Peter Schiff For Senate!

[C.W.]

All right I have more questions then I do time so I will only address a couple at a time.

What your not understanding is that the foreign debt doesn't just concern the government but the whole economy as a whole. The problem in two pronged because it both sends false signals to the economy as well as destroys wealth.

As the Fed sells T-Bills, the revenues go into the Fed balance sheet. Banks then borrow the money from the Fed through short term loans and commercial paper. Roughly $212 billion in loans was made available from the fed to banks just this past week alone, the same goes for the previous week. If there is a lot of money in the economy, interest rates will drop because banks will have an easier time of procuring money to loan.

Due to the nature of Fractional Reserve Banking, the rate set by the Fed winds up increasing the money supply. Meaning as the rate is lowered, more money is "printed" into existence. The creation of all this new money has the artificial effect of lowering rates for things like mortgages because the supply of money just got that much bigger - hence demand falls, so rates need to fall as well to attract borrowers. The important thing to understand is that this increase in deposits at banks was not the natural result of savings - instead it was because of the artificial "money creation" following the Feds rate adjustment.

In a free-market, interest rates provide crucial information about the state of the economy, just like prices. Low interest rates signal that money is plentiful, without monetary intervention, that would actually mean that our economy is in a state of prosperity, which is an environment that is more favorable to risk taking. The fed effectively tricked the market into thinking it was a good opportunity to take part in risky behavior because they think their is increased savings.

Bruce,

Basically, I think that your analysis here is correct. Although the Fed does not actually need any additional government bonds in the system to increase the money supply. You are also right on in noting that it is through loans that the Fed expands the money supply. You might look at the role of the "reserves" in the bank credit expansion, since it allows the Fed to have a 1 to 10 impact via the "reserves". The "reserves" in the "Federal Reserve System" is the key to the massive power the Fed has.

I think that your last couple of sentences are really good.

Keep in mind that international trade is all done on credit. It is our credit expansion that enables us to finance the international trade deficit. It is the direct export of our inflation that we have seen for nearly three decades.

Yet, I am not sure how your excellent analysis meet my objection that our supposed lack of manufacturing causes our trade deficit. Nor do I see how it means that the United States does not product wealth. The Fed can make it more difficult, but that has nothing to do with services vs. manufacturing.

[C.W.]

The fundamentals of the United States economy are completely unsound. The strength of our currency is based fundamentally on the fact that it is the reserve currency of the world. The United States' paper market is its largest export. We specialize in nearly nothing in the world that some other country cannot produce faster, better, and cheaper. Knowing this, how can you say a massive depression is not inevitable? We're going to be running deficits of 2 trillion dollars a year for the next 10 years. Do you understand how much inflation that is going to produce?

Andrew,

The first sentence is merely a declaration. Is the second sentence there to support the first? It doen't, you changed for the economy to the standing of the currency internationally. Nor do I think that the second sentence is entirely true, althought I do realize there is importance to being a "reserve currency". "Paper", I take it means exporting dollars. Our exports last year were $1.8 T, our deficit was $600 B. Our paper was 25%. That is very bad, but not death, necessarily.

I have looked back over the posts at your comments before regarding our "specialization". Your list of goods is always about two or three, and the same ones. There are actually thousands, and yes, many of them we are the best. But, you know, even if we are the best, we may be too expensive. To be successful in selling your product, it must also be affordable to your market. We still are, in many areas. You must open up and look around. Get away from your compurter and the liberals on TV and look. Americans are very creative, original, and can think of many things to do besides TVs and cars. Again, just because you can't think of them, doesn't mean the things aren't there. So, I don't "know this" because it is not true.

Yes, $2 T dollar deficits are going to be very bad for us, and yes, in one form or another, lots of inflation, probably lots of price inflatin, too. Obama is both the best and worst thing to happen in a long time. He is good for the sales of Atlas you know. However, I don't see how your last two sentences have anything to do with Schiff's claims in Crash Proof.

And, no, what you said does not add up to a massive depression.

[softwareNerd]

The fundamentals of the United States economy are completely unsound. The strength of our currency is based fundamentally on the fact that it is the reserve currency of the world. The United States' paper market is its largest export. We specialize in nearly nothing in the world that some other country cannot produce faster, better, and cheaper.

