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

93 Responses to “Fears of dollar collapse ?”

  1. edhopper says:

    I am constantly amazed how the economic pundits seen on CNBC and Bloomberg (excluding Barry, of course) have forgotten Economics 101. You lower rates, demand for your bonds will decline, the dollar will fall. Maybe Ben should talk to the Grad Students who teach Econ 101 instead of listening to Kudlow and Crammer.

  2. Pool Shark says:

    Canadian Dollar to .9994 and climbing…

    Gold to $737.00 and rising…

    B’bye US$.

    (waves as US$ sinks into the abyss)

  3. Ross says:

    A bit off the mark but an old friend of mine, Dick Bove is on Bloomies this A.M. with views that echo my own and many of yours as well. Worth a looksee. Sorry I can’t ‘link’. Old dogs, new techs…….

  4. Poll Shark says:

    Canadian Dollar to .9998 and rising…

    (parity today?)

  5. Stuart says:

    “unless you count gold”.

    Smart man.

  6. Gareth says:

    Ambrose Evans-Pritchard is a hack journalist who is most famous for his series of articles in the ’90s outlining Bill and Hillary Clinton’s involvement in cocaine smuggling and their operation of hit squads that murdered anyone who stumbled upon their nefarious schemes.

    He later claimed to have been suffering from a mental disorder exacerbated by alcohol and pill popping. I wouldn’t take anything he writes seriously. The Telegraph has always been a conservative rag, but why they still employ this twit is beyond me.

  7. sk says:

    If not Evans-Pritchard then how about GulfNews:

    http://www.gulfnews.com/business/Banking_and_Finance/10154897.html

    ” Saudi Arabia holds back from matching US rate cut

    Reuters
    Published: September 19, 2007, 23:21

    Riyadh: Saudi Arabia, which pegs its currency to the dollar, said yesterday it will hold back from matching a US interest rate cut as the world’s largest oil exporter seeks to tackle inflation at a seven-year high.

    “After reviewing the situation of liquidity and the economic situation we feel there is no need for a change,” Central Bank Governor Hamad Saud Al Sayyari said in Riyadh.”

    -K

  8. Bill says:

    the author of the information may or may not be loopy. however, if you (foreigner) had billions at stake in u.s. dollars what would you do with your money? as has been pointed out countless times many foreign investors have not made any money in the usa in the past several years because of currency translations.

    that said, is the situation in the usa set to improve any time soon?

  9. SPECTRE of Deflation says:

    Fear was like so last week Barry. It’s a fact now that Benny and the FEDS have killed the Dollar with their assclown moves of two days ago. It’s inflation folks, so cash is trash.

  10. brion says:

    i was ready to pull the trigger on Gold at $666 (a nice ironic entry point) but decided to wait for more margin call shake-outs….
    a bad move perhaps inn retrospect….

  11. SPECTRE of Deflation says:

    Ambrose Evans-Pritchard is a hack journalist who is most famous for his series of articles in the ’90s outlining Bill and Hillary Clinton’s involvement in cocaine smuggling and their operation of hit squads that murdered anyone who stumbled upon their nefarious schemes.

    He later claimed to have been suffering from a mental disorder exacerbated by alcohol and pill popping. I wouldn’t take anything he writes seriously. The Telegraph has always been a conservative rag, but why they still employ this twit is beyond me.

    Posted by: Gareth | Sep 20, 2007 10:55:44 AM

    Who cares who you take seriously? THE MAN HAS BEEN RIGHT. PERIOD!

  12. lux says:

    I may be remembering my macroeconomics wrong, and if so please correct me, but I was under the impression that China could not simply dump its dollar holdings because they need to keep purchasing dollars to maintain their currency exchange rate.

  13. Inferno says:

    Could someone please help me understand? For the longest time the US markets have been trading almost tick for tick with the USD/Yen. Now for the past two days it no longer matters? Am I missing something or are we setting up for something awful? Or was I just imagining the USD/Yen thing?

  14. Gareth says:

    Evans-Pritchard wrote false, defamatory stories about the Clintons and has admitted it. Surely there must be other, competent writers to quote in regard to the weakness of the dollar. I wouldn’t trust Evans-Pritchard to count the toes on his feet and report an accurate number.

  15. michael schumacher says:

    Fear of a collapse??

    It has collapsed……..and as soon as whatever is propping here goes away it’ll be down to the 76.50 level as soon as the Euro replaces the dollar.

    Big question: How long does China wait to start selling?? after the Olympics is too long a time frame…$ could be worthless by then (if current trend is not reversed somehow) but I’m sure the gov’t has some plan that involves GS for a “soft” landing…where have we heard that before?

    Ciao
    MS

  16. edhopper says:

    [i]I may be remembering my macroeconomics wrong, and if so please correct me, but I was under the impression that China could not simply dump its dollar holdings because they need to keep purchasing dollars to maintain their currency exchange rate.[/i]

    True, but this is a political and economic calculation. They lose on their dollar holdings while gaining on their exports. If they think the factors are no longer favorable to prop up the dollar-if we impose tariffs or restrictions on the crap they sell us, or if our consumers no longer buy enough of their garbage- then they can dump their dollar holdings.
    If they opt for a stronger yuan, we are toast.

  17. Mike_in_FL says:

    Just to put some numbers on it, I’m showing a decline in the DXY of about 1.05% right
    now. That is the single-worst daily
    decline since January 3, 2006 (-1.46%). In other words, this is a relatively infrequent move in terms of magnitude. All-time low for DXY is at 78.19 from September 4, 1992, for perspective’s sake.

  18. km4km4 says:

    THE NEW WORLD DISORDER
    Goodbye U.S. dollar, hello global currency says Benn Steil, Director of international economics at the Council on Foreign Relations

    http://worldnetdaily.com/news/article.asp?ARTICLE_ID=55595

    “The dollar’s privileged status as today’s global money is not heaven-bestowed. The dollar is ultimately just another money supported only by faith that others will willingly accept it in the future in return for the same sort of valuable things it bought in the past.”

    In other words, if the institutions of the U.S. government fail to validate that faith, the dollar, too, merits being abandoned.

    The case for a global currency
    Robert H. Wade
    http://www.iht.com/articles/2006…nion/ edwade.php

    There is a rising tide of opposition around the world to America’s unilateral assertion of its national interests. But few realize that for the United States to become a more responsible country, the world economy needs to move from the current U.S. dollar standard to a global currency.

    U.S. dominance rests not only on military superiority and on the size and productivity of its economy, but also on the fact that most international transactions are denominated in U.S. dollars and more than 60 percent of world foreign exchange reserves are held in U.S.-denominated assets, like U.S. Treasury bills.

    The problem for the rest of the world is that the U.S. dollar standard encourages the United States to be careless in its monetary and fiscal policies.

    Yes indeed BIGTIME careless and reckless for past 6+ yrs. with full credit due to the policies of Greenspan, Bernanke, Paulson, and most of all Bushco – the absolute worst US admin in history !

  19. Mike_in_FL says:

    What is also noteworthy about this part of the dollar decline is that long bonds are falling, too. In fact, every single maturity is getting hammered (2 yrs, 5 yrs. 10 yrs, 30 yrs) with long bonds taking the biggest price hit (26/32 on the continuous future). This is new — for the past several weeks BEFORE the Fed meeting, the dollar decline was generally NOT accompanied by a bond market sell off. In other words, both the bond market and currency market are giving Bernanke’s dramatic move a thumbs down.

