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Originally posted by rupert Personally I think that the policies are absolutely deliberate. They hate government spending which acts to redistribute wealth such as Medicare and welfare payments but they cant go out and deliberately cut them up front. The goal is to "make government so small you can drown it in the bathtub" So they cut taxes and boost spending to lead to a crisis down the track. In the Reagan era they did the same thing, they dramatically increased government spending as a percentage of GDP and then in the 90's they suddenly had a change of heart, we have to balance the budget, show the markets we are fiscally responsible so Clinton "reformed" the welfare system. But they didnt go anywhere near far enough. The USA government had the benefit of the stock market bubble in the 90's which boosted asset prices and led to big gains from capital gains tax by the government. The balanced budgets of the Clinton era were largely illusory. Eventually the market just isnt going to buy the US story anymore and will stop buying US debt. This will force the government to cut spending again on the big ticket items of the budget welfare and health payments. Deficit spending is just another form of class warfare.

Funny, we had a discussion at work about the US deficit (it was really regarding the upcoming election) and someone told me the exact same thing. Don't know what to think of it but it's definetly interesting

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Originally posted by NYCTrancefan No wonder today in Germany for example they are intrdoucing a bunch of reforms to the current system

This has much more to do with the reunion of east and west germany which cost Germany more than the upcoming expansion of EU is likely to cost.

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Originally posted by Dj_Irish This has much more to do with the reunion of east and west germany which cost Germany more than the upcoming expansion of EU is likely to cost.

Nonetheless Germany has a stagnant economy, they are dealing with the effects of having a very generous welfare state, I know this firsthand from my German professor Jurgen Kleist who was mentioning to me about the rewards of (Sozialhilfe beziehen) to be on welfare and (Arbeitslosengeld) unemployment benefits. The fact remains that the SDP realises that they cannot go on with present social policy. The economy simply cannot sustain it at current feeble economic growth rates in Germany.

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Originally posted by NYCTrancefan Nonetheless Germany has a stagnant economy, they are dealing with the effects of having a very generous welfare state, I know this firsthand from my German professor Jurgen Kleist who was mentioning to me about the rewards of (Sozialhilfe beziehen) to be on welfare and (Arbeitslosengeld) unemployment benefits.

Technically, that would make it second hand knowledge.

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Originally posted by NYCTrancefan Nonetheless Germany has a stagnant economy, they are dealing with the effects of having a very generous welfare state, I know this firsthand from my German professor Jurgen Kleist who was mentioning to me about the rewards of (Sozialhilfe beziehen) to be on welfare and (Arbeitslosengeld) unemployment benefits. The fact remains that the SDP realises that they cannot go on with present social policy. The economy simply cannot sustain it at current feeble economic growth rates in Germany.

Quite true, I'm really not opposing the fact that they do have a rather "generous" social policy. Just that I think the re-union caused most of the bad economy we see today. However, the welfare system might have been forcing the country in to a similar mess if left unchecked though. We had to cut back a lot here in Sweden because it simply wasn't sustainable anymore.

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Originally posted by Shakka Technically, that would make it second hand knowledge.

True dat, oops. That's what happens when you try to sound like a Diplomat

DJ_Irish I agree, I definitely wouldn't downplay the fact that the slow incorporation and redevelopement of the East's economic infrastructure aided the current problem today.

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Last edited by NYCTrancefan on Jan-08-2004 at 15:17

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Originally posted by NYCTrancefan Frankly Rupert your claims seem to be very generic and centered more on wanting to see this happen as oppose to looking at the issue objectively. Where is your basis for the poor in Brazil lurching from one debt crisis to another. Brazil is a nation that has for a long period in its history had the social inequities of which you speak, it didn't create itself from a market economy overnight. People have always talked up the U.S. deficit as the be all that ends all, does the Reagan era ring a bell to you. Too much defence spending, too little debt management. I have seen you make this claim before that eventually foreigners will get sick(you know the rest of the story). That must be why our trade deficit with China is so lopsided in their favor. Moreover it is not in the interests of those same foreigners you speak of to see that happen because the U.S is the world's biggest consumer for trade via exports to its market as well as investment. I would love to see the day that foreign investment in the world's largest economy ceases, however wouldn't hold my breath. I agree with the manufacturing sector, but I don't know where you got the idea of no service sector from, doesn't fit the argument. Service sector encompasses a broad base of jobs and none which are exportable to China and India that they don't have already there. In the larger scheme of economics the U.S. deficit is no more or less dynamic today than in its history, as economies grow and shrink so does spending and saving, last time I check the U.S economy is still growing amazing for a nation in economic peril. This Rupert serves to debunk your claims of the U.S. becoming a developing world nation because of "runaway deficits."