Andrew, There is an element of truth in this; but, I'm not going to parse out the facts that lie in this hyperbole, and address just those facts.

Knowing this, how can you say a massive depression is not inevitable?

Huge credit expansions end in credit deflations and recession/depression. However, in the private sector, to a large extent, the horse has left the barn. We are in a recession/depression, and have been for about 2 years now. I agree that private parties -- individuals and companies -- had been saving less than was rational. Now, the private sector has shifted its budget allocation, and is pushing more money into savings.

So, that part of Schiff's thesis is a done deal. Now, looking to the future, we need to focus on the government sector. As the consumer has lessened spending and pulled back on loans, the government has ramped up spending and has almost fully closed that gap. This is a bad thing; we ought to have taken more pain. However, the fact that the government stepped in to lessen the short-term pain for some people does not imply that it will continue to remove all pain. In essence, this is not a question of economics, but of politics. It is a question of political forecasting.

We're going to be running deficits of 2 trillion dollars a year for the next 10 years. Do you understand how much inflation that is going to produce? We had many opportunities in 2007 to correct this problem - to not arrive at an inevitably perilous conclusion - but we squandered those chances with the massive money creation we engaged in last year.

If we really do run $ 2T deficits for the next 10 years, we would be in trouble. I doubt that will happen. Again, this is not about economics, but about guessing how the politics will evolve. There is no voter-will to take severe pain; however, this does not mean that there is no willingness to take some pain. One thesis bandied about is that once the bulk of the fear passes, the private sector will go back to its old ways, and that the high-power money that has now been created will get leveraged into massive amounts of effective-money. However, I think this underestimates the change of mood among voters. I hear voices from both sides of the political spectrum asking for deficit-reduction.

I know it is disheartening that politicians are such idiots, with Obama trying to fool people that his health-care bill will be "fiscally neutral". However, take some heart: the country as a whole does not buy into the Krugman thesis where deficits can create wealth. Left to themselves, there are enough politicians whom would run up deficits far into the future; however, I think it is unlikely that this will actually happen, after plans have gone through the rough and tumble of the political process. My guess is that the U.S. voter will opt to raise taxes and to ask for slower growth in government. (You see this happening at the state level, with very little voter protest.) I doubt this will happen at the Federal level unless there is some pain; but, I doubt it requires us to become Zimbabwe before this happens. I think it is a better guess that at some point of higher-CPI, combined with higher-mortgage rates, and combined with slow growth and high unemployment, enough voters will be willing to do something different.

[Rearden_Steel]

So, that part of Schiff's thesis is a done deal. Now, looking to the future, we need to focus on the government sector. As the consumer has lessened spending and pulled back on loans, the government has ramped up spending and has almost fully closed that gap. This is a bad thing; we ought to have taken more pain. However, the fact that the government stepped in to lessen the short-term pain for some people does not imply that it will continue to remove all pain. In essence, this is not a question of economics, but of politics. It is a question of political forecasting.

I know it is disheartening that politicians are such idiots, with Obama trying to fool people that his health-care bill will be "fiscally neutral". However, take some heart: the country as a whole does not buy into the Krugman thesis where deficits can create wealth. Left to themselves, there are enough politicians whom would run up deficits far into the future; however, I think it is unlikely that this will actually happen, after plans have gone through the rough and tumble of the political process. My guess is that the U.S. voter will opt to raise taxes and to ask for slower growth in government. (You see this happening at the state level, with very little voter protest.) I doubt this will happen at the Federal level unless there is some pain; but, I doubt it requires us to become Zimbabwe before this happens. I think it is a better guess that at some point of higher-CPI, combined with higher-mortgage rates, and combined with slow growth and high unemployment, enough voters will be willing to do something different.

Well said. I completely agree. This is a political issue. Which is why Schiff decided to run even though he much rather run his own business. He stated on his last radio show that he looks forward to the day when he can be bullish about the US economy. Well have to see how the politics play out. What I fear though is that Obama and his goons will continue to blame the free market for the economy's ills and insist that further controls and spending is needed.

Edited September 30, 2009 by Rearden_Steel

[Andrew Grathwohl]

I'll let him tell you, from Crash Proof (p. 38).