  20. techy2468 says:

    china will not dump its dollars….of course it will expect usa to stop complaining about currency peg too…since right now its a good thing for USD.

    http://www.marketwatch.com/news/story/china-central-bank-expresses-confidence/story.aspx?guid=%7B15BC37A9-19AD-437A-81F6-C3D067CFAC68%7D

    in my opinion dollar is not going to fall into abyss as many are fearing…

    right now its just some panic selling going on.

    very soon we will see intervention from all Central bankers….who will peg their currency at certain level….and from their it may even go up a bit.

    china can never dump the dollar…..i am really suprised how can one even think of that……it will kill 60% of their industry….and it will destroy their economy.

    so is india……i am surprised that they let the rupee appreciate by around 3% in the last 3-4 weeks….

    i guess the same rule may apply to all emerging economies…

    BTW i will be very happy if that dollar was to go to dogs….because 70% of my savings are in non USD.

  21. michael schumacher says:

    >>china can never dump the dollar..>>

    never is a long time

    You think they are going to hold them regardless???

    As it slides to all time lows I gather there will be a trip or two by Paulsen to make sure they don’t.

    They start selling them the day after the Olympics……

    and yes I do understand the relationship there economy has to our consumers (because we don’t have an economy any longer we are just consumers)one would think it (dollar) is safe from a wholesale selloff by the Chinese however the motivation they have to not do it goes away after next August…

    Ciao
    MS

  22. Bill says:

    today the focus is on the u.s. dollar. her fundamentals are bad indeed.

    however, the fundamentals equally are bad for the pound (public debt), euro (see lira, spanish dollar, ff; the euro is a dmark phenomenon), yen (demographics, banks, public debt), renimbi (inflation, unstable regime, empty buildings, riots) etc etc

    look at almost all currencies south of the rio grande. in most cases they’re not stable.

    it’s not exciting but keeping wealth in hard assets seems to be a winner at this point in time.

    it’s redundant to say but the data against fiat currencies seems strong.

    in any event i believe in the usa. i really don’t care about saudi arabia, mexico or europe. i support the home team.

    just one man’s view.

  23. wunsacon says:

    Folks, on the one hand, I read China keeps its currency “artificially low”, which — correct me if I’m wrong — they do by buying our Treasuries. On the other hand, I read that the concept of China selling UST is “the nuclear option” and is a way for China to “destroy” the dollar. So, it seems China is, according to our leaders and business press, damned if they do and damned if they don’t. This sounds like a way to villify foreigners and cheer on the home team. No?

    Decades of communism and trade barriers kept the value of Chinese labor de-linked from the global marketplace. In other words, they weren’t competing for our jobs for decades and now they are. End of story (until their wages rise). Their real wages will rise, either because the yuan appreciates and/or because their nominal wages rise. (If China stops their UST purchases, it will be more of the former. If they continue their UST purchases, it will be more of the latter.)

    Are the criticisms of China just a way to appease a segment of the reading/viewing public who don’t like the inconvenient truth that it’s just cheaper to do business in China and to steer voters away from demanding tariffs (for better or for worse)?

    What am I missing (or have wrong) on this issue?

  24. wunsacon says:

    I also don’t understand why China would want to — with its own money — prop up the value of its treasury holdings. If indeed they believe those holdings will diminish in value, aren’t further purchases “sending good money after bad”?

  25. michael schumacher says:

    that would be called buying the dips…..LOL
    since some artificial event will eventually bail them out of a poor decision…..oh wait we already had that….

    Ciao
    MS

  26. mc says:

    what makes the pound, euro etc. relatively better than the dollar, to justify a long-term devaluation?

  27. michael schumacher says:

    higher corporate profits for US based companies…that’s why….

    Ciao
    MS

  28. techy2468 says:

    MS…i would recommend that you try to understand the dependency of china/india/brazil etc on their exports to USA…

    their growth is completely because of USA….their economy will simply die (great depression) if they let their currency appreciate…

    Indian rupee is almost 30% undervalued….and chinse yuan maybe more undervalued than that…..based on PPP comparison.

    right now india faces a problem of inflation since foreign inflow of funds is enormous…..sinc its strong currency and booming GDP is very attractive , i am not sure what the situation in china is?

  29. BKinDaHouse says:

    Popular consensus seems to be that the USD will continue to fall. However, is there a contrarian view? Is the ANY case for a stronger USD?

  30. michael schumacher says:

    you obviously did’nt read the last part of my post where I say just that……

    “and yes I do understand the relationship there economy has to our consumers (because we don’t have an economy any longer we are just consumers)one would think it (dollar) is safe from a wholesale selloff by the Chinese however the motivation they have to not do it goes away after next August…”

    try reading the whole thing before you take me to task for not understanding…

    Ciao
    MS

  31. larrybob says:

    wow, the hysteria here…frankly, is it not wonderful that it is in no one’s interest to see the dollar fall dramatically? despite the desire of some to paint the Chinese as an ominous threat, they themselves have neither the ability nor the need to sell all their US assets at once. Sure the dollar will devalue over the next several years as we quickly move a million or two people from selling homes to each other to building stuff for export. I am sure this will be accompanied by modest tax increases (lifting the threshold on payroll taxes, for instance) and the end of needless spending (iraq), but this is not the first time the dollar has been in this precarious position.

  32. larrybob says:

    wow, the hysteria here…frankly, is it not wonderful that it is in no one’s interest to see the dollar fall dramatically? despite the desire of some to paint the Chinese as an ominous threat, they themselves have neither the ability nor the need to sell all their US assets at once. Sure the dollar will devalue over the next several years as we quickly move a million or two people from selling homes to each other to building stuff for export. I am sure this will be accompanied by modest tax increases (lifting the threshold on payroll taxes, for instance) and the end of needless spending (iraq), but this is not the first time the dollar has been in this precarious position.

  33. km4km4 says:

    A CBO study estimates that U.S. costs in Iraq from 2009 to 2017 will total approximately $1 trillion.

    No wonder why the rest of the world is sick and tired of U.S. dollar standard because America is careless in its monetary and fiscal policies i.e. war, housing that line the pockets of its corporate cronies.

  34. Bill says:

    in the very, very, very long term a dollar depreciation will make usa labor and production more competitive against developed countries goods and services.

    that means more jobs and manufacturing will come back to the usa in the very, very, very long term.

    in the meantime yosemite national park looks good for vacation versus the high life in the alps for a sap like me.

    also, good luck to the chinese trying to buy usa assets with their cash horde.

    if wall street will stick it to the chinese by slipping subslime into so-called AAA securities then they’ll sure stick it to them on their dollar investments.

  35. michael schumacher says:

    higher corporate profits for US based companies…that’s why….

    Ciao
    MS

  36. Max says:

    higher corporate profits for US based companies…that’s why….

    That’s strange, because just a few posts ago Barry showed pictures that foreign economies perform pretty well relative to the US, thank you very much.

    The days when the world was dependent on the US consumption are over. The growing middle class is a worldwide phenomenon – Latin America, Eastern Europe, Asia, etc. These regions have positive trade balances, export valuable and often non-renewable resources, attract high technology and knowledge-based sectors (Sun, MSFT – open their new branches and centers in India, Russia – and none in the US). These regions have a shortage of skilled labor and strong inflation pressures even when their currencies are in demand, so forget they’re going to follow the Fed.

