This page has been archived and commenting is disabled.
Why "Fair Play" In A Central Bank Interventionist World Is A Doomed Strategy
Today's special report by Faros Trading summarizes the pathetic, uber-interventionist world we live in "It seems quite obvious that not employing market intervention when the rest of the world is, tends to lead down a lonely path. One where no matter how efficient your technology prowess is, you can never export competitively against the rest of the world. After all, why buy from the US if it is cheaper in Asia? Over time the manufacturing centers of Europe, Japan and the United States have dwindled as jobs have moved overseas. The only way for the US, Europe and Japan to end the spiral of economic pain is for either an end to intervention by developing markets, or for developed markets to join in the physical intervention game. The way this game is played at present can only lead to an unfortunate trade war down the road." Alas, as Michael Pettis pointed out earlier, it is likely too late as Smoot-Hawley for the Central Bank interventionist generation is now just around the corner.
For Greater Growth Follow Developing Markets Lessons: Intervention Works
»
- 4139 reads
- Printer-friendly version
- Send to friend
- advertisements -
Tariffs and not income tax should in fact be the way to properly tax.
In fact, let us vote on it! If we think that giving all our IP, manufacturing and clean air/water costs.. .let us vote how much we want to tax them.
Let the IRS form every year just be a poll.
We have a new paradigm... phones, cameras and 24x7 connectivity. We can get the info and we can make our own collective decision.
cheers
The way it should be. Each country manufactures most of what it consumes. This is the way it was until quite recently and then the rich decided they didn't want to pay fair wages to their own countrymen and exported the middle class.
Chickens roosting and all that.
+1
@jimijon, I know the typical Austrian perspective, I've read me some Henry Hazlitt, but this is one area I think the Austrian's are out to lunch. They refuse to accept that wages in developing countries are repressed by political force/violence. The only way to level the playing field is through tariffs.
You don't need to level the playing field. political force and violence are unstable, and will either end, as we are seeing in China, or cause societal breakdown, as we see in Indochina.
Tariffs only punish the people in the nation imposing the tariff. If Kim Jong Dodonga wants to export his country's capital in exchange for nothing by artificially keeping wages down, his nation will eventually run out of capital, or he'll be murdered in his sleep by pissed off peons. In the meantime, we should enjoy the reduced price goods, and focus on specialization in the manufacture of capital intensive goods and accumulation of the capital that Dodonga's foolishness places in our hands.
Think about it. Do you think France became a 1st world country by imposing tariffs on the textiles that Britain suddenly jumped ahead on in terms of production (due to industrialization)? All that would have done was maintain the status quo, which was feudalism. Instead, they accepted the increased free time that came from buying cheap mass produced British textiles, and used that time to improve the production of another product, which allowed the Germans to take their extra free time to create a process that allowed mass production of something else, etc.
In other words, don't jump off of a bridge just because all the other kids are doing it.
History shows otherwise. History shows that repression of labor can continue for many decades. Sometimes centuries.
History also showed how America became an industrial powerhouse behind huge tariffs, and that Europe became in industrial powerhouse behind unfair trade agreements with colonies. While europe was getting wealthy behind unfair trade agreements, the colonies were getting poor with no protective tariffs.
Not in an industrial society. The progression is always the same, going from total oppression to a reasonably free society, so long as the government doesn't get in the way. Wages will rise on their own within a few years. If governments get in the way, that timeline can be stretched out, but if it is stretched too much, that society will collapse (back to its pre-industrial state--this happens a lot in Africa).
As to the other point, forcible exploitation always leads to suffering, which was the case with the colonies. The colonies were in effect under a 100% tariff regime against most other countries (ie those territories which were not owned by their own colonial power).
And America did not become an industrial powerhouse because of huge tariffs. First, they weren't that large, only about 2% of GDP (http://www.usgovernmentrevenue.com/downchart_gr.php?year=1792_2015&view=...). The difference is that that was the ONLY way the people were taxed. Those tariffs were the only source of income. This means that total government spending was only about 2% of GDP. This is as opposed to some 37% today, IIRC. With the vast majority of American earnings thus going into productive capital, of course we became a powerhouse. It could have been an income tax that was equal to 2% of GDP, or an equivalent sales tax, or most any other type of tax, and the result would have been the same.
I disagree with almost all of your points.
Latin America is a good example of countries going to more and more oppression, as military coup followed military coup, and leftists were massacred in order to protect the wealthy's investments.
Africa's problems stem from colonial exploitation and military coups, not government interference with business. Most African countries have no trade barriers because the IMF forced them to remove them, and them forced them to privatize everything.
Lastly, America had the highest tariffs in the world from the 1830's to the 1920's. This is a fact. They averaged about 40%.
As a small business owner I was told to embrace Globalization. I was told I had to be more efficient more creative and utilize the newest technology and equipment. I was told to implement JIT increase prodcutivity through Acronyms created by companies like Toyota. In the end it didn't make a shovel load of shits difference because there's no competing against slave labor rates. I don't care if you have an automated plant with no employees running 3 shifts of lights out production you are not going to compete because the additional expense of operating here will kill you.
+1
And watch as real world blood and guts trumps theoretical book learnin'...
And I worked in management consulting for 10+ years. Ohh, the humanity...