So, because computers turned out, according to his sources, to be not as productive as promised, there was no increase in productivity. I wonder how he thinks increases in productivity occurred before computers? I mean, he seems to think that only computers could have created more productivity. Or, the productivity increase during the 90's was measured. Schiff has now declared that since computers weren't as important as first thought, the measured increase in productivity doesn't exist. I don't think that this is the only example of Schiff's thinking like this.

You completely misread the passage you quoted. The productivity STATISTIC is what he's writing about, not American productivity. He's showing how inaccurate and unrealistic the measurement is, and how using it as evidence for strong American production is basing your claim on myth and fallacy.

Another important point, he says, "...why, if it is true that we are more productive than our trading partners, our trade deficit gets bigger, not smaller." I do not understand why he thinks there is a direct connection.

Productive economies have trade surpluses, not trade deficits. That's macroeconomics 101.

[Andrew Grathwohl]

Your previous claim was that hardly anything is being produced where you live, in America. So let's start with the center of your Universe. Why aren't you producing anything, or hardly anything?

I'm one American, out of over 300 million. Do you honestly expect me to take this question seriously, or were you hoping I'd rebut with an equally sarcastic remark?

You keep speaking for other Americans, and their values. You're an American, what do you have, that's valuable, and how did you get it, if you have no value to offer in return? Did you steal it?

Or, if you have nothing that's of value, how do you survive?

I speak for America - not Americans. There's nothing in Objectivism that says you aren't allowed to recognize a country's faults. You don't have to turn around and play word games just because you're hopelessly sensitive to people speaking ill of the United States, and demonstrate this in childish ways.

I'm not sure what you're implying regarding the assertion that I have stolen valuables. I have plenty of value to offer people - it's the growing number of thieves taking welfare money and idiots whose mortgages are guaranteed by Freddie and Fannie that have nothing to offer.

[khaight]

Productive economies have trade surpluses, not trade deficits. That's macroeconomics 101.

Perhaps I need to review macroeconomics 101 then, because this seems fishy to me. It implies that the productivity of one economy depends on the actions of another. Country A can be chugging along building widgets, trading them for framitzes from Country B, running a trade surplus. A's economy is 'productive'. Country B then starts making doodads too, and the balance of trade shifts. Suddenly Country A's economy is no longer productive, even though they are making exactly the same number of widgets now that they were before?

Something seems wrong about that.

[Jake_Ellison]

I'm one American, out of over 300 million. Do you honestly expect me to take this question seriously, or were you hoping I'd rebut with an equally sarcastic remark?

There is nothing sarcastic or unreasonable about asking someone to explain something that appears to be a fundamental contradiction in their theory: their own actions. If you claim your country is occupied by parasites (which you undeniably did claim), why continue that life? Americans are free to move pretty much anywhere, precisely because they so rarely do.

You are claiming that you have knowledge of what Americans are typically producing. Out of those 300 million you, Andrew, are the person who's productivity you are most familiar with.

If you believe that you are the one productive island in a sea of 300 million parasites, please, explain the difference between yourself and the rest of the Americans.

If you believe that you are not productive, then please, explain, why that is, what is the source of the values you obviously own (such as the computer you're typing at), if it isn't your own productivity, and why are you continuing to live as an unproductive parasite, rather than move to China, where you can be productive and virtuous. Virtue, after all, is the source of happiness.

Perhaps I need to review macroeconomics 101 then, because this seems fishy to me. It implies that the productivity of one economy depends on the actions of another. Country A can be chugging along building widgets, trading them for framitzes from Country B, running a trade surplus. A's economy is 'productive'. Country B then starts making doodads too, and the balance of trade shifts. Suddenly Country A's economy is no longer productive, even though they are making exactly the same number of widgets now that they were before?

Something seems wrong about that.

That an economy that has a deficit is not productive? Yes, what smells about it is the blatant zero sum game approach. In reality, anyone who engages in any trade must necessarily be productive first.

Also, in trade, there are no winners and losers, there are only winners. Attempting to look for statistics to try and find who's losing, is the wrong approach.