  37. michael schumacher says:

    Max-

    You have a circular argument…….

    Corporations want the dollar to fall as they get to reap the reward of the very consumption you point out, as a US based company….

    Ciao
    MS

  38. David Price says:

    Barry, We all know George Bush has opened up our borders. At the same time he is locking in americans from travel legally because of the weakness of the american dollar vs other countries.

  39. Ryan says:

    Rising Inflation Expecations
    Rising Oil and Food prices
    Rising Gold
    Falling Dollar

    This sounds like a really good case for an interest rate hike at the next fed meeting

  40. Peter Davis says:

    Jim Rogers and Mark Faber recently appeared on Bloomberg and advocated Fed rate hikes. I agree with this assessment. In their view, lowering rates in a time of weakening currency, rising commodity prices and rising inflation (don’t believe the government figures, by the way) is in Faber’s words, “suicidal”.

    Both also brought up another interesting point. It’s not the Fed’s responsibility to bail out the markets; their responsibility is to protect the dollar, which they have done a miserable job at the last two decades. Yet the Fed has shown itself to be beholden to the market, jumping in any time it looks to sell off.

    Personally, I find this to be ridiculous and have no faith that the dollar will be protected over the long term. Given that debt in this country is, in my opinion, ultimately untenable, I am very bearish on the dollar’s future. I feel that the argument the dollar won’t collapse simply because it’s always been the standard is vacuous. Everything reaches a tipping point at some point. And if a major holder of the dollar decides to trim its holdings, who knows who might follow.

    Technically, the dollar is in very bad shape. Not that it has broken to new lows, if it is not able to rally back over resistance, it could be in trouble. And that is bad for all of us.

  41. techy2468 says:

    peter..

    major holders of dollars are:

    1. china
    2. japan
    3. OPEC countries
    india, brazil etc.

    OPEC countries are the only one who sell a commodity in demand…..all other sell stuff because its cheaply manufactured because of their undervalued currency.

    even most OPEC countries are under the military umbrella of usa, they will not play with fire….

    so even though i expect a small weakness in dollar (which is desirable by everyone except OPEC, dollar hoarders/exporters) its not going to drop more than 10%.

    it will be simply suicidal for every nation on this planet (they dont want to give a discount on the debt owed by usa, plus they dont want to kill their exports).

    i think there is a consensus that usa does not manufacture much…hence it is imported if so they dont want this to stop….because if dollar falls (lets say around 25%) too much manufacturing in usa will become cost effective….and they will lose their biggest/only customer.

  42. dukeb says:

    Popular consensus seems to be that the USD will continue to fall. However, is there a contrarian view? Is the ANY case for a stronger USD? Posted by: BKinDaHouse | Sep 20, 2007 12:43:33 PM

    Yup. CRAMER (that bozo) thinks the rate cut strengthens the econ, and that in turn boosts the buck. Oddly, enough, Cramer is the perfect answer to Barry’s parting question about the author of the original article up for discussion: That this is the same author suggests that something significant has changed recently

    What’s changed is simply what the author so authortatively writes, either because of something learned or imagined. (Cramer does this ALL the time, subprime, rate cuts, etc…just go back and watch the clown’s videos.) So if the “same author” was just a few months ago reassuring us that the USD would be KING for at least another 50 years or more, why on earth should we listen to the flip-side from the same mouth??? He was either a complete idiot a few months ago, or he is a complete idiot now, or both.

  43. M.Z. Forrest says:

    Techy,

    Look up the Prisoner’s Dilemma.

  44. Canadian dollar at par, Euro at $1.40, and Arab countries buying into both the NASDAQ and the LSE. Power shift, anyone???

  45. kharris says:

    Evans-Pritchard doesn’t have to be of the view that the dollar can be replaced as a reserve currency in order to come to foolishly breathless conclusions about the intentions of foreign governments. We don’t need to credit one opinion just because he holds the other. It is entirely possible to have a reasonable idea planted in your head on one issue and be completely crackers about another. Fact is, in a short stretch of time, the guy has written two articles about the Oh-My-God! Foreigners and their intentions toward their dollar holdings. To the extent he writes such things because he likes the idea, rather than because he has good evidence, we should doubt him.

    As to “THE MAN HAS BEEN RIGHT. PERIOD!” …um…right about what? About Clinton’s death squad? Cause we don’t have solid evidence that China has begun to engage in a tit-for-tat dollar and trade war with the US, so it can’t be that. China may have sold some of its Treasury holdings – that is not certain – at a time when everybody and his coon dog was buying them. That would have been a pretty friendly way to behave, under the circumstances.

    Evans-Pritchard, even in declaring the supremacy of the dollar, casts that assumed supremecy in terms of a great competition. Maybe his particular quirk is to make everything a battle, even when it isn’t.

    And yeah, Micheal S has a point. Why do we need to be all breathless about what might happen with the dollar, when there is something pretty interesting happening already?

  46. Tom C. says:

    The left has regulated this economy into a consumer society who’s only export is productive brains tending toward the relatively unregulated service and technology sectors. Aside from agriculture, that’s about all we have. Commodity prices will continue to rise and we’ll have to do with less but our companies with global exposure sell products that are superior and now cheap. If you’d like to see the dollar strengthen, reduce what we spend on the government, lower the regulatory burden, try to become more energy independent through actually producing energy and re-learn to make a quality automobile at a reasonable cost. A competitive and efficient tax system would help a bit too. It’s possible that this weakness in the dollar will force the adjustment more quickly. We’re only getting what we deserve. The right response would be to adjust.

  47. BG says:

    Shouldn’t that be Mickey Mouse’s pic on the $100 bill instead of Benstanky?

  48. Norman says:

    Just because the dollar is dropping is no reason to get on the bandwagon. There is a bubble in dollar bearishness.

    Purchasing power parity tells us that the yuan is 50% under-valued and the Euro is 30% over-valued.

    So at this critical time the OPEC geniuses are going to start buying EUROs (but really probably already have); Such sweet revenge.

    The brilliant, criticism-free are Chinese buying up dollars ($400B this year) which are actually worth 1/2 of what they are paying for them in terms of yuan; Such sweet revenge.

    We are seeing massive craziness.

  49. Fred says:

    Bernanke has in the past – correctly – pointed out that Americans are not saving enough for retirement. What did he just do to Americans’ retirement savings, which are mostly in U.S. dollars?

  50. Clarke says:

    The market action in the last few days has been remarkably free of conundrums. That feels new to me.

  51. tibby says:

    Tom C:

    Which ‘left’? The administration that’s been in charge for 7 years, you mean?

    Boy, if Republicans ever again level the charge of “tax and spend” at Democrats they should get a whump up the hooter.

    Well, now perhaps we’ve learned a lesson. The policy platform of who you elect matters. Their ideas matter. Their general grasp of economics, history, world affairs and how the world actually works matters. 7 years of lies and incompetence have taken this country from affluence to war to penury.

  52. Norman says:

    RE: MY post of Sep 20, 2007:05:03 PM

    A pithy summary:

    Those who should be buying dollars, OPEC, are selling them and those who should be selling dollars, the Chinese, are buying them.

    Go figure.

  53. Tom C. says:

    tibby- This may be hard for you to grasp but history takes time. The paradigm shifted with the progressive era and hit a crescendo with the ‘Great Society’. Paradigms shift slowly.

