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The Currency Wars: Now US Automakers Are Squealing

testosteronepit's picture




 

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

Japan’s Liberal Democratic Party went all out late last year to re-grab the power it had held for 50 years before getting booted out in 2009. Its platform: print and borrow with utter abandon to create asset bubbles and inflation, and to weaken the yen. It even threatened to wrest control over the printing press away from the Bank of Japan. That verbiage has been phenomenally successful: the stock market is surging, and the yen is crashing from historic—under normal circumstances, inexplicable—highs.

But now, US automakers are squealing. They want the government to fight back in the currency war. The American Automotive Policy Council (AAPC), a lobbying organization that represents only Ford, GM, and Chrysler, sent President Obama a letter, demanding retaliation against Japan’s NO EXIT strategy. Then it went public with it grievances.

“Here we go again,” said Matt Blunt, AAPC president and former Republican governor of Missouri. “Japan’s Liberal Democratic party is back in power and determined to repeat the ‘beggar thy neighbor’ policies that distort trade by cheapening the value of the yen to promote economic growth in Japan at the expense of its trading partners.”

He claimed that “these types of policies” had “inflicted tremendous harm” on manufacturing in the US. “We urge the Obama Administration to make it clear to Japan that such policies are unacceptable and will be met by reciprocal measures.”

The AAPC has been lambasting Japan, and rightfully so, for having “the most closed auto market in the developed world,” protected by “non-tariff barriers” that keep US automotive products out. But now it accused Japan of manipulating its currency “to boost its own exports at the expense of other nations, especially the United States.”

Alas, the biggest currency manipulator in the world is the Fed, not only with its verbiage but also with its endless and escalating waves of quantitative easing, to the point where it currently prints $85 billion a month to debase and demolish the dollar, or what is left of it, which isn’t much. It makes US wages more competitive with those in Mexico and China. It also makes imports more expensive for American consumers and exports cheaper for consumers elsewhere. Meanwhile, Japan’s infamous trade surplus has given way to a ballooning trade deficit (graph).

The automakers were whining to President Obama, ironically, as another announcement was made and received with hoopla: GM would invest $1.5 billion in plants in North America in 2013. While no further details emerged, hopes were swirling that this manna would rain down on Michigan.

Yet North America, in addition to Michigan, also includes among other places Canada and Mexico, and how much of this money will land in the US is uncertain. Embarrassingly, the $1.5 billion was just a fraction of GM’s planned investments of $8 billion for 2013, of which $6.5 billion will be sent to countries outside North America—not Europe where GM is bleeding to death, but Asia.

That has been the paradigm in manufacturing for decades. US corporations have invested prodigiously in China and other countries where labor is cheap and have thus contributed to their enormous economic growth, while only crumbs have fallen on US soil. In this manner, much of the US auto component industry has moved offshore.

Exhibit A: Delphi, formerly GM’s component division. GM spun it off in 1999. Two years later, Delphi axed 11,500 workers. In 2004, it got into hot water over its accounting practices. In 2005, it went bankrupt and closed 45 plants in the US, with much of the production moving to China. In 2009, it sold its chassis division to state-owned BeijingWest Industries, which now develops and manufactures brake and chassis components for US and European automakers.

Exhibit B: Visteon, formerly Ford’s component division. Always the laggard, Ford spun it off in 2000. In 2009, it went bankrupt, shuttered all but one of its 33 plants in the US, let go 25,000 workers, and shifted its center of gravity to Shanghai. It now has 171 plants and facilities in other countries. Its headquarters building in Van Buren Township, Michigan, was sold last year, though its headquarters is still officially located there.

Visteon is still “a US company at this point,” CEO Tim Leuliette said at the Automotive News World Congress on Wednesday. Yet globally, he added, only “about 4%, 5% of our employees are in the United States,” most of them supporting customers in North America. So, if the headquarters shifted to Asia, he said, it wouldn’t change much, jobs-wise.

Bitter irony: American automakers, after having sent their investments and manufacturing overseas, are using a Republican ex-governor to pressure the Obama administration to stop the Japanese from defending themselves in the currency war that the Fed has been waging relentlessly for years.