If America does indeed have an actual deficit, as far as the exchange of value goes, that would mean that on average, Chinese residents are benefiting a little less from the overall trade between members of the two nations, than Americans. But I doubt that's really the case, those numbers measure strictly the export of goods, not value as a whole. Investment and knowledge are also valuable, and I have a feeling a lot of that is flowing in China's direction. That could be determined by a quick look at how much property Americans own, that happens to be located in China, vs. the other way around. Since they obtained that property by trading value for value, the value they used to trade for it had to be exported from America to China at some point.

Edited October 1, 2009 by Jake_Ellison

[Andrew Grathwohl]

Perhaps I need to review macroeconomics 101 then, because this seems fishy to me. It implies that the productivity of one economy depends on the actions of another. Country A can be chugging along building widgets, trading them for framitzes from Country B, running a trade surplus. A's economy is 'productive'. Country B then starts making doodads too, and the balance of trade shifts. Suddenly Country A's economy is no longer productive, even though they are making exactly the same number of widgets now that they were before?

Something seems wrong about that.

Productive economies are ones that produce more than they consume. If they produce more than they consume (live beneath their means), then that means that even if the people of that economy only consume goods produced by that same economy, then there is still productive capacity left over. Naturally, this productive capacity gets utilized in the manner of exporting goods, because inventoried goods have a finite lifespan, and a productive economy would have no benefit from storing their own goods when the demand for those goods could be supplied immediately, rather than in the future.

Two productive countries can trade with each other - there's nothing within this economic law that saws otherwise.

[softwareNerd]

Productive economies are ones that produce more than they consume.

True, but over-consumption/lack of savings is different from a trade surplus or deficit. A trade deficit is financed by "borrowing". The real question is whether that "borrowing" is being used for capital-goods or for consumption goods.

Many economists have been trained in Keynesianism and Rational Expectations/Modern Portfolio theory. So, they're blithely happy about both government and private spending of all types. When he attacks them, Schiff comes out looking really good. However, he too is looking at the economy through a fuzzy lens that seems to be that of a mercantilist "neo-physiocrat".

[Rearden_Steel]

However, he too is looking at the economy through a fuzzy lens that seems to be that of a mercantilist "neo-physiocrat".

How is that ?

[softwareNerd]

How is that ?

Decrying a trade deficit, which is a symptom of a problem as opposed to always being a symptom of a problem, put him in league with mercantilists. Seeing value in concrete physical goods as being somehow of more value than value in services, puts him in league with the physiocrats.

BTW, Ron Paul displays some of the same problems. He used to talk about some conspiratorial trans-U.S. highway and decry NAFTA. I know, I know... libertarians will say that he really wants totally free trade and not these negotiated treaties. I cannot look inside his mind, but I know what side he effectively teams up with when he decries things like NAFTA. (I wonder whether Schiff is also anti-NAFTA). It is similar to starting with an anti-FED position (which is well and good), and then advocating a more democratically-controlled FED (which is bad). (I wonder where Schiff stands on the FED audit bill.)

Edited October 1, 2009 by softwareNerd

[Rearden_Steel]

True, but over-consumption/lack of savings is different from a trade surplus or deficit. A trade deficit is financed by "borrowing". The real question is whether that "borrowing" is being used for capital-goods or for consumption goods.

Both really. Either way their still losing money.

From the Ludwig von Mises institute:

That this could be the case is also suggested by the private sector debt-to-its-trend ratio. This ratio stood at 5.8 in first quarter, against a similar figure from the previous quarter. The ever-rising ratio raises the likelihood that the increase in the private sector debt is on account of nonproductive debt. Real savings, instead of funding wealth generating activities, have been supporting non-wealth-generating activities. This weakens the ability of wealth-generating activities to grow the economy.

Edited October 1, 2009 by Rearden_Steel

[khaight]

True, but over-consumption/lack of savings is different from a trade surplus or deficit. A trade deficit is financed by "borrowing". The real question is whether that "borrowing" is being used for capital-goods or for consumption goods.

This seems like another case where it would be clarifying to talk about individuals instead of "economies", since the latter is just the collective result of the actions of the former.