  54. rickrude says:

    Posted by: techy2468 | Sep 20, 2007 12:41:29 PM

    Popular consensus seems to be that the USD will continue to fall. However, is there a contrarian view? Is the ANY case for a stronger USD?
    “”"”"”"”"”"”"”"”"”"”"”"”"”"”"”"”"”"”"”"”"”

    Popular consensous seems to be that doggy doo stinks.
    So, does that mean that a contrarian stick their nose in it ??

    What a dumb analagy

  55. rickrude says:

    Posted by: Clarke | Sep 20, 2007 5:58:01 PM

    Tom C:

    Which ‘left’? The administration that’s been in charge for 7 years, you mean?

    Boy, if Republicans ever again level the charge of “tax and spend” at Democrats they should get a whump up the hooter.

    Well, now perhaps we’ve learned a lesson. The policy platform of who you elect matters. Their ideas matter. Their general grasp of economics, history, world affairs and how the world actually works matters. 7 years of lies and incompetence have taken this country from affluence to war to penury.
    >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

    the democrats could have done alot of
    good things like health care for 500 billion
    that bush is going to spend at war.

  56. tibby says:

    Tom C:

    Why would it be hard for me to grasp? Why the snark? What was it in my comment that revealed I was a complete ignoramus? Help me please, for I am so dumb as to think of Bushco as not being rabid leftists. My paradigm must be on the fritz.

  57. More Reasons the Fed is Wrong!

    Wrong for everybody except private equity managers, hedge fund partners, bankers and other wall streeters, that is… Jeff Matthews plays a game of Jeapordy that Ben Bernake would lose. Mish sees this as part of an overall move by governments…

  58. Justin says:

    Economic issues only please! Keep the political discussions within justifiable limits. Any and all political parties deal with similar issues in very similar ways. An Elephant, an Ass, what’s the difference?

  59. Poll Shark says:

    tibby,

    I usually feel uncomfortable injecting politics into this financial site, but…

    I think what Tom C is getting at is that George Bush has only been the latest installment in a series of big government politicians who have bankrupted both the morals and finances of the United States.

    For those of us with a slightly larger frame of reference (i.e., lived through the 60′s, 70′s, 80′s, 90′s, and now the 00′s) the latest administration is just a continuation of a trend which began many decades ago.

    Bush was not the first to establish the “war on (fill in the blank).” Before the “war on terror”, we had the “war on drugs,” and before that, we had the “war on poverty.”

    The “Great Society” programs of the 60′s have utlitmately transferred trillions of dollars in wealth. What has been the result? Well, the “war on poverty” is over…

    Poverty won.

    Throughout my entire lifetime, government (at every level) has grown larger, costlier, and more intrusive.

    With that much power, comes corruption. Ultimately, with human nature being what it is, politics is a game played by the powerful for the benefit of their cronies.

    The last 7 years have been nothing different; merely the logical extension of decades (dare I say centuries?) of political games played by those in power.

    I no longer believe in Republicrats or Demicans…

    A plague on both their houses.

    What we really need is a reformation in our government and citizenry. Rather than a candidate who merely promises more ‘programs,’ we need a crusader who is willing to do what’s right rather than what’s popular or politically expedient. A modern day Teddy Roosevelt would be nice, but I don’t see any such personage on the current political landscape.

  60. Tom C. says:

    Your the guy with a seven year perspective,tibby. The dollar goes to hell because our domestic competitiveness has, over time, gone to hell. It costs too much to produce ‘things’ here. We’d rather import energy, among other things, than produce it ourselves. That didn’t happen over night. Crying about the weak dollar and trying to blame the current administration for the predicament is silly. There is plenty of blame to go around. The movement in treasury yields since Bernanke’s cut almost proves that the Fed rate was too high, as was the dollar. We’ve nearly got a nice, positivley sloped yield curve now and that’s a good thing. As far as high import prices go, the best cure for high prices is high prices.

  61. tibby says:

    I’m even more uncomfortable when morals and finances are uttered in the same breath. Means the libertarian puritans are about to get all sweaty about the original sin of government. God bless the blogosphere.

  62. Tom C. says:

    tibby-sweaty morals??? libertarian puritans? original sin? what are you blabbering about?

  63. Clarke says:

    http://www.polyconomics.com/searchbase/gp1.htm

    Sometimes it helps to read a classic. Enjoy.

  64. brion says:

    Hi Tom C,
    still the same arrogant and erroneous bastard as ever i see…..

  65. Tim Kane says:

    Tom C. Your prescription for economics is basically the policies that caused the collapse of Rome, Pre-Islamic Mecca, Medieval Japan, Ancient Egypt’s Late Kingdom, Byzantium, Hapsburg Spain, Bourbon France, Romanov Russia, Coolege/Hoover America: Wealth and power become concentrated, the wealthy and powerful use their influence to avoid paying taxes and the systems collapse.

    Keep drinking that cool aid and we’ll have ourselves another multicenturied dark age, and we’ll all be bowing to Mecca five times a day. Coodles to you and your kind.

    Fact is, you don’t need a government to be poor. You need a government that recognizes property rights to be wealthy. When wealthy refuse to support the state, there’s nothing left but collapse – that old “Wile E. Coyote” minute that Krugman’s talking about? At that point, the wealthy soon join the ranks of the poor. Yeah, that’s a good economic plan you got there.

  66. Alan J Robinson says:

    THere’s one important factor that’s being overlooked here, which shows why the picture has suddenly changed, making a drastic world financial change much more likely.

    It’s not just that the U.S. subprime mortgage crisis that has been exposed in the last month, it’s that this debt was being repackaged and being sold to unsuspecting foreigners as AAA. Because the U.S. is now borrowing heavily from abroad in the private sector as well as the public sector, what this means is that there is now a cloud hanging over much U.S. private debt.

    Bankers have been complaining for years that the complex financial instruments being sold in New York and London cannot be properly assessed for risk. Suddenly this problem has become much worse because of the reckless business practices and even outright fraud within the U.S. financial system.

    When foreigners stop buying U.S. debt because they can’t trust its quality, the effects could be quite drastic. Confidence is important in financial transactions, and can be easliy lost.

  67. Ames Tiedeman says:

    The dollar, as predicted is being crushed. We are now at Par with the Canadian Dollar, the Loonie as it is called. This was all so predictable. You cannot run an 800 bilion dollar trade deficit and have your currency in demand. We have a lot farther to fall. Within 5 years from 2008 we should see the Canadian Dollar worth 25 % more than the U.S. dollar. The Euro at 1.40 now, should move to near 2.50, as China buys more and more of the Euro.
    The pound at 2.04 as I write this will be near 3.00. Be ready for CHINA. When they finally let their currency float it will appreciate 70% over a 36 month period. The US trade deficit will be cut in half and then some by 2020.

  68. Frankie says:

    “unless you count gold”.

    These four words open quite a big can of worms. Buying mucho gold is essentially a bet against the current financial system. Gold is money but with a lot of inconvenients: It doesn’t generates interest, cannot be easily transfered by wire (unless you count e-gold and the likes) and its storage costs are much higher than fiat money.

    Yet, gold has had a substantial rally in the last year (32% from its sept 2006 low) Looking at the long-term charts, one has to ponder the significance of gold above an eventual 870 USD level.

    Francois

  69. Ben says:

    Anyone catch this? Thoughts?