I'm sure many can tell you that I've been at odds with rupert for probably over a year now on the state of the US economy (at Rupert's advice I've sold all my assets and invested in gold bars and hid them under my mattress ). No but really, despite my differences with Rupert regarding the collapse of the global economy Rupert does have a point about the dangers of the deficits although we may differ as to their effects. The longer deficits are maintained above the 3% of GDP level, there will be upward pressures on the inflation rate. This could potentially put the breaks on the recovery and the expansion of business and reduce growth. So I more or less agree with the IMF's position that the US needs to take a planned, measured approach now to reduce the deficit before it becomes a problem in the future. Funny how people always claim the IMF are our puppets, yet here they are telling us what to do .

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(at Rupert's advice I've sold all my assets and invested in gold bars and hid them under my mattress ).

Well if you had followed my advice and sold your US dollar demominated assets and bought gold you would've been way, way ahead

Taken from Businessweek:

In the past, gold and stock prices have tended to move in opposite directions. Not this year. The Standard & Poor's 500-stock index has gained about 22% year-to-date, while gold stocks are up about 66%. On Nov. 19, the precious metal even broke $400 an ounce, a high not seen in seven years.

The Gold Price tends to run inverse to the US dollar, when the dollar goes down the gold price goes up.

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I have seen you make this claim before that eventually foreigners will get sick(you know the rest of the story).

Taken from todays Australian Financial Review

"While a weaker US dollar is generally seen as a positive for global growth - as it boosts American competitiveness and forces regions such as Europe to keep interest rates low - opinions would change if the dollar's decline became disorderly. That could provoke an exodus of capital from US markets, sinking US stock and bond values, with ripple effects across global markets.

The US dollar has already fallen by 30 per cent against the euro over the past two years, and given worries over the US trade and fiscal deficits, currency markets are braced for weakness in the greenback over the coming year.

Leading economists fear the budget deficit - approaching 4.5per cent of total output - could have much longer-term repercussions than first thought.

At the weekend, a former treasury secretary in the Clinton administration, Robert Rubin, presented a study into the budget deficit with economist Peter Orszag and Allen Sinai at the American Economics Association.

They warned that large, sustained federal budget deficits could have effects on the economy and financial markets - via changes in market expectations and investor confidence - that were far larger, more disruptive, and self-reinforcing than the rebalancing of saving and investment flows usually described by economists
Goldman Sachs economist Ed McKelvey, who was at the conference, said the paper suggested the budget deficit would total about $US5.1 trillion ($6.6 trillion) over the next 10 years.

"In short, the United States is not immune to the kinds of budget and current account crises that have afflicted many other nations over the years despite its premier status as the nation whose currency now greases the wheels of international commerce," he said.

UBS economist Susan Hering said any action to correct the deficit in an election year was unlikely "But pressure to act will likely intensify in coming years, particularly if the dollar continues its descent," she said.

"Also, as private credit demands strengthen over the next year or two, the clash between private and public credit demands will pose an increasing risk of higher interest rates.

"That rise, if not the dollar's earlier decline, is likely to capture Washington's attention and begin to nudge policy makers in the direction that the IMF suggests."

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That must be why our trade deficit with China is so lopsided in their favor.

I wouldnt count on China bailing the USA out forever. Taken from

http://www.imf.org/external/np/apd/...wdelhi/ping.pdf

Despite the improvement of the asset quality in recent years, the size of nonperforming loans (NPLs) is generally considered the major threat for the banking system in China. In September this year, the NPL of the banking sector, including state owned banks, policy banks and joint stock banks, amounted to 2,532 billion yuan measured according to the five-category supervisory loan classification system, and the NPL ratio is 18.7 percent. The non-performing loans of state-owned commercial banks reached 1,999 billion yuan and the NPL ratio is 21.4percent, an equivalent of 20 percent of GDP of 2002.

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Where is your basis for the poor in Brazil lurching from one debt crisis to another. Brazil is a nation that has for a long period in its history had the social inequities of which you speak, it didn't create itself from a market economy overnight.

No, my point is that Brazil has a very weak middle class and a fairly rigid class system. The USA (and to a lesser extent the rest of the West) is heading in the same direction with a middle class in terminal decline. The promotion and enforcement of gross inequalities of wealth is not economically efficient. Long term sustainable economic gains can only be made by improving the lives of the poor so that they can consume more thus spurring growth not by increasing the wealth of the rich on some spurious notion of a trickle down effect.

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Originally posted by rupert No, my point is that Brazil has a very weak middle class and a fairly rigid class system. The USA (and to a lesser extent the rest of the West) is heading in the same direction with a middle class in terminal decline. The promotion and enforcement of gross inequalities of wealth is not economically efficient. Long term sustainable economic gains can only be made by improving the lives of the poor so that they can consume more thus spurring growth not by increasing the wealth of the rich on some spurious notion of a trickle down effect.