Meanwhile, Dallas Fed President Richard Fisher is waging his own war—against TBTF banks. “Repression” is what he calls “the injustice of being held hostage to large financial institutions,” whose investors, executives, counterparties, and customers “believe themselves to be exempt from the processes of bankruptcy and creative destruction.” These banks “capture the financial upside” of their bets but are bailed out when things go wrong, he says, “in violation of one of the basic tenets of market capitalism.” Read.... How Big Is ”BIG”?

And for an easy, fun guy read, if you like cars and the rambunctious process of selling them, check out TESTOSTERONE PIT, the novel.

 

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Fri, 01/18/2013 - 21:26 | 3168105 Son of Loki
Son of Loki's picture

Behind the barracades!  Quick! Run!

Fri, 01/18/2013 - 21:21 | 3168094 TrustWho
TrustWho's picture

What allows China and Japan to manage their currency exchange rate per the dollar?

China and Japan needs our government to run a huge government deficit. This allows Americans to buy their cars with US dollars and they use this dollars to buy US government debt. Without this debt, Japan and China would accumulate even more US dollars---pieces of paper or electronic 0s and 1s. China does not float its currency, so they could maintain their peg, but this would be costly. If they start buying gold or other currencies with the US dollars their peg would get more and more expensive as the dollar's value fell. With Japan, since they do float the yen, the value of the yen would rise more directly and quickly.

If Bernanke would just give the new money to citizens instead of the banks, everybody could own a nice car for the cost of wood. We are all participating in an unstable system created by globalization under the free market assumption of comparative advantage. Because of culture and political interest the free market assumption is incorrect.

Sat, 01/19/2013 - 09:50 | 3168648 Winston of Oceania
Winston of Oceania's picture

"Because of culture and political interest the free market assumption is incorrect."

I suppose you have something Centrally Plannish for us instead?

Mon, 01/21/2013 - 21:16 | 3174277 TrustWho
TrustWho's picture

You need to read better Mon and stop being so simple-minded.

Fri, 01/18/2013 - 22:39 | 3168238 Matt
Matt's picture

Let's see, $85 Billion / 350 million people = $250 per person per month. Not enough to do anything useful, really.

Perhaps if the Fed did a monthly lottery, where everyone picks a number between 1 and 100 and buys their ticket via an open auction, one ticket per citizen only, as a national 50/50 draw, with the $85 billion put in to sweeten the pot.

That way there are only 3.5 million winners in a month. The auction is to prevent too many people picking the same number, or too few. If the tickets went for an average $100 each, the pot would be $120 billion, so half goes to the Treasury to help offset the deficit, and the remainder is split evenly amongst the winners; that's about $17,000 per winner each month, and $720 Billion per year to the treasury.

Sat, 01/19/2013 - 12:57 | 3168875 tango
tango's picture

But what would be behind this gift?  It's not a product or service.  It's just thin air hoopla.  The purpose of an economic system is not redistribution, establishing a middle class or world peace.  The purpose is to establish price.  

That can be done throught markets and choice or government fiat and rules breaking. The FED giving billions totally undercuts the choice side of the equation.  Socialism and the welfare state inevitably fail because they distort the value of everything.  Without certainty, industry cannot possibly expand or R&D.  The point is that unearned money distorts the picture.

Sat, 01/19/2013 - 15:53 | 3169281 11b40
11b40's picture

"The point is that unearned money distorts the picture."

Unearned money is an interesting concept.

Many of these sociopathic financial titans work very hard, and they are very smart.  The problem is not that they don't "earn" the wealth folwing to the top.  The problem is that the way they earn it is detrimental to society as a whole.  It is not a coincidence that the economy has stagnated as the financial industry has grown from roughly 15% of the economy in 1980 to over 40% in 2008.  Skiming and stealing is hard work, as is finding the right lobbiest to craft your legislation and shepard it through Congress.

Ism's here, there, and everywhere.  Pick your poison.

Sat, 01/19/2013 - 13:13 | 3168913 Matt
Matt's picture

The argument is that the Fed is giving $85 Billion per month to the Treasury and the Bankers, earning them fat bonuses. If you are going to print $85 Billion per month, you might as well distribute it evenly rather than giving it all to a small handful of people. Of course, it would be preferable not to be printing money at all.