    “Déjà vu all over again”

    http://blogs.iht.com/tribtalk/business/globalization/?p=548

  70. The U.S. has to get its trade deficit under control. We must begin to enforce our trade laws.

  71. Clarke says:

    When rich people and poor people trade, there is an imbalance in capital flow.

    Big deal. To say that its not sustainable is, at root, to say that by selling trinkets the poor will overwhelm the rich. I have 6 extra rolls of toilet paper in my house,that makes me quite wealthy compared to rural Chinese. I’m not afraid.

    To make trade between rich and poor even is to say that you don’t want to trade. Cut this flat earth stuff out, it belongs on a Keynesian’s site.

  72. Greg0658 says:

    I’ve got 12 tp’s in back stock for the big oil crisis. Probably not enough. Hum, with out food, I’ll not need as much tp. Balance.

    How many refrigerators can a rich man buy? Take his take home pay and redistribute it more equitably, and how many refrigerators can that mass buy?

    I can hear the debate back point, but I say to that, the rich man currently sees frontiers offshore. There I go spouting nation protectionism. Go figure.

  73. Tom C says:

    Tim Kane- Please describe my ‘economic prescrpition’ as you put it. I don’t think you understand my points:

    Markets adjust when permitted to adjust. Trade matters. The regulatory environmnet is important. Taxes are an economic expense and like all expenses should reflect added value. Currencies go up, currencies go down.

    Your purely economic take and the ditributionist policies of failed societies is weak. Societies fall for any number reasons and the distributionist policies of the state is never near the top of the list unless said policy is reflected in confiscatory tax rates or mercantilistic trade practices. Why did the soviet state fall? The National Socialists of Germany? Were their distribtionist policies ok?

    Hey, Gitmoalpo! How’re you doin’ there, old buddy? I see you still making a lot of sense. What’d you say again?

  74. Fullcarry says:

    There will come a time where it will be in China’s interest to throw its manufactured goods into the ocean rather than exchange them for dollars.

  75. Tim Kane says:

    Gee Tom C. I got those views from taking a class on the history of property rights from the only economic historian to ever win a nobel prize. But you can read all about it in “Structure and Change in Economic History” by Douglas C. North. On point see pages 100-115.

    Fact is Government is a benefit. Especially for rich people. They get protection of property rights – which is necessary for being rich. Government cost something. Somebody has to pay, and that somebody has to be somebody that has money. As wealth concentrates that somebody increasingly becomes the rich.

    All those situations I describe are all well sourced and documented and all those situations were very much quite similar. I’ve done the leg work to find out.

    The amazing thing is the people who benefit the most are precisely the ones that refuse to pay for government and the state’s existence.

    This theme is so persistent in history that it has to be the presumption going in on any analysis of epic change and the burden to proof has to be on those that would argue otherwise.

    The Roman case is the best example. In the second Punic War, Rome, with little more than the resources of Italy directly available to it, was able to throw army after army at Hannibal, and I am talking armies of nearly 100,000 men. 600 years later, with the resources of all of Western Civilization available to it, Rome couldn’t find the resources to defeat mob armies of landless, shiftless nomads. North’s description of events is the only one that makes sense. Then take a look at what happened to medieval Japan, where there were no invaders – in both cases the collapses brought multi-centuried dark ages.

    The problem is the wealthy view government as a burden and not a provider of benefits. They get the maximum benefit but want to pay the minimum and as a result, through out history, have put themselves and their societies in epic danger of collapse.

    Almost every epic change is the result of this.

    In the case of Coolege-Hoover America, the epic changed brought about the great depression, triggering the rise of Hitler, World War II, the Holocaust and as Churchill suggest in his “Finest Hour” speech, nearly resulted in the onset of a new dark age in Western Civilization.

    There maybe other factors involved in epic collapse, but the concentration of wealth and power and the refusal to pay taxes from the uber wealthy is always present and always contributing factor.

    The Republican/conservative idea of government has no fundementally sound basis in history. In fact quite outstanding to the contrary.

  76. Tom C says:

    Tim Kane- Nobel Prize winners come in all flavors, shapes and sizes. In fact a slew of Nobel prize winners would disagree with you and North. The Nobel Prize committee is anything but infallible. DC North sounds like an interesting fellow if you accurately portray his thesis but so were fellow prize winners Friedman and Hayek, Nobel Prize winners you probably don’t like as much as North. I’ve never been a fan of the class warfare take on economics and historical development. Is that North’s position? If it is, I’m not impressed.

    No one questions the necessity of government, only it’s just purpose and it’s historical tendency toward despotism.
    If he believes that Coolidge and Hoover rather than Wilson and Versaille brought about the rise of Hitler he’s an idiot. Who created Stalin? Elmer Fudd?

  77. Tim Kane says:

    In other words… we see what we want to see.

    Okay, I get it. That’s not what you want to see.

    Class warfare was never North’s point. He doesn’t even talk about that. After his class I took a class on Japanese Law, by one of the most distinguished experts on Japanese law in the United States. Totally unrelated to North, except that they were colleagues in the same school. And that Japanese law professor showed definite tendancies toward the right.

    I then read up on Islamic law, and that lead to reading conditions under which Islam emergged in Mecca. And later the causes of Byzantium’s sudden collapse fifty years after the death of Basil II at the battle of Manzikurt.

    One thing North pointed out: there is no laboratory for the social science. History is the laboratory. (I would only add geography as well).

    Versailles planted a reactionary seed in Germany but Germany’s first instinct was the Wiemar Republic. One of the most liberal for it’s time. Because it agreed to Versailles, right wing Germans destested it. Still it only fell after the onset of the Great Depression, and even then Hitler only had a minority in parliament.

    Stalin came to power thanks to the Bolshevik revolution. That revolution occurred in the context of extreme wealth concentration with the added agrivation of extreme hardship caused by World War I – all occuring before Versailles.

    Of course, you see what you want to see.

    In the first 30 years after World War II, liberal regimes with liberal economics, complete with a wide distribution of Unions and a concommited wide distribution of wealth, global GNP increased by 100%. That’s right, under broadly liberal economic regimes the productivity of the world increased in thirty years more than it did the previous 11,000 years of human history.

    But, perhaps I am justing seeing what I want to see.

  78. Ames Tiedeman says:

    Bernanke has a big job ahead of him.
    We cannot sustain 800 bilion a year trade deficits. We cannot export our way out of this mess. The only answer is a sharply lower dollar to drive manufactruing home and to lower the trade deficit. The dollar has much farther to fall. What you are seeing is a long term effort (it will take 20 years) to get the trade deficit back under 1% of GDP. We are currently running a trade imbalance of nearly 6% of GDP. No nation can do this. The IMF would be stepping in to help any nation if its trade imbalance went to 6% of GDP becuase its currency would collapse! The U.S. is different, but still, we cannot sustain a trade deficit of this magnitude. People must understand that when we buy an item from say China, we pay in dollars. The Chinese company we just bought from them goes to an Exchange Bank in China and converts those dollars to Yuan. The Chinese banking system (Chinese Government) is now sitting on those dollars. They can either 1, buy oil, 2, buy Treasuries, 3. buy U.S goods, 4. buy U.S. Corporations, 5. other. Over time if we (the U.S. ) continue to run a trade deficit we could simply be completely bought and controlled by foreigners. Warren Buffet has explained the situation as being like a rich Texas farmer who loses a small piece of his land year after year and never notices for a while. When he then notices, tragedy sets in because he no longer controls his land. So in sum, we need to get the trade deficit way down. This is why the Fed has abandoned the dollar. It wil be going down for the next 20 years. That is how long it is going to take to correct this imbalance mess.

