A thoughtful article by Thomas Brewton yesterday here explains that US inflation is also causing inflation in China. While America sheds jobs and lives on credit, the Chinese economy is becoming overheated. When the pop comes, the result may well be bankruptcies and unemployment in both countries, as well as in others. Richard Duncan's book "The Dollar Crisis" explains the mechanisms in detail.
If the yuan is allowed to appreciate against the dollar gradually, Chinese business will start to suffer, but starting now may mean less pain overall. The USA will also undergo painful - and politically unpopular - adjustments. Can the crisis be managed without a crash?
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Monday, May 28, 2007
Interview: "The Dollar Crisis" by Richard Duncan
While I am finishing Richard Duncan's book, please see here for an interview in which the author explains his analysis and proposed solutions. This man is no Chicken Little - he's worked for the International Monetary Fund and the World Bank. The problems he describes are very real and very important.
As I understand it, America is like a gourmet and the Far East is his favourite cafe. With the party of friends he brings, he is by far its most important customer - but he pays for the meals in IOUs. He's been such good business that the cafe has borrowed from the bank to build an extension and hire extra staff.
But some start to worry that America won't be able to settle the now-enormous bill. What to do? If he pays up, he runs out of money and stops visiting the restaurant. America will go on a diet of bread and water and the cafe will go bust. On the other hand, if the restaurant accepts that his IOUs are worthless, it's bust anyway.
One solution is to look for new customers before the crisis hits, so the cafe can keep going. And another is to outlaw IOUs - if you haven't got the cash, you don't get the meal.
So Mr Duncan proposes:
(a) a global minimum wage, so poorer people around the world can have the money to buy the goods and services the Far East is geared up to provide.
(b) a global bank, to oversee financial balances between countries and prevent these credit problems recurring.
Meanwhile, America must face a much lower standard of living for a long time, until he's out of the hole he dug for himself. And maybe he'll be allowed a discount on his debt (i.e. inflation). The cafe is going to suffer a loss; the question is whether the business can find a way to survive it.
As I understand it, America is like a gourmet and the Far East is his favourite cafe. With the party of friends he brings, he is by far its most important customer - but he pays for the meals in IOUs. He's been such good business that the cafe has borrowed from the bank to build an extension and hire extra staff.
But some start to worry that America won't be able to settle the now-enormous bill. What to do? If he pays up, he runs out of money and stops visiting the restaurant. America will go on a diet of bread and water and the cafe will go bust. On the other hand, if the restaurant accepts that his IOUs are worthless, it's bust anyway.
One solution is to look for new customers before the crisis hits, so the cafe can keep going. And another is to outlaw IOUs - if you haven't got the cash, you don't get the meal.
So Mr Duncan proposes:
(a) a global minimum wage, so poorer people around the world can have the money to buy the goods and services the Far East is geared up to provide.
(b) a global bank, to oversee financial balances between countries and prevent these credit problems recurring.
Meanwhile, America must face a much lower standard of living for a long time, until he's out of the hole he dug for himself. And maybe he'll be allowed a discount on his debt (i.e. inflation). The cafe is going to suffer a loss; the question is whether the business can find a way to survive it.
America's inflation causes China's inflation
A thoughtful article by Thomas Brewton yesterday here explains that US inflation is also causing inflation in China. While America sheds jobs and lives on credit, the Chinese economy is becoming overheated. When the pop comes, the result may well be bankruptcies and unemployment in both countries, as well as in others. Richard Duncan's book "The Dollar Crisis" explains the mechanisms in detail.
If the yuan is allowed to appreciate against the dollar gradually, Chinese business will start to suffer, but starting now may mean less pain overall. The USA will also undergo painful - and politically unpopular - adjustments. Can the crisis be managed without a crash?
If the yuan is allowed to appreciate against the dollar gradually, Chinese business will start to suffer, but starting now may mean less pain overall. The USA will also undergo painful - and politically unpopular - adjustments. Can the crisis be managed without a crash?
Saturday, May 26, 2007
US Immigration Bill may also hit talented immigrants, extended families
New immigration rules may cause problems for highly skilled immigrants as this article in today's Washington Post explains. (Spotted via Free Internet Press - thanks.)
The proposed Bill seems to draw a line under the past, but is much tougher on future immigration. This raises the issue of fairness: for example, the amnesty would cover some 3 million resident "illegals" from India (see here) but make entry more difficult for "legitimate" Green Card holders' relations.
The Christian Science Monitor gives good coverage to the debate - see their article here and also the linked articles below it.
And if you wish to see the draft text of the Bill itself - all 326 pages of it - click here.
I guess that the difficulties of a bill like this arise from a conflict of objectives. If the US education system provided all the skilled workers America needs, the US could be simpler and firmer on immigration.
Instead, senior figures like Alan Greenspan voice support for easier immigration as a quick economic fix, ignoring the implications for the future. Why, that's almost like printing money now and leaving tomorrow's inflation for others to handle.