Sat, 01/19/2013 - 11:00 | 3168693 11b40
11b40's picture

What a myopic viewpoint.

"Let's see, $85 Billion / 350 million people = $250 per person per month. Not enough to do anything useful, really."

Tell that to Main Street, as every customer has an extra $250/mo.  The barbers, dry cleaners, restuarants, shop keepers, theaters, and on and on, would immediately benefit, and new jobs would be created because of DEMAND.  

$250/mo X family of 4 = $1,000/mo = new cars, houses, vacations.......

What if ALL the bailout finds had ben pumped directly into the economy?  It would be the dfference bewteen pushing on a string and pulling on a string.  Wow!  You could even do your own reasearch at home on this!  Give it a try.

Sat, 01/19/2013 - 13:10 | 3168906 Matt
Matt's picture

You fail to take into consideration the massive inflationary effect this would cause. Putting all of the bailout money - trillions - directly into the economy means that inflation would be rampant. In no time at all, the monthly payments would just make up for the increase in your grocery bill.

Besides, the original poster was saying about getting people to buy new cars. Rather than encouraging an even bigger debt bubble by having people buy them on credit, giving a smaller number of people enough cash to buy a new vehicle outright seems a better way to help deleverage.

Of course, even this lottery would result in massive inflation.

"You could even do your own reasearch at home on this!  Give it a try." Sure. Just send me $250 each month and I can test how that improves my life. Add me as a friend or whatever it is on this site and ZChat me, I'll give you my email and you can email me the money.

Sat, 01/19/2013 - 15:44 | 3169263 11b40
11b40's picture

Look, all this TBTF bailout garbage is not working very well, is it?  I think we agree on that as a given.

Never have I had the opinion that the FED should just send out checks to individuals - but it makes about as much snese for society as bailing out these monster banks and allowing them to get even bigger.  Had we pumped a huge amount of funds into real productive ways to simulate job creation, it would have helped far more, in my opinion.

Of course, I am also of the oinion that many of our problems could be fixed at the borders with FAIR TRADE instead of FREE TRADE, which is a total farce.

The problem we have is jobs -- quality jobs, at that.  If it is beneficial for American companies to build factories off shore and bring the products back here to sell, then the rules should be changed. 

The reason that viable domestic businessses are not hiring is simple.  It is a lack of demand - not taxes, not govt. regulation, not any other reason.  When the demand is there, the supply will be created....if it takes a new hire, a new truck, a new production line, or new factory....but only if there is demand.

See the string analogy above.

Sat, 01/19/2013 - 17:13 | 3169451 Orly
Orly's picture

Actually, it is not a bad idea. It is a good one, in fact.

Most people would use the 17K to pay down bills, thus freeing up their disposable income.  The rules are, though, you can't win more than once in 18 months.  So, once you've won the Fedlotto, that's pretty much it, as the programme would only last for two years.

At the end of it, many people would have paid down their debt and begun to pump real money into the economy.  The best part is that no one has a boatload of cash, so inflation remains fairly constant.

Good idea, Matt.

:D

Sat, 01/19/2013 - 20:29 | 3169772 cranky-old-geezer
cranky-old-geezer's picture

 

 

You can't loot wealth out of the economy and give it to bankster bosses by giving QE to the people.  It has to go to bankster bosses, and is going to bankster bosses, just like the plan calls for.

Anyone still stupid enough to believe Fed is trying to help the economy recover is ...well... let's just say hopeless.

Sat, 01/19/2013 - 21:11 | 3169826 Orly
Orly's picture

I guess she don't like the cornbread, either.

Sat, 01/19/2013 - 18:37 | 3169598 new game
new game's picture

just print a coin

that is how idiotic this thread has gone...

bye

 

Fri, 01/18/2013 - 23:46 | 3168349 bnbdnb
bnbdnb's picture

Leveraged to $5000.

Fri, 01/18/2013 - 21:19 | 3168084 espirit
espirit's picture

The U.S. is a has been.  Business is moving to emerging markets so.... should they let the multinationals repatriate profits at lower tax rates - hang the traitors!