  79. Will the US dollar decline?

    Are the central banks of some nation states starting to liquidate their dollar holdings? What is the possibility of a sharp fall in the dollar? One picture here that needs to be placed in the context of liquidity crisis in the global financial system. …

  80. Tom C., Stamford,Ct. says:

    Tim Kane- I’m very impressed with your study of Japanese law. Japanese law was turned on it’s head by MacArthur, of course, and the cultural inconsistencies are still working themselves out.

    Obviously we see what we want to see and put particular meanings on words that may differ from the meaning others may understand. What you call ‘liberalism’, for example, is certainly not ‘liberal’ in the classical sense but administrative statism with central planning to one extent or the other thrown into the mix in the name of ‘re-distribution’ and abstract equality. D C North’s point seems to be acknowleding the responsibilty of government to maintain the conditions conducive to economic growth and innovation. I haven’t read much of North but I suspect that what he means by ‘liberal’ is not what you think he’s saying. Culture sets the stage for property rights and the belief in contract obligations while a proper state acts to codify and preserve those cultural strengths. When it goes beyond fullfilling that role the state often becomes a cost with diminishing returns. As the state grows beyond it’s proper place, it will develop interests of it’s own which conflict with the interests of the productive economy while becoming corrupt over time as the culture itself is corrupted.

    ‘Liberalism’, in the years after WW2, is not liberalism as understood prior to the progressive era which slowly redefined the word from a focus on the individual to an emphasis on the collective. The Declaration of Independence, for example, is a liberal document in the classical sense not in any Wilsonian sense.

  81. Greg0658 says:

    Tim, Tom and others,

    I found this lecture/question answer session audio clip in mp3 months back.

    It is an interesting history of the world therory. I dont have the means and time to fact check these ideas.

    Background noise, so much of it these days. Cartels that I know exist in the world, makes one wonder, when if ever, we shall see a long peace.

    Parallels to Iranian Presidential visit today.

    http://www.erichufschmid.net/Hufschmid-ChristopherJonBjerknes.mp3

    http://tinyurl.com/28ppzg

  82. Tim Kane says:

    Tom C.

    You spout all theory and no historical precedents. The real world, as classical economist are want to say, is a special case. Trying to put theory into practice void of pragmatism is pushing Republican party to the fringes. (And prior to 1999 I considered myself a mildly progressive, mildly conservative person – civics counts, pragmatism counts)

    The evolution of organization arrangements did not end with the American constitution. The modern limited liability corporation was invented, by legislatures, beginging in 1862. The corporation of course is a collective. An ownership collective. But a collective none the less. Prior to the invention of the corporation, the U.S. had the most broadly distribution of wealth in the history of the planet (even with slavery). No doubt this was the result of the American democracy project which empowered the average person as never before.

    The limited liablity corporation quickly created massive concentrations in the distribution of wealth.

    The problem with corporations is it altered the balance of power in bargaining arrangements. Prior to the limited liability corporation the average individual negotiated for their wages and for most everything with other individuals. After the corporation was invented they negotiated with a collective, and the balance of power was altered.

    The problem was the corporation. The corporation is an organizational arrangement. It’s one sided and created concentrations of wealth that mimik those of the aristorcratic kind that the American revolution tried to put an end to.

    As a result of this new organizational arrangement new organizational arrangements had to be created to address this problem. The problem is that those who benefited the most from this concentration of wealth have done everything they could to stop any progress for creating balances. It created a new aristocracy and like the Aristorcrats in old England, they want to avoid any and all accountability to the larger democratic community and avoid any redressing the balance and any new organizational arrangements.

    Unions were one organizational arrangement. But the Japanese have gone one better. They give employees tenure and in effect, they gain primacy over the corporations once they are publicly held. The irony is employees are better proxies for long term shareholders, then the American model, which is essentially run for executives (the both countries are run under the shareholder primacy rule). Japan has the broadest distribution of wealth among large economies, and competitiveness and economic security for its stakeholders. Obviously they are on to a new organizational arrangement that American business establishment would rather not acknowledge. But now that Toyota has overtaken GM its hard to argue with its superiority. Japan has 8 car companies with half the market and one hundreth amount of paved roads while we have three, all of which are struggling.

    The fact is, once the corporation was invented, the need to create all sorts of new organizational arrangements to address the imbalances was necessitated. And we are still struggling with that obviously.

    The constitution and the theory of liberty that it was founded on operates under the assumption that there are individuals and there is the universe (thank you DesCartes and Voltaire). The corporation turns all of that, to use your words, on its head. The corporation is an intermediate entity that is both a collective with the privledge of an individuals in law and the concession of limited liability.

    Corporations provide too many benefits to put the gini back in the bottle. So the regulatory state emerges to try to achieve in effect the goals of the libertarian state, circa 1776.

    An example would be meat packing. Before the Ltd Corp you bought your meat from a local source. You could trace the quality back to the butcher that cut and the farmer that grew it a presumably they had skills and reputations to preserve in their trade (per Adam Smith). But enter the corporation and we have Chicago meat packers and the race to the bottom for profits and people being poisoned. The products are cheaper in price but also in quality. This creates the need for the regulatory state.

    People won’t buy the product if they think they might be poisoned. But producers want to lower their cost and consumers want to lower their price. And while some brands will work to produce a premium reputation, other firms will free ride or even fake.

    In this environment Meat packers want regulation to protect their markets and consumers want regulation to protect their health. The government, as representative of the people, can assume an honest broker. People trust the product, and so aren’t afraid to buy it. Demand goes up making producers happy.

    This is just one example. But the big problem was the bargaining arrangement between workers and employees. The Japanese solved this problem but that means giving workers primacy.

    In east Asia, corporations that aren’t owned by an individual, that is, are publically traded and have no dominant owner, are regarded as collectives and as a collective they have responsibilities to the communitee. In America, a corporation will take profits polluting the local stream and shoving the cost of the clean up on the public. In Korea the largest steel mills recide on water that is shared with some of the largest fishing fleets in the world, and those waters are kept sparkling clean. Corporations aren’t viewed in the entirety as totaly in the realm of personal property.

    The problem is we have a 1789 constitution in a post 1862 world. That means we have to evolve institutional arrangements or go back into living in pre-1776 tyranny of the aristocracy.

    That is why “liberalism” in the post 1862 world is not souly based upon strick individualistic libertarianism. The goal of liberalism was to empower ordinary individual. The world is growing more complex. It’s harder to empower the individual. Your assumption and theories are great in a world where there are no limited liability corporations. Unfortunately we can’t turn back the clock. The train has left the station. If you have ownership collectives like corporations, you have to have other organizational arrangements to deal with the problems and imbalances they create. That doesn’t necessarily mean that trade unions are the answer, but if not that, something else. Maybe the Japanese idea of tenure + company unions or maybe the European idea of having workers representatives on the boards of directors. I am sure of one thing, most long term investers would wish that Ford was managed more like toyota.

  83. Tim Kane says:

    One other thing, Japanese law is based upon German Civil Code. Since 1945 they have evolved some constitutional review as has most civil code nations. In addition, they have developed a system of contrition that has helped them lower their crime rates. Again, they also have, until very recently, the broadest distribution of wealth in the first world.