In a sense, all trades are symmetrical. I have some value to offer, you have some value to offer, we swap. The law of marginal utility means we are both better off after the exchange, which is why we do it. A "trade deficit", if my understanding of the term is correct, is the situation you get when one party to an exchange is offering a physical good or service and the other party is offering money. In the context of a single transaction, viewing this as problematic is absurd. I'd be running a trade deficit with the grocery store, because every time we trade they give me a physical good and I just give them money.

Where this becomes potentially problematic is when this activity is sustained over an extended period of time, because it raises the question of what happens when I run out of money. As an individual, I have to go off and produce some value that I can exchange with other people for money, so that I can later use that money to exchange for other values. If I don't do that, eventually I run out of money and can't buy groceries any more.

If I'm a government, I have another option for getting more money -- I can create it ex nihilo. This leads to inflation, as other trading partners become increasingly reluctant to accept my money in exchange for stuff. That's the grain of truth in the 'trade deficit' argument -- you can't keep exchanging money for other values indefinitely without creating some values yourself with which you can obtain more money. Money gets its exchange value from that other production; if the production does not occur the money eventually loses its value.

[C.W.]

Productive economies are ones that produce more than they consume. If they produce more than they consume (live beneath their means), then that means that even if the people of that economy only consume goods produced by that same economy, then there is still productive capacity left over. Naturally, this productive capacity gets utilized in the manner of exporting goods, because inventoried goods have a finite lifespan, and a productive economy would have no benefit from storing their own goods when the demand for those goods could be supplied immediately, rather than in the future.

Productive economies have trade surpluses, not trade deficits. That's macroeconomics 101.

I would like to know where you get these ideas. I mean, I really would like to know their source.

Productive individuals have savings, yes. But the savings are not hoarded. It means nothing to save if the savings are not invested, although having reserves is a good idea, too, the reserves are a constant, and thus not significant. When the savings are invested it means that someone is using those savings for productive activity. Savings are like reinvested profits. For the economy as a whole, in the longer term, you expect savings and investment to balance out. But it is all consumed. The ultimate and only expense in all economic activity is work, including the capitalist, i.e., brain work.

Further, we are in a worldwide economy. Ultimately, dividing the U.S. off from the world makes no more sense than dividing California off from the U.S. You really can't consider us in isolation. That is one reason why the service vs. goods aregument doesn't work.

But back to the trade deficit. The only reason we have a trade deficit is because foreigners are keeping dollars. That's it. If they were spending the dollars they received when the got them we would have no trade deficit. It is not an issue of our productiveness. They want, based on their own judgment, to keep the dollars.

There are so many dollars because the Fed keeps making them, massively. It is like the real estate bubble. The Fed keep making dollars and the mortgage brokers keep loaning them out. International trade is based upon credit. Fed kept (keeps) expanding credit, dollars got shipped overseas. Schiff is correct that the "reserve" status of the dollar is a major reason we could export our inflation. We have ourselves to blame. But it is inflation that drove the massive amounts of money that went overseas.

If foreigners had spent that money as they got it, the dollar would have been dropping for many more years, which would have been better for us.

It is not an issue of services vs. "goods". Productive vs. non-productive. It is what they did with our inflated dollars. And, yes, they are changing their minds, somewhat.

Within a gold standard, there wouldn't be a deficit or surplus between countries, productive or otherwise. There are natural, economic activities within the international arena to automatically bring things into balance. Typically, the reasons for imbalances are financial, not the production of goods. Or maybe changes in the relative value of commodities or goods as the technological foundation of the world economy changes. But, surplus vs. deficit went out with the death of Mercantilism.

[khaight]

Further, we are in a worldwide economy. Ultimately, dividing the U.S. off from the world makes no more sense than dividing California off from the U.S. You really can't consider us in isolation.

This is an excellent point, which should always be kept in mind. Austrian economics advocates methodological individualism, and we should take that seriously. In reality, there is no such thing as the "American economy" trading with the "Japanese economy". Ultimately, there are only individuals in America trading with individuals in Japan. And if an 'economy' is simply the aggregation of the trading behaviors of individuals, this implies that the division between the "American economy" and the "Japanese economy" is in some sense completely artificial.

[brian0918]

In reality, there is no such thing as the "American economy" trading with the "Japanese economy". Ultimately, there are only individuals in America trading with individuals in Japan.