Ok, time for my meds.

Sat, 01/19/2013 - 00:49 | 3168409 sethstorm
sethstorm's picture

Perhaps it is more than time to moot that departure or the effects of it.

Businesses aren't the only ones that can cross borders.

Fri, 01/18/2013 - 22:53 | 3168257 Buck Johnson
Buck Johnson's picture

Don't worry, everybody will know how much the govt. has sold us out when a gallon of milk costs 20 dollars and inflation/hyperinflation is running amok in the US.

Sat, 01/19/2013 - 09:09 | 3168618 max2205
max2205's picture

We still make cArz

Fri, 01/18/2013 - 23:21 | 3168317 Enslavethechild...
EnslavethechildrenforBen's picture

A gallon of milk in Fairbanks is already over $40...

Bitchez

Fri, 01/18/2013 - 23:27 | 3168325 akak
akak's picture

You are actually off by one decimal place --- currently $3.69 for skim milk at Fred Meyer in Fairbanks.

Sat, 01/19/2013 - 02:48 | 3168494 mt paul
mt paul's picture

fred meyer east

or

fred meyer west,,?

Sat, 01/19/2013 - 03:17 | 3168513 akak
akak's picture

West.

The one on University Avenue, across the road from and just north of Sophie Station.

 

Sat, 01/19/2013 - 17:07 | 3169444 Orly
Orly's picture

And what does that say toward your famous deflationary scenario, ak?

 

 

oh, wait... my bad.

:0

Sat, 01/19/2013 - 02:42 | 3168489 mt paul
mt paul's picture

milk is so expensive in Fairbanks 

we had to start milking the musk ox 

out the college large animal research farm

on yackowich rd....

 

lotz of people from fbks here...

Sat, 01/19/2013 - 09:58 | 3168653 spinone
spinone's picture

Yeah, but that musk ox is a bull, and the milk, well... lets just say its a lot of work getting one pail full.

Sat, 01/19/2013 - 06:59 | 3168574 falak pema
falak pema's picture

milk should be frozen in Fairbanks today; 64 th parallel. Wow that is north its bleeding polar circle. 

Fri, 01/18/2013 - 22:10 | 3168192 duo
duo's picture

If you want a Chinese car, buy American!

Personally, I don't want Chinese wiring harnesses, antilock brake sensors, brake lines, etc., in my car.  I guess Korea will have to do.

Sat, 01/19/2013 - 13:05 | 3168892 Never One Roach
Never One Roach's picture
Honda recalls 777,000 Odyssey, Pilot vehicles in North America

 

http://autos.yahoo.com/news/honda-recalls-748-000-odyssey-pilot-vehicles...

 

I think you mean "Japanese."

Fri, 01/18/2013 - 22:49 | 3168253 knukles
knukles's picture

Gonna tell y'all sumptin', 'specially you youngin's.  This is exactly what I lived through real time in Europe during the 60's   Beggar they neighbor constant rush to out devalue in order to increase exports and make imports more expensive.

Got some real life news for y'all.

The increase in expensiveness of imports is immediate.
The increase in competitiveness and exports due to devaluations ain't so noticeable.

Get ready for trade protectionism. 
The next step.

Oh wonderful.....  Mr Taft meet Mr Hartley

Fucking maniacal behavior.
Needs institutionalize the leadership

Fri, 01/18/2013 - 23:18 | 3168309 Enslavethechild...
EnslavethechildrenforBen's picture

The government does not print and borrow, they print and spend. You and I borrow if we want to survive. I wish these supposedly educated authors here at Zerohedge could take some smart pills and grow a couple of I.Q. points...

Sat, 01/19/2013 - 09:30 | 3168633 strangeglove
strangeglove's picture

Sure looks like they Spend,borrow, spend, borrow and print print print
To me, from here!

Sat, 01/19/2013 - 06:54 | 3168573 negative rates
negative rates's picture

At $72 bucks an hour, I can see why they moved to China. Now can you see why CEO's and other corp heads had to make corresponding raises in their wages to keep the numbers straight. We need to clawback that money in entitlements now, or it's just insult upon injury.

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