  84. Tom C. says:

    Tim Kane- Japan has been in an economic rut for 25 years. Their law didn’t evolve, in the sense I think you mean, but was largely imposed by the US occupying power after WW2. Statistics regarding wealth distribution are almost useless in a dynamic, fluid economy. Some abstract ‘ideal’ regarding an optimum distribution of wealth is not worth the demographic collapse of your ideal, Japan, nor the economic stagnation and deflation charateristic of their economy. I honestly believe, however, that your assumptions regarding wealth distribution, political ideology, culture and the state as well as your take on contemporary ‘liberalism’ are nothing but theory and simply wrong. My view of ‘Wilsonian’ liberalism is anything but theoretical as opposed to your belief that the rise of twentieth century totalitarianism coincident with the rise of western ‘progressivism’ was a reaction to the failures of free and open economies. If you’d like THAT theory to stand, you should prove it with someting other than a peculiar reading of history.

  85. Tim Kane says:

    Japan has had a financial recession since the implosion of a real estate bubble back in the early 1990s. That’s 15 year at most.

    (Go back 25 years, to 1982, and you find Japan during their biggest economic boom.)

    But that financial recession doesn’t extend to other parts of their economy. In fact, in most years of the 1990s, Japan posted positive growth rates in a society with little, if any population growth. Meanwhile its industrial companies continue to push the United States farther into a post-industrial age.

    While facts and figures can be fluid, we are talking orders of magnitude in difference of wealth distribution. Everyone agrees that the current distribution of wealth and income is approaching the pleaks seen only in the gilded age and the 1920s. Moreover, a recent NY Times study published that economic mobility in the United States is behind those of Europe.

    My ideas are not based on theory. I started out as a Republican. The more I studied, the more I learned and the more history I studied especially, but economic geography too, and the more law I studied the more I learned that your ideas are the ones based upon theory. There are no precedents for the limited government expose in the last 130 years.

    Our society is based upon one principle: free contract. (Our love of freedom is simply a necessary component for free contract).

    When the limited liability corporation was invented the playing field on which individuals bargained for rights, privileges and contracts became tilted in favor of Corporations. Wealth concentration followed immediately after that.

    Wealth concentration is the very antithesis of the empowerment of the individual that the founding generation aspired to.

    Deep down in side, you know I am right.

    You know that the world changed with the invention of the limited liability corporation in 1862.

    You know that simple individualistic libertarianism ideas can’t function in a world dominated by financial collectives.

    Your ideas are base completely on theory. Small government. The very purpose of those ideas is that Government will vacate areas it now hold so that corporations can move in and fill the void.

    You know that a clear eyed look at history demonstrates all of this. And you know that the future will do the same.

    The first act: Toyota passing GM.

    All those Toyota employees have tenure. GM lays off its employees. Hmmmm.

    Face it your adherance to some wild eyed theory dreamed up to advance the interest of the corporate aristocracy is based either on the idea that you are either one of the wealthy who will benefit, or one of the few who have been duped to side with the right against their own self interest. Usually this is done with emotional issues like nationalism, religion, homosexuality, or racism or someother emotionally charged position.

    The overwhelming weight of history is not on your side, and all of that history suggest that the U.S. is in for an epic shock if the current trajectory is held in place. No doubt conservatives will find a way to blame that on liberals too.

  86. tom c says:

    All of your ideas are theoretical. You are a bit of an historicist as well. Get down to the nitty gritty of Toyota (your example) and what do you find: 1000-2500 dollars in lower production costs. Liberalism in the classical sense is hardly some ‘wild eyed theory’. It has a premise regarding the nature of man and the nature of the state. Your theoretical framework posits a top down statism which you are more than happy to accomodate for no reason other than you’d rather see the state aggrandized as long as it’s at the expense of your abstract ‘corporations’. Corporations have customers. The state only has coercion. Libertarianism, by the way, is bunk. When you say ‘liberal’, what exactly do you mean?

  87. Tim Kane says:

    You obviously don’t understand economics. How does Toyota achieve those lower production costs?

    I don’t embrace statist solutions.

    You just don’t get it. You are tied into an antiquated republican view of the world.

    Classical liberalism assumes, as DesCartes suggested, only two entities: the individual and the universe. Upon that premis Liberalism is constructed.

    But along comes the limited liability corporation. It changes everything for Libertarian based societies. Why? Because the corporation is a collective.

    You haven’t acknowledge that in your primitive, though easier to contemplate world view.

    The corporation is a reality. It has profound affects in every aspect of society. You don’t recognize that, there for your solutions, suggestions, remedies and even you views are pretty much ultra virus in regard to reality.

    Typical for republican view point.

    The corporation is an organizational/institutional arrangement. And while created by the state, is not a statist organ.

    But the imbalances that it creates as a collective have to be addressed, or society is will go the way of the Romans, thanks to the imbalances it creates.

    Its that simple and for you, I suppose, its that complex.

    Some how you can’t seem to wrap you mind around that reality, complex or simple as it may be.

    None of this intrinsically negates the good work of classical liberals – its just that in a world that contains organizational arrangements they couldn’t dream of, they are insufficient and in many cases ultravirus.

    The Japanese case shows how organizational arrangements can be arrived without, as you would call them ‘statist’ solutions.

    As the corporation isn’t a statist organization, neither is the Japanese answer to the imbalances it creates. Japanese companies have built into them ways to arrive at fairness and just distribution of wealth: broad tenure, company unions and indirect representation of worker interest on the Board of Directors. This balances out the bargaining playing field.

    In fact, due to historical and socioligical reasons, Japanese instintively arrive at institutional innovations that are designed to ensure a level playing field for bargaining rights.

    The result is a society with Scandinavian distribution of wealth without the Scandinavian statism. Along the way they get unheard of low levels of crime, etc…

    All of this is do to the fact, that for the Japanese, between the state and the individual, their reality is and has for several hundred years, been filled with very real collective/community type entities. In fact the paradigm of Japanese organization could be called ‘village communitarianism’ whether it be in a business or whatever. And for a village to thrive with peace and prosperity, the imbalances between the rich and the powerful have to be mitigated so that reality is is just and fair. All of this was developed in Japan as a reaction against the Shogun state. (See John Owen Haley’s “Spirit of Japnese Law).

    The only way you can maintain the framework of your world view is if you pretend that the Corporation either doesn’t exist, or it isn’t a collective and that it doesn’t create imbalances as a result.

    As for my self, my personal ideology is good old fashion Anglo-American pragmatism. The very ideology of American society is pragmatism (see Oliver Wendall Holmes “The Common Law and the school of thought known as ‘American legal realism’.)

    Our common law falls out of English common law. As does our notions of liberty.

    The modern invention of Liberty is liberty is a function of fairness or liberty inside the wall. How is that? Because liberty without fairness/justice is mere thuggery: might makes right. In theory when the Roman state collapsed throughout Western Europe there was a state of absolute freedom. In that state, the strongest got their way and the weakest vanquished. To quote Simon Wiesenthaler upon being liberated from a German Death camp by American Liberators, without justice there is only tyranny.

    English common law is based upon pragmatism. It’s major innovation wasn’t liberty, but liberty couched within a greater doctrine of fairness. That is maximum freedom short of might makes right.