With how regulated individual countries are, I don't think you can make that assertion. The American economy is influenced by US Govt regulation of Americans, and the same for the Japanese. Our regulations encourage Americans to spend and discourage savings.

Edited October 2, 2009 by brian0918

[C.W.]

With how regulated individual countries are, I don't think you can make that assertion. The American economy is influenced by US Govt regulation of Americans, and the same for the Japanese. Our regulations encourage Americans to spend and discourage savings.

Brian,

I don't disagree with your fundamental point. More broadly, every locale or geopolitical entity will have its own issues, and in your comment, drawbacks. But individuals in each country, given what they can do legally and financially, will make the best choice available to them within the worldwide economy. There is no nation in the world today that doesn't have some governmental interference that undercuts their ability to produce and trade in a consistently rational manor. One of the good things about international markets, e.g., commodities and the Internet, is that they are a protection from some of the irrationality at home.

[Rearden_Steel]

Brian,

I don't disagree with your fundamental point. More broadly, every locale or geopolitical entity will have its own issues, and in your comment, drawbacks. But individuals in each country, given what they can do legally and financially, will make the best choice available to them within the worldwide economy. There is no nation in the world today that doesn't have some governmental interference that undercuts their ability to produce and trade in a consistently rational manor. One of the good things about international markets, e.g., commodities and the Internet, is that they are a protection from some of the irrationality at home.

But were still bound by our currency, central bank and labor laws. The fact that the Chinese can produce something simple like a child's wooden play set and ship it clear to the other side of the world and still undercut the domestic producers speaks volumes. We are all ready starting to see decoupling of the economies with Asia.

[C.W.]

But were still bound by our currency, central bank and labor laws. The fact that the Chinese can produce something simple like a child's wooden play set and ship it clear to the other side of the world and still undercut the domestic producers speaks volumes. We are all ready starting to see decoupling of the economies with Asia.

It speaks no more volumes than it did when Japan was doing the same thing 50 years ago. Now China is doing it to Japan. If Africa were to ever brake out of its insanity, it would do it to China, because China's standard of living may continue to rise and its costs increase.

Incidentally, since the Euro block also has a big deficit with China and China can also send this child's toy to them undercutting the European producers, are the Europeans in the same boat as the U.S.?

I didn't say that we weren't "bound" by our situation. I said very plainly that we were. I repeat, I said that I didn't disagree with khaight. I said nothing to imply that I thought things were wonderful. Where did this "but" come from? You seem to be pretending that I said something entirely different.

Are you saying that no other country is "bound" by the irrationality in their own country? For example, while the Euro is comparably stable, the European central bank is far more political, and its labor laws are far worse than ours. And who wants to be a citizen controlled by the Chinese Communist Central Committee?

And what do you mean by "bound". How is that suppose to counter what I said? Your "bound" in no way contravenes my point that people make the best choice they can in their situation. Or that international markets are some protection.

[khaight]

With how regulated individual countries are, I don't think you can make that assertion. The American economy is influenced by US Govt regulation of Americans, and the same for the Japanese. Our regulations encourage Americans to spend and discourage savings.

That's why I said "in some sense". Fundamentally, if two people are able to trade with each other then they are by definition part of the same economy, because the concept "economy" is built out of people who trade with each other. We subdivide this 'uber-economy' into subunits based largely on two factors: geography and government.

Geography causes trades to fall into patterns based on propinquity -- I'm much more likely to trade with someone in my immediate geographical area than with someone in Japan. My trades with people in Japan are typically indirect, mediated by other individuals who run import/export businesses. Those trade patterns provide a basis for subdividing the economy into units which can be analyzed as though they 'stood alone' for many purposes -- but not all.

Government causes trades to fall into patterns based on the degree and manner in which a given government interferes with trading that occurs under its jurisdiction. As with geography, those patterns provide a basis for subdividing the economy into units for specific analysis, in this case analysis of how government interventions harm individuals by preventing them from engaging in otherwise beneficial trades.

It isn't illegitimate to look at the "American economy" or the "Japanese economy", but when doing so one must always keep in mind that the unit under examination is a subdivision of the true economy which consists of all individuals capable of mutual trade. Sometimes, depending on the question being investigated, the focus on the subdivision instead of the whole is distorting rather than clarifying.