I see and even agree with your point Rupert my question then becomes what do you make of a nation like China where clearly the above statement is a surefire problem, While the communist manifesto would dictate that China spread the wealth, we certainly know that that doesn't happen among its people, so much for Communism, which we all know in China's case is merely a political system of control now. The Chinese socioeconomics while huge exists in perpetual low wage factory jobs with a very small, new middle class and in looking at China's population size how could they raise up that overwhelmingly poor class through low wage jobs. Increased wages is not an option since companies would invest elsewhere and that the Chinese government doesn't want. So China is a very strange case indeed.

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While the communist manifesto would dictate that China spread the wealth, we certainly know that that doesn't happen among its people, so much for Communism, which we all know in China's case is merely a political system of control now.

Unfortunately "communist" states have even more rigid class systems than do capitalist countries. Communism is an intrinsically corrupt form of government, getting a job, a place at university, preferential health treatment isnt what you know but who you know.

China is a bubble waiting to happen. The information I have read about China indicates a country that is having a capital fueled expansion not a broad based consumption led expansion. The Chinese government being a dictatorship wants the benefits of a market economy (rising living standards) without the negatives (freedom of speech, rule of law, pluralism etc) and that isnt market economies works.

What I am saying is the Chinese government has a crisis of legitimacy. In order to stay in power it needs to increase living standards but without giving away real power, in a market economy real power rests in the private sector, in a dictatorship real power rests with the public sector.

So it needs to dramatically increase foreign investment, to build factories to keep its people in employment. Remember China is a very big country where a very large slice of the population live in poverty. It needs this investment to replace the state run enterprises which employ lots of people but are extremely inefficient in terms of labour and capital use. As I pointed out previously China has a phenomenal amount of non-performing loans. This is caused by the endemic corruption in the system. For example Joe Partyboss knows the manager of the state run local bank and he tells the manager to give a loan to his friend who has a business. In the west getting a loan requires due diligence, but not in China, what matters is who you know. So the bank manager he doesnt want to lose his job Joe Partyboss has a lot of influence, he has a wife and kids to think about, the bank manager knows who owns his bank -the government ie the Communist party. The bank manager if he is very unlucky might get sent to a camp if he doesnt do what he is told, so he approves the loan. Multiply that scenario by 100,000 and that is the China economy.

So in step the foreign investors. An investor always wants the best return on their money and they always want to believe in blue sky limitless profits with minimal risk. So here is China with all these infrastructure projects and privatisations just waiting for capital, and given the poor performance of western markets in recent years in flows all this foreign capital. But its all an illusion, the Chinese government doesnt really believe in the market they believe in control, the foreign capital is just being used to paper over the bad debts. There is no such thing as corporate governance or accountability in China. In a market economy corporate fraud like Enron or Parlamat always gets exposed in the end, but without an open media or a functioning equivalent of the SEC those type of scandals are hidden in China.

China being unwilling or unable to fundamentally reform the system to remove the debt needs foreign capital BUT it is selling itself as the location for global manufacturing, so it is hanging its hat on exports and who is its biggest customer, the USA.

Unfortunately for the global economy this isnt the nineties, the USA has a declining currency and stagnant wage increases, the only way that the US consumer can manage to not go backwards is to go into debt. But there is no such thing as a free lunch.

US debt is increasing being bought by foreigners, from recall 30% of US treasuries were bought by the Chinese and Japanese central banks, which does three things, one it allows the US to go further into debt paying for all those stealth bombers and foreign invasions and two it props up the US consumer and three it allows the US to buy Chinese exports. Unfortunately for the US it needs a lower currency to boost its exports but for every lowering of the US dollar, so too does the Chinese currency which is pegged to the dollar. And the US debt isnt going to get better its only going to spiral out of control.

Something has to give, there is a fundamental disequilibrium in the global economy. This isnt the eighties, the global economy is fundamentally different, either there will be a crisis in the Chinese banking system which will require China to use its vast foreign reserves to paper over the debt, meaning it wont buy US debt or there will be an inevitable crash in the US stockmarket caused by the next terror attack or corporate scandal.

So the USA is the equivalent of Joe Sixpack who is deeply in debt worried about losing his job. Joe Sixpack goes to the bank to get an extension on his credit card. China has two hats, he is both the bank manager and the shop keeper, he gives goes Joe Sixpack his loans and he sells him his groceries. So China has a vested interest in ensuring that Joe Sixpack buys his stuff so he gives Joe Sixpack his extension on his credit card loan so that he can spend it at his store. Now if Joe Sixpack loses his job because of outsourcing, who is in bigger trouble Joe Sixpack or China the shopkeeper?

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Originally posted by rupert Well if you had followed my advice and sold your US dollar demominated assets and bought gold you would've been way, way ahead

Perhaps ... if I had my money sitting in the back doing nothing

Sweden is such an example to follow, and their social system is one of the best in the world.. sup with that?

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