    In the middle ages, that English law developed a bias towards liberty. Why? Because it was law on the cheap. The common law was the King’s law, but it had to compete against other courts: canon law, baron law, merchant law, courts of equity and star chamber, to name a few. The King saw the common law as a way to short circuit the influence of local barons upon their commoners. So he sent his judges riding circuit around the countryside administering decisions. But the problem with a decision is that it has to be upheld. A fundemental postulate of jurisprudence is that of the carrot and the stick, or perceived legitimacy/moral author versus sanctioning authority. Moral authority is slow to accumulate but inexpensive to wield. Sanctioning authorit is not only extremely expensive to wield, but undermines moral authority/perceived legitimacy in the act of it being wielded. The Kings Common Law courts then developed a bias towards liberty because such decisions didn’t require the application of enforcement which was expensive against the Kings purse – but liberty only where it didn’t offend fairness.

    The overall, long term problem with your insistance of libertarianist solutions is that they are patently unfair in an economic realm where corporations exist as a collective. In doing battle against individuals, they win almost everytime. In fact they win in every venue except in a court of law, which has all kinds of rules in order to balance the playing field. As a result, Corporations can’t use their size and power to alter the playing field to guarantee decisions in their favor, so instead is trying to use their influence with legislatures to introduce “tort reform” to minimize the size of their losses.

    The American notion of liberty then arose out of pragmatism: good old common sense. That is our core ideology, secondarily to pragmatism is fairness, and third, liberalism.

    Remember: Liberty unconstrained by fairness, inbedded in the law, means the tyranny of might makes right. Where corporations can prance about, bargaining against individuals as if they were individuals, ultimately leads to the very tyranny liberalism first emerged to protect against.

    I understand your views, their very old. They don’t recognize reality. Corporations do exist, they are not individuals, they are collectives and that gives them size and bargaining power that has to be mitigated against to keep a level playing field. The solutions don’t have to be statist. That’s simplistic thinking. But corporations must be mitigated against. I think the Japanese have one solution. Probably the best. It’s not statist. In Europe workers have representation on boards of directors. In the automotive sector, The Japanese corporation is thriving, the European are doing well, and the Americans are staging a prolonged retreat. The Americans have the oldest organizational arrangements. They need to be brought up to date.

    Your idea of liberty will ultimately bring us into fascist society: the control of the state by corporations.

  88. You two guys should get a room.

  89. Tom C. says:

    Tim- I don’t think you understand what fascism is. Contemporary, progressive style ‘liberalism’ is fascism lite. Statism and fascism go hand in hand. The top down solutions, offered by statists of all stripes, to imperfections within the economy are, as the state is aggrandized, the beginning of ‘fascism’ or top down control of all aspects of the productive economy. Mussolini was a self-described fascist although the word did not become fashionable among the unlettered left until it became the all purpose stalinist putdown. Like ‘liberalism’, or your version of ‘libertarian’, it’s an almost meaningless word.

  90. Tim Kane says:

    I’m still waiting for you to provide real world examples of where your theories of government have been put into practice in the last 130 years.

    I still waiting for you to acknowledge the impact that corporations have upon classical liberalism.

    I am still waiting for you to address the historical facts I first presented on how societies and states have failed in the past.

    I am still waiting for you to explain how infrastructure can be uniformly sustained without revenue streams coming from those that have revenues.

    I am still waiting for you to explain how to overcome the vices of concentrated wealth and somehow avoid a dickensian dystopia.

    I am still waiting for you to explain to me how leveling the playing field between bargaining agents is some how distributionist or statist? Or how leveling the playing field would be unfair? Or address specifically the deficiencies of the Japanese institutional arrangements which exist, not at the state level, but within the corporation.

    You can’t dismiss the Japanese experience as saying they’ve had a recession for 25 years. That’s the same as saying you don’t know anything about the subject. Which is the same as saying that your arguments are based more upon your sentiments and not upon facts.

    Let me put it to you this way: I was once a republican. I voted for Reagan twice, the first Bush once. I went to law school. Twice in my life I’ve had my life ruined by Republican economics after going over one year unemployed. During the Clinton years I made six figure salaries. I’ve got a half dozen friends, unrelated and unknown to each other, that are well trained and well experience in their specific fields in many different fields from Info Sys to commercial graphic artist – all are unemployed. Most of them have family and children to provide for and are used to a middle class existence that is slipping away from them. I never was able to get back into my old field – even though there are hundreds of thousands of H1B visas given to Russians and Indians to come into the country to do what I used to be able to and can still do. I am under-employed, teaching English in a foreign country right now while struggling to make payments on debt I accumulated trying to find a job where I used to call home.

    (Think of the oddity – I can’t get a job, so I am forced to move to asia to do a job I wasn’t trained for or have no experience in so that Asian’s can come to my home so that they can do the job I was trained for – and no, I was never even given the chance to bargain for those jobs – and I had very extensive contacts and sent out over 2000 resumes. Every time the market started to tighten up, Bush issued and executive order creating a few hundred thousand more H1B visas)

    The fact is, our country is based upon one principle, and one principle only – free contract. That means bargaining power is everything. And right now that bargaining power is concentrated in the hands of very very few. And it will tip the ship of state over just as surely as standing up in a canoe.

    The Bush administration exist for only one purpose, to further concentrate wealth and power that means tipping bargaining power further away from working and middle class persons.

    The theories you spout are nothing but hogwash. Their are no precedence of any of it being applied in the modern era successfully. It is nothing more than a red herring to distract the masses from understanding that which is really going on out there. And until they are like my friends, unemployed watching themselves slip out of the middle class, they won’t realize that they been fed a load of carbon fiber.

    My final question to you is this: Where a person stands on the issues depends upon where they sit, what is your circumstances – why do you make these false arguments? Are you one of the uber rich? Are you a political operative? Are you neither, and just been hood winked into drinking the cool aide (and thus left to advocate for a position that works against your own interest)?

    I’m sorry. Your theories work nice in theory. As classical economist like to say, the real world is a special case. In the real world, corporations exist. In the real world they cause bargaining for free contract to become one sided. In the real world, when bargaining becomes one sided, societies experience sudden, sometimes unexpected or unforeseen collapse? That’s not me that’s the history.

    To not acknowledge it is just blatent denial. The question is, why?

    Why are you carrying the water for a false theory that has no successful precedent and is hurting millions of people, most of them honest and decent people, many of them Americans?

    You can advocate for balanced bargaining power arrangements without pursuing ‘statist’ solutions. And remember, unbalanced bargaining power is a distributionist arrangement.

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  92. I said here months ago that Gold was going up and the dollar down. Buy Canadian Oil Trusts to hedge the decline in the dollar and the continued upswing in Oil prices. I expect it to cost 1.75 dollars to buy a Euro by year end or early 2009. I expect it to cost about 1.15 to buy a Canadian Dollar by 2009. Oil may pull back but 60 months from now we are at 200 , up from 100 now. Gold can only go up, perhaps hitting $5,000 an ounce in the next 15 years.

  93. I said here months ago that Gold was going up and the dollar down. Buy Canadian Oil Trusts to hedge the decline in the dollar and the continued upswing in Oil prices. I expect it to cost 1.75 dollars to buy a Euro by year end or early 2009. I expect it to cost about 1.15 to buy a Canadian Dollar by 2009. Oil may pull back but 60 months from now we are at 200 , up from 100 now. Gold can only go up, perhaps hitting $5,000 an ounce in the next 15 years.