[Rearden_Steel]

It speaks no more volumes than it did when Japan was doing the same thing 50 years ago. Now China is doing it to Japan. If Africa were to ever brake out of its insanity, it would do it to China, because China's standard of living may continue to rise and its costs increase.

Incidentally, since the Euro block also has a big deficit with China and China can also send this child's toy to them undercutting the European producers, are the Europeans in the same boat as the U.S.?

I didn't say that we weren't "bound" by our situation. I said very plainly that we were. I repeat, I said that I didn't disagree with khaight. I said nothing to imply that I thought things were wonderful. Where did this "but" come from? You seem to be pretending that I said something entirely different.

Are you saying that no other country is "bound" by the irrationality in their own country? For example, while the Euro is comparably stable, the European central bank is far more political, and its labor laws are far worse than ours. And who wants to be a citizen controlled by the Chinese Communist Central Committee?

And what do you mean by "bound". How is that suppose to counter what I said? Your "bound" in no way contravenes my point that people make the best choice they can in their situation. Or that international markets are some protection.

Yes, but our situation is more dire because of the vice that we have on our labor laws compounded by our lack of savings as well as massive debt. Other counties are living more within their means. Although other counties also have restraints many of them are not operating on debt and cheap credit like we are. Its like comparing a stove fire to a forest fire and saying that their both equally problematic.

Standard of living has nothing to do with the increase of cost. Actually the more a country produces with minimal interferences from the state results in higher standard of living and cheaper prices like that which was experienced in the US and the turn of the 19th century.

Edited October 3, 2009 by Rearden_Steel

[C.W.]

Yes, but our situation is more dire because of the vice that we have on our labor laws compounded by our lack of savings as well as massive debt. Other counties are living more within their means. Although other counties also have restraints many of them are not operating on debt and cheap credit like we are. Its like comparing a stove fire to a forest fire and saying that their both equally problematic.

Standard of living has nothing to do with the increase of cost. Actually the more a country produces with minimal interferences from the state results in higher standard of living and cheaper prices like that which was experienced in the US and the turn of the 19th century.

I am sure that we can have a wonderful debate about whose situation is more dire. Personally, I think that the upcoming Social Security and Medicare mess as laid out by John Lewis is more dire than the trade deficit. Obama is just going to bring it closer. (Schiff hasn't mentioned it in anything that I have read.) That will be an entire continent on fire.

With that in mind, Japan is at that point already. In spite of your admiration for Japan because of its savings rate, lower government debt (since they have 100 year mortgages, I'm not sure that their private debt is lower), its aging, shrinking population is dependent upon its version of social security pensions. (I don’t want to leave out credit: Japan had a discount rate of less than 1% for years. That was cheap credit!) Its government will be bankrupt in just a few years. From what I can tell, the Japanese are paying less attention to it than we are our own upcoming mess. True, that will only be a relative small island on fire. Really, it isn't debt so much as obligations (oh yes, Schiff has mentioned SS and Medicare unfunded obligations, but that hardly indicates how big a mess that will be). Japan's governmental obligations proportionally make ours look small.

Next after Japan comes Italy and then France. They are only the size of modest U.S. states, so the fires will still be relatively small.

Regarding costs, I was, of course, speaking relatively (I was speaking of costs, not prices). All things being equal, an area with a higher standard of living will have higher labor costs than an area with a lower standard of living. We have recent experience with that in the U.S. when manufactures moved plants from the North to the South, where the labor costs were less. Yes, the labor laws were also better, but there was a distinct difference in the standard of living, which has since narrowed.

Just for fun, take a look at my Flight of Fancy. It won't hurt, I promise.

[Steve D'Ippolito]

Italy and France have more people than California. Japan even more so. "Modest US states" indeed.

(Sure the land area is relatively small and could be compared to US states--the former West Germany was a touch smaller than Colorado for instance--but that's not what matters in this context.)

[C.W.]

Italy and France have more people than California. Japan even more so. "Modest US states" indeed.

(Sure the land area is relatively small and could be compared to US states--the former West Germany was a touch smaller than Colorado for instance--but that's not what matters in this context.)

Steve, you're right, I know. I was just playing to RS's fire analogy. I probably let that get out of hand.