DISSECTING PONZINOMICS
http://williambanzai7.blogspot.com/2010/08/ponzinomics-dissected.html
Currency interventions create growth? Maybe nominally, but the developed world has been doing that for years to cover up their appropriation of society's capital through taxation, borrowing against future tax income, and inflation (stealth tax).
Those developing countries have been importing our inflation. It is possible that there is real growth behind those numbers, but I have no idea what the real inflation rate is right now, as debt deflation is screwing with all the numbers.
One should always refrain from maintaining the mistaken belief that we have a free market system, either in the developed world or the developing world. If you seek a free market, none exists to the extent that it did in the US prior to the creation of the Fed. Back then, government spending was well under 10% of GDP (prior to 1900, it was well under 5%--see http://www.usgovernmentspending.com/downchart_gs.php?year=1900_2010&unit... ). Now, only a few war torn nations can claim to hold to that standard, but the war exacts a much greater toll on the economy than any but the most oppressive governments.
i was watching the board in my practice account in forex.com.......UK oil US oil,..and the AUD and EURO ( v/s the USD) all started coming down today almost at the same time......this market doesnt look like a normal market at all......looks like someone ( a single person) ...is controlling everything with a click.....
Tariffs Bitchez!!
The coming 200$ oil will be the only tariff needed as it will be the free market fix to the global wage arb. It will be too expensive to ship cheap crap or expensive crap for that matter, anywhere.
Sorry, this is categorically the wrong diagnosis. Does anyone seriously believe for a sec that everyone in developed world has been so stupid as to not do it if it were as simple as intervention? Are we really such pure, twinkly-eyed stupid idiots?
IMO, there're many reasons for the rise of EM (BRIC is only part of a bigger trend), of which various policy changes -- if you want to call it intervention then go ahead -- is but one. At least equally important is the fact that developed world has been on a non-sustainable path of overgrowth of middle class and social welfare. It was sustained only because of the vast inefficiencies in the developing world. But since they started improving, the macro profit margin/volume reaped by the developed world has been shrinking.
Can't count on others being stupid forever. Now we'd better figure out something else.
I remember when taking an economics class in the early 90's the professor was talking about how everyone was saying that Japan was an economic powerhouse that was taking over the US and how we were buying everything from them and loosing manufacturing. He looked out the window and said "You know, they send us appliances, tv's, and stereos and we send them little pieces of green paper. I think it's a pretty good deal."
Your professor was a moron because he didn't acknowledge that ultimately we were also sending them our jobs.
Once again the whole free/fair trade issue comes down to what is used for money. When only paper money is used and each country can print as much as they want to lower the value of their money. Then the whole trading game can be rigged and the result is what we have now.
It is not the free trade idea that is wrong so much as it is the money. When money is no longer a store of value you get a lot of predictable imbalances.
Most of us readers at ZH understand there are no free markets currently among any of the major players. The intervention in the markets is more similar to communism or fascism than capitalism. We know how those stories ended.
A boot heel against my face?
I've worked in a couple of Fortune 500 firms and was directly involved in "offshoring" decisions. In every case the primary driver were "tax free" holidays in the overseas location. Labor and all other factors were largely a wash (for the electronics industry), but if you can reap the profits and avoid corporate US taxes . . . that is overwhelming. Ireland, Puerto Rico, Singapore, and virtually all other popular manufacturing locations have made this a central part of their strategy.
I find that interesting. How could these offshoring locations survive over long time periods if the local gov't collects no taxes?
The US government managed to do quite well collecting very little revenue for more than 100 years.
http://www.usgovernmentrevenue.com/downchart_gr.php?year=1792_2015&view=...
yes, we should imitate the EM and pretend that activity here is still as profitable as there.
We should pretend that our oilfields aren't tapped out and that we can just print our way to profitable extraction, just like the of-yet untapped EM fields out there
http://www.ibtimes.com/articles/44283/20100819/china-to-eventually-cause-exodus-out-of-dollar-assets.htm
Good amplification here of Faros Trading report of August 19th
"What Happens When China Stops Playing the Music?"
Must keep your exchange rate artificially low to stimulate economy....implies an ungodly and increasing quantity of US Dollar reserves......get killed on FX and brutal carrying costs on doillar investments versus what you pay on your own bonds in local currency. Plus local CPI will tend to increase.
Does your economy grow fast enough to compensate?
Aren't you better off letting your currency appreciate and incentivize exporters? Are you listening Argentina?
The "tax holidays" generally run for 10 years . . . the governments evidently felt that full employment was a worthwhile benefit (seemed to work for those countries, don't you think?) After the holiday expires some companies move on to greener pastures. it would be an interesting study to see how Intel and others move their manufacturing sites over time.
Instead of devaluating the currency, the best solution is to let prices go down.
The problem is that in socialdemocracies (and the USA has become one) prices tend to be rigid and they dont do this well, so they have to play with the money supply and then they create booms and bust that destroy the industry.
But the USA built its industrial base during the XIX century with sound money. In fact, the desindustrialization of the USA has began with the inflationary policies. Similarly, the UK built its industrial base with (more or less) sound money, and started going down and the desindustrialization process with inflationary money. Historically saying that playing with the money supply and inflating its way out is good to recover the industry is nonsense.
I welcome the destruction of the WTO.
Updated S&P500 chart:
http://stockmarket618.wordpress.com
Thanks for such a great post and the review, I am totally impressed! Keep stuff like this coming!...
cheap site hosting
windows web hosting
windows vps hosting
windows vps