The proposed Bill seems to draw a line under the past, but is much tougher on future immigration. This raises the issue of fairness: for example, the amnesty would cover some 3 million resident "illegals" from India (see here) but make entry more difficult for "legitimate" Green Card holders' relations.
The Christian Science Monitor gives good coverage to the debate - see their article here and also the linked articles below it.
And if you wish to see the draft text of the Bill itself - all 326 pages of it - click here.
I guess that the difficulties of a bill like this arise from a conflict of objectives. If the US education system provided all the skilled workers America needs, the US could be simpler and firmer on immigration.
Instead, senior figures like Alan Greenspan voice support for easier immigration as a quick economic fix, ignoring the implications for the future. Why, that's almost like printing money now and leaving tomorrow's inflation for others to handle.
Friday, May 25, 2007
US immigration and the poor (continued)
Altough immigration can keep down the living standards of poorer workers, it's not possible to undo what has happened so far, as this source reports:
President Bush defended the bill as a comprehensive approach that will fix what most Americans believe is a broken immigration system through which millions of illegal immigrants have entered the United States.
"If anybody advocates trying to dig out 12 million people who have been in our society for a while, you know, it's sending a signal to the American people that's just not real," Mr Bush said.
President Bush defended the bill as a comprehensive approach that will fix what most Americans believe is a broken immigration system through which millions of illegal immigrants have entered the United States.
"If anybody advocates trying to dig out 12 million people who have been in our society for a while, you know, it's sending a signal to the American people that's just not real," Mr Bush said.
US poor getting poorer
Following my earlier comments on Alan Greenspan's enthusiasm for immigration, yesterday's Daily Reckoning gives Martin Hutchinson's view:
"The immigration bill brought forward and apparently likely to pass demonstrates an unattractive new political trend in the United States: the end of the classless society for which the U.S. has been famous [...] the rich really are getting richer in the US...the poor really are getting poorer [...]
The economic effect of large amounts of unskilled immigrant labour is very clear: it drives wage rates down to rock bottom levels [...] for the lower classes, it is hell...Instead of the well-paid factory jobs their fathers had, making physical products in which they could take pride, they are now reduced to competing with infinite numbers of illegal immigrants for personal service, retail and construction jobs that have not been mechanised or out-sourced.
Theoretically, they could get more education and turn themselves into brain surgeons or computer-aided designers; in practice, these possibilities merely make them mourn that they hadn't paid more attention in math class. Thus the social gulf grows ever wider."
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
"The immigration bill brought forward and apparently likely to pass demonstrates an unattractive new political trend in the United States: the end of the classless society for which the U.S. has been famous [...] the rich really are getting richer in the US...the poor really are getting poorer [...]
The economic effect of large amounts of unskilled immigrant labour is very clear: it drives wage rates down to rock bottom levels [...] for the lower classes, it is hell...Instead of the well-paid factory jobs their fathers had, making physical products in which they could take pride, they are now reduced to competing with infinite numbers of illegal immigrants for personal service, retail and construction jobs that have not been mechanised or out-sourced.
Theoretically, they could get more education and turn themselves into brain surgeons or computer-aided designers; in practice, these possibilities merely make them mourn that they hadn't paid more attention in math class. Thus the social gulf grows ever wider."
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
US poor getting poorer
Following my earlier comments on Alan Greenspan's enthusiasm for immigration, yesterday's Daily Reckoning gives Martin Hutchinson's view:
"The immigration bill brought forward and apparently likely to pass demonstrates an unattractive new political trend in the United States: the end of the classless society for which the U.S. has been famous [...] the rich really are getting richer in the US...the poor really are getting poorer [...]
The economic effect of large amounts of unskilled immigrant labour is very clear: it drives wage rates down to rock bottom levels [...] for the lower classes, it is hell...Instead of the well-paid factory jobs their fathers had, making physical products in which they could take pride, they are now reduced to competing with infinite numbers of illegal immigrants for personal service, retail and construction jobs that have not been mechanised or out-sourced.
Theoretically, they could get more education and turn themselves into brain surgeons or computer-aided designers; in practice, these possibilities merely make them mourn that they hadn't paid more attention in math class. Thus the social gulf grows ever wider."
"The immigration bill brought forward and apparently likely to pass demonstrates an unattractive new political trend in the United States: the end of the classless society for which the U.S. has been famous [...] the rich really are getting richer in the US...the poor really are getting poorer [...]
The economic effect of large amounts of unskilled immigrant labour is very clear: it drives wage rates down to rock bottom levels [...] for the lower classes, it is hell...Instead of the well-paid factory jobs their fathers had, making physical products in which they could take pride, they are now reduced to competing with infinite numbers of illegal immigrants for personal service, retail and construction jobs that have not been mechanised or out-sourced.
Theoretically, they could get more education and turn themselves into brain surgeons or computer-aided designers; in practice, these possibilities merely make them mourn that they hadn't paid more attention in math class. Thus the social gulf grows ever